Your Investments: Does your US broker want your account?

Some firms have prohibited clients with foreign addresses from purchasing certain products (mutual funds), even if they are US citizens who happen to live abroad.

By AARON KATSMAN
I was recently at a wedding, surveying the dessert table, when I got a call on my cellphone.
The caller sounded frantic, and after explaining that I was at a wedding and really couldn’t speak (I didn’t want my hot chocolate cake to get cold!), he said he couldn’t wait for me to call him back the next day.
So we spoke, and he proceeded to tell me that he had just received a call from his broker, at a well-known firm in the US, saying he had to either close out his account or transfer the account to another firm.
Coincidentally enough, I knew the broker and I called him. He told me he had just received a memo saying that for most accounts (there are a few exceptions) that don’t have US addresses on them and have less than $250,000 in assets, the firm has decided they either must be closed or transferred within two weeks.
The venerable Morgan Stanley, because they are not licensed in Israel, is making all new clients sign a “suitability” form, saying they have $3 million in assets and do a certain amount of stock trading each month, or they refuse to open the new account.
Continuing trend
Some firms have prohibited clients with foreign addresses from purchasing certain products (mutual funds), even if they are US citizens who happen to live abroad. Other firms have created special divisions and forcibly transferred client accounts to these new divisions, even if they had a long-standing relationship with their broker.
I recently met with someone who had been working with his same adviser in Seattle for 36 years, and he got a letter saying his account was transferred to a new adviser in Houston.
Why the change
Since the terrorist attacks on the World Trade Center, US firms have taken a very strict approach to non-US-domiciled accounts.
With the Patriot Act and other new laws, it has become much harder for these firms to accept accounts from US citizens living abroad, and many firms have just decided that they would rather not put themselves into this situation.
They have decided either to not take any new business, or to set up a new division for dealing with these accounts. While brokers on these accounts have fought tooth and nail to keep their clients, the compliance departments have won out, and this is their solution.
Are your children sabras
The aforementioned broker I was speaking with, who is being forced to get rid of his accounts under $250,000, also told me about the 50 or so accounts he needs to dispose of, about 30 belong to children of olim who were born here and hardly speak any English.
The issue of children having accounts in the US that their parents set up is a common issue I deal with. He mentioned to me that most of these children don’t even know how to dial the US, let alone handle a conversation about their finances in English. They would have a hard time trying to access the money that has been put aside for them. Not only that, but the adviser in the US doesn’t know them, and he is unfamiliar with their long-term goals and needs.
What to do?
I would recommend going local. I would find an adviser who is licensed both in Israel and in the US to handle the accounts. Not only would this professional be attuned to life in Israel, he would also speak the language of the children and in general make things much easier for them.
In addition, anyone who is local and has an arrangement with a US firm will not have the same problems for not being able to buy certain investment products. They will have all their compliance in place, allowing the client to have access to the wide array of investment choices that he has come to expect.
aaron@lighthousecapital.co.il

Aaron Katsman, a licensed financial adviser in Israel and the United States, helps people with US investment accounts.