People on the path to financial independence all have worries that their plan “might not work”. It’s easy to lose your trust in the 4% rule, or to think your portfolio is not as ideal as it could, or that your broker charges you too much.
But overall, those fears easily evaporate, because more and more personal finance bloggers confirm nowadays that this whole “FI” thing actually works.
As an expatriate, I have a much different level of fear: I’m worried that changes in international laws could completely tank my plan.
I currently live in the US, but I used to be in Japan, and I have a solid plan to go back to Japan in the near future. This is one of the reasons I don’t max out my 401k: Long term I don’t plan to live in the US, and not being a US citizen I will cash-out my 401k when I live. This means I’ll take a 10% penalty when I do so, so my 401k is not a tax optimized haven, like it would be for the typical US citizen.
Most of my investments are in a Schwab brokerage account. That’s because they were one of the only financial institutions that would allow someone with my background to open a brokerage account from Japan back then.
But things evolve, and one day in 2012, Schwab froze my account. With. all. my. assets. in. it.
I first thought someone had stolen my password and I freaked out. But the agent from Schwab calmly explained to me that they were not accepting customers from Japan anymore, and as such had decided to close my account. My options, he said, were to sell all of my stock and receive a check from them, or transfer all my shares to another US-based brokerage. After checking with a few other brokers in the US, it was clear to me than US-based brokers were not accepting customers from Japan.
Cashing out all of my stock was an unacceptable option. The tax impact would have been devastating, and I had no idea where I could invest my money next.
So none of the options offered by Schwab worked for me. One because I couldn’t find another broker that would accept to open an account with me, the other because of the tax impact.
After a week of phone calls though, Schwab decided to reopen my account and let me access it. I was told that account had been closed by mistake, and I never got a full explanation of what really happened.
After moving to the US in late 2014, I had to proceed with address changes in their systems. I used the opportunity to ask them about my situation, saying I would probably move back to Japan at some point. Would that be a problem? “No”, they said on the phone, “but our international agreements change all the time so you should check again when you’re closer to moving to Japan”.
In other words, there’s no guarantee Schwab won’t close my account again. As a matter of fact, it’s happened before, and recently too, with other brokers such as Morgan Stanley and Ameritrade, for American expats.
It seems the situation is the worst for American expats. Because of the FATCA being extremely demanding in terms of paperwork, many brokers in the US choose to not deal at all with American expats. This pushes some expats into other financial options that are less than ideal.
At least I have it for me that I’m not a US citizen, and that might be why Schwab chose to keep my account open back in 2012. But the fact that they told me things could change is not helping me feeling confident about my choice to stay with them. Risking to have my account closed on me sometimes in the next 40 years is what keeps me awake at night. I’ll need a plan B, or at least to not have all my eggs in the same basket.
I recently purchased Andrew Hallam’s book The Global Expatriate’s Guide to investing. I’ll try to review it one of these days as the book is a goldmine for people in my situation (although arguably it is not “Japan centric” enough). It gives options to overcome the concerns I have dealing with a US institutions, and gives even more reasons to not deal with US institutions.
I think one of the first things I’ll do when I get back to Japan will be to open a brokerage account locally, or maybe something offshore if it makes sense for my situation.