A pending law that will require foreign banks and institutions to report American accounts of more than $50,000 to the IRS is causing headaches for advisers and their clients who fear that, to save compliance headaches, the banks will close their accounts.
“The easiest way to reduce the compliance costs is to simply stop doing business with Americans,” said David Kuenzi, founding partner at Thun Financial Advisors LLC.
Approved by Congress in 2010 as part of the Hiring Incentives to Restore Employment Act, the Foreign Account Tax Compliance Act will impose a 30% withholding tax on payments to institutions that do not comply with requirements.
Andrew Fisher, President of Maxim Global Wealth Advisors, a wealth management firm focused on cross-border families, has seen the effect already.
“Just in the last nine months, institutions have been sending letters to customers and clients saying they're going to close all accounts with a connection to the U.S.,” he said.
“ABN AMRO notified Americans living in Holland that their investment accounts would be closed but that they could continue using the firm's banking services,” Mr. Fisher said. “
Wells Fargo told a British national who had recently returned to the UK from the U.S. that he had 30 days to close his IRA account.”
“The bottom line is whenever an international financial institution knows of a connection to the U.S. — any connection — it will put those people on high alert,” Mr. Fisher said.
Spokespeople at ABN AMRO and
Wells Fargo were not available for comment.
“There doesn’t seem to be much rhyme or reason,” Mr. Kuenzi said. “Different firms are telling different stories to different people. Even in-house, there aren’t firm-wide policies being enforced.”
“A couple from New York that had lived in Switzerland for fifteen years was originally told by their Morgan Stanley adviser that they would have to leave the firm because they didn’t live in the US,” he said. “After complaining to their adviser, they worked out an arrangement to keep their money with Morgan Stanley, but the deal was they could no longer receive any investment advice.”
Morgan Stanley officials were not available for comment.
Enforcement of FACTA was postponed for six months to July 1, 2014, and the opening of the online registration portal, set for today, was also postponed, according to an announcement from the
Internal Revenue Service on Friday.
This regulatory uncertainty is intensifying clients' reliance on wealth management advice — which, unsurprisingly, is good for business.
“Frankly, it's been a huge boon,” Mr. Fisher said. “Managing one's own financial affairs across borders has become incredibly difficult.”
But the jury is still out on the broader impact of the law on the finances of Americans, warned Mr. Kuenzi.
“FATCA is very bad for American business because it makes people reluctant to work with Americans and American businesses,” he said. “American companies become less attractive investments and American workers become less attractive employees.”
“We hate to get business from this,” Mr. Kuenzi said, “but to some extent, it is good for our business.”
Though advisers with a strong international business remain on the lookout for regulatory curveballs from foreign financial institutions, they seem less worried about one particular type of cross-border client.
“Closures happen most commonly with people who have a few hundred thousand dollars or less in their account,” Mr. Kuenzi said. “But if you have a couple million dollars in the account, firms seem to find a way to make the compliance work.”
