Workers expect their defined contribution plans to play a greater role in their retirement income than annuities.
By James M. McEvoy
In an ever-increasing globalized world, more and more people are finding themselves working outside their home countries. There are estimated to be over 6 million American citizens living outside the U.S.
As a financial advisor, no matter where you work in the world, if you are dealing with clients or prospects that hold a U.S. passport or possess a Resident Alien Card (green card), there are crucial things you need to know in order to do your job properly in advising them.
During the past year, there have been massive actions taking place around the world in which banks, life insurance and mutual fund companies are preparing their compliance departments for the implementation of the new FATCA rules. The U.S. Foreign Account Tax Compliance Act (FATCA), passed in 2010, is requiring all financial institutions to provide detailed information about their American clients.
It is an unprecedented act and will greatly affect how these firms and advisors will deal and communicate with their U.S. clients and policyholders. They will be required to investigate their clients’ statuses, send information to the U.S. tax authorities and even withhold money when appropriate.
Million Dollar Round Table members outside the U.S. need to know details about FATCA in order to advise current and future clients or prospects who hold U.S. citizenship or a green card, or who live in the U.S. and hold investments elsewhere. For MDRT members in the U.S., they need to understand the impact of FATCA when any of their clients hold investments outside the U.S.
In Canada, the host country of this year’s MDRT annual meeting, there are approximately 1 million people, mostly Canadian citizens, who have connections to the U.S. in one way or another.
Some are accidental Americans — those who were born in Canada to parents who were U.S. citizens, some who left the U.S. years ago thinking they automatically renounced their U.S. citizenship when they became Canadian, and “border babies,” or children born in the U.S. to Canadian parents who returned soon after birth. In all these cases, FATCA and U.S. tax filing requirements apply.
If you are a U.S. advisor, this information is valuable for you to know in order to advise your clients and prospects who either have moved abroad or who own assets outside the U.S. In either of these situations, you must plan with these rules in mind. The advantage you have is that these persons will have a very limited menu of investment and insurance products to choose from and, in most cases, must keep or place those products with you in the U.S.
In the past few years, some Americans living abroad have been asked to close their bank accounts due to their citizenship and that financial organization’s response to FATCA regulation. Others have received letters from their non- U.S. bank and insurance company informing them on new limitations of the products they can hold with them.
It is in this state of confusion where well-informed advisors can provide a clear road map and enhance their standing with existing clients and/or make new ones.
If you are a non- U.S. advisor, this information is valuable for you to know to advise any client or prospect that holds U.S. citizenship or a green card. It would be wise to include citizenship questions with your fact-finder going forward. This could prevent an awkward situation - of having the financial institutions delivering unexpected news or the dreaded letter from the Internal Revenue Service.
Being proactive and demonstrating knowledge in these areas will set you apart from other advisors. It can lead to quality referrals and other opportunities.
For product placements, it will depend on what is being used. For instance, qualified pension plans can sometimes be covered under a treaty between the U.S. and your country, and could eliminate problems and provide clear guidance on how local products can be sold to U.S. persons. Other investment products do take more consideration.
With U.S. security products, an advisor must be properly licensed and regulated by U.S. authorities. No fee or commission sharing is possible with a non-licensed person.
For non-security products, such as universal life insurance products, the possibilities exist to become licensed and appointed with a U.S. carrier to deliver such solutions. It also will be likely that in the future, companies outside the U.S. will realize this niche market that FATCA has created and will develop the systems and products to fill the needs for U.S. citizens abroad.
Life is indeed more complex if you are a U.S. citizen residing in another country. The requirement to file U.S. taxes is confusing and requires keeping pace with ongoing tax regulation changes.
The current U.S. tax code is 73,954 pages long. There have been 4,680 changes to the code since 2001. The average number of pages of a U.S. tax return filed by someone living abroad is between 30 to 500 pages long. Compare this with other countries. Belgium, for instance, only has four pages to its tax return.
Perhaps the place to start to reform is to eliminate citizenship-based taxation and adapt residency-based taxation like the rest of the developed countries in the world. That is unlikely to happen anytime soon, so until that day comes, it will remain critical for advisors to stay up to date with the rules and guide clients accordingly.
James M. McEvoy, CLU, AEP, is owner and managing director of Cross Border Planning, a Belgian-registered company based in Kortenberg, Belgium. A24-year member of MDRT with nine Court of the Table qualifications, he specializes in helping Americans and green card holders who reside outside the U.S. to coordinate their investment, retirement and estate planning strategies in compliance with the countries in which they live. The above remarks are excerpts from his written presentation, “Don’t Be Afraid of the Americans,” which he prepared for delivery at the 2014 annual meeting of Million Dollar Round Table in Toronto.