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Can I Buy Life Insurance as an Expat Post-COVID?

Can I Buy Life Insurance as an Expat Post-COVID?

A crucial part of financial planning for many families is constructing an effective insurance solution to ensure that their long-term goals can be met, even in the tragic case of an unexpected death. However, as we’ve mentioned in a previous blog, such solutions are often complicated by living abroad, particularly when it comes to underwriting insurance.

As a firm, we do not sell insurance, but we do work with a variety of brokers to discuss insurance options for our clients, and all have indicated that right now, insurance companies are having a harder time pricing the risk of life insurance for their clients in a post-COVID world– particularly where those clients have international exposures.  

Before examining the expat specifics, one should note that this has changed insurance not just for Americans abroad, but also for Americans in the United States. Insurance is – essentially –  math and actuarial tables. Insurance companies using demographics, general country mortality, health and other factors, calculate your expected life expectancy based on actuarial tables in order to calculate your monthly premium in a way that will ensure the insurance company does not go out of business. Unfortunately, the inputs for general country mortality and “other factors” have been skewed by the global pandemic and currently insurance companies may not necessarily “trust” their own actuarial tables. Consequently, the insurance market may tighten as insurance companies either charge more to protect themselves against an unexpected and unquantifiable risk, or simply limit the policies they are underwriting or issuing.

In the past, many insurance companies were happy to underwrite Americans abroad in certain cases: for instance, they were able to come to the United States to submit to the policy health exam or could physically take delivery of the policy in the United States. As a result of the underwriting policies changes in the wake of COVID-19, many insurers may not be as worried about the expat angle than the issues of travel and generalized risks such as increased exposure to viruses or other communicable diseases. Consequently, we likely will see a drop in the number of companies who are willing to issue policies to Americans outside of the United States (particularly whole life policies) along with an increase in costs and restrictions (sometimes underwriting policies will require the insured to stay in the United States longer or not travel for a defined period of time).  

Unfortunately, there aren’t easy solutions to these problems at the moment. The general principles from a financial planning perspective remain the same and at the heart of our decision making process is weighing the needs for insurance versus the costs both in terms of health and any additional “hoops” required to obtain a policy. Additionally, we find that working with a broker that can quote a variety of companies rather than just a select few (or only one!) is very important, especially for expats. Ultimately, like so many things in our post-COVID world, we must wait and see, proceed cautiously, and be creative in our solutions.

Keith Poniewaz

Schwab no longer selling U.S.-based ETFs to Clients in the European Union: Our FAQ

Schwab no longer selling U.S.-based ETFs to Clients in the European Union: Our FAQ

Frequently Asked Questions as interpreted by Keith Poniewaz, Director of International Advisory Services at Walkner Condon Financial Advisors 

This week, Charles Schwab announced that it will no longer be selling Exchange Traded Funds or Exchange Traded Notes to clients who are resident in the E.U.: “Beginning September 19, 2019, Schwab clients who are residents of the E.U. will no longer be able to purchase U.S.-registered exchange-traded funds (ETFs) and exchange-traded notes (ETNs)…This restriction results from regulatory changes and affects all residents of the E.U.”

As we noted back in February 2019, this is unsurprising and we have been preparing our clients for this, as Schwab has been a hold-out on these regulatory restrictions. Other brokerages which have worked or work with expats started complying with these restrictions as early as last January. The restrictions are related to MiFID II, which are sweeping regulatory changes to the financial industry. These particular regulations affect what are called PRIIPs (or Packaged Retail Investment and Insurance Products) and KIIDs. As we have written on and been cited on these regulations extensively in order to help investors understand their options, we’ve provided the following FAQ as a service along with links to our relevant white papers and articles. In particular, readers should look at our white paper “Are you KIDing Me? PRIIPs, KIDs and new obstacles for Americans Abroad” and a previous and more technical FAQ on the subject “It’s 2019, Do You Know Where Your KIDs Are?

Q: WHO DO THESE REGULATIONS AFFECT?

Any investor residing in the European Union, American or otherwise. 

Q: IS THERE A PLACE I CAN READ MORE ABOUT THE REGULATIONS AND HOW THEY WORK?

We have been warning Americans abroad about this possible complication for quite some time, and we’ve written a number of blog posts on the topic since January of this year: 

https://usexpatinvesting.com/educational-materials-for-ex-pats/its-2019-do-you-know-where-your-kids-key-information-documents-are

We’ve also published articles on the topic: 

https://americanexpatfinance.com/legislation/item/142-u-s-expats-in-eu-prepare-for-for-priips-and-kids-regs

Q: WHAT DOES THIS MEAN FOR MY ACCOUNT?

First, there is no need to panic– any existing positions you hold will be maintained. Your account will not be closed. Everything will remain as is. However, going forward there will be certain restrictions on what you can buy and sell:

As Schwab themselves put it in their letter: 

  • You will be able to maintain any existing U.S. ETF or ETN positions you hold, but you will not be able to purchase more.

  • Dividends can no longer be reinvested in U.S. ETFs or ETNs.

  • You may liquidate U.S. ETFs or ETNs, but you will not be able to repurchase them.

Q: WHY ARE THESE PARTICULARLY ONEROUS ON AMERICANS?

While European-based clients can now buy select UCITs (the EU equivalent of ETFs), these are considered Passive Foreign Investment Companies in the United States and are taxed at an extremely high rate if they are held in taxable brokerage accounts (more on that in a blog post by The CPA Journal). Additionally, the filing requirements are quite substantial. More details about PFICs can be found in our Expat Investing Guide.

Q: MY ADVISOR SAID THAT SCHWAB ISN’T EU-REGULATED AND SHOULDN’T BE AFFECTED BY THESE RULES?

First, Schwab is EU-regulated. They register with the Financial Conduct Authority in the UK.  Moreover, these regulations are “extra-territorial,” which means that it doesn’t matter where the company performing the business is registered, simply that they are helping a client in the European Union. See the insights of several top international law firms and investment banks who note that the law has extra-jurisdictional reach: KL MillerMorrison FoersterBrown Brother Harriman amongst others.  

Q: MY ADVISOR SAYS THEY SHOULDN’T BE AFFECTED BECAUSE THEY DON’T HAVE TO REGISTER IN THE EUROPEAN UNION?

It is important to note that this regulation applies to where the client resides and doesn’t exempt Advisors: as the Financial Conduct Authority’s website indicates in their notes on the regulations, it doesn’t simply apply to brokerages or custodians, but anyone offering packaged investment products in the European Union: “The KID Regulation applies to all manufacturers (or remanufacturers) and financial intermediaries (including advisors) who distribute ‘packaged retail and insurance-based investment products’ (or PRIIPs) which are invested in by retail clients.”  It is uncertain as to whether there are carve-outs for Registered Investment Advisors (RIAs).

Q: WHAT CAN I INVEST IN?

First, investors can continue to purchase individual securities in both the U.S. and abroad.  Thus, a simple solution is to assemble a diversified portfolio of individual stocks and bonds. There are a variety of methods of doing this. We have discussed the various options in a podcast, “The Future of Taxable Investing.” Additionally, we have discussed the options available to Americans abroad in a blog post perhaps inopportunely titled “More than One Way to Skin a Cat.” Finally, we recently published a post regarding SMAs as the best tool for Americans investing abroad since it allows them more precise tax management, helping them reduce their significant tax bills.

Ultimately, Americans should investigate our white paper on investment strategy for Americans abroad.

Q: SHOULD I CONTINUE WITH SCHWAB AS MY CUSTODIAN? MY CURRENT ADVISOR?

We can’t say before discussing your situation and what you would like to accomplish. Set up a no-cost, no-obligation appointment with us to explore your options.

Here is a link to our disclosures.

 

 

Key Investment Documents and Americans Abroad FAQ

Americans abroad who have– over the past several years seen their accounts closed or their access to mutual funds restricted– will be forgiven for thinking: “oh no, not again” when they learn that another regulation– this time concerning Packaged Retail Investment and Insurance Products (PRIIPs)– is going to increase the difficulty of their investing lives.

The world of ETF investing became complicated as of January 1st, 2018, when a new regulatory behemoth started affecting the dealings of European-based U.S. investors: that of the European Union’s Packaged Retail Investment and Investment Products (PRIIPs) guideline. These rules have required all investment products (including U.S. ETFs but excepting UCITs until 2020) to produce a Key Information Document or KID for EU-domiciled “retail” investors. So far no U.S.-based ETFs have produced KIDs. PRIIPs and KIDs are part of the comprehensive regulatory reform known as Markets in Financial Instruments Directive (MiFID) II, this directive has “extra-jurisdictional reach,” which means the headquarters of where the products are being produced doesn’t matter. The location of the brokerage or custodian doesn’t matter. The location of the financial advisor handling the products doesn’t matter. The only thing that matters is that investors have an address in the EU.

So far, no U.S. manufacturers of U.S. traded ETFs (such as Vanguard) have produced KIDs and therefore they are prohibited from selling their ETF in the European Union. European Union residents may no longer buy U.S. ETFs.

However, not all brokerages, custodians and advisors are handling these items in the same way and some have reacted more quickly than others. That said, these regulations will soon affect all U.S. ETFs no matter where they are traded. However, as with any cross-border compliance situation, investors need to understand how they are affected and develop a plan to handle the situation.

Below are several frequently asked questions:

The address of my accounts is in the United States, but I spend time in Europe. Will I be affected?

No. This only affects EU residential retail clients with EU addresses.

I use a U.S. brokerage but live in Europe. Will I be affected?

Yes. Several U.S. brokerages who continue to provide services to European clients have already indicated that they will not continue to sell ETFs to their European resident clients because the law has an “extrajurisdicitonal” reach (for example, TD Ameritrade). Moreover, several U.S. brokerages and custodians are registered with European authorities such as the United Kingdom’s Financial Conduct Authority (for instance, Charles Schwab, which has a London office and is FCA number Firm Reference Number 225116 or Interactive Brokers, UK which is FCA register entry number 208159) and would be affected even if the law didn’t apply extra-jurisdictionally. Finally, it doesn’t simply apply to brokerages or custodians, but anyone offering packaged investment products in the European Union: “The KID Regulation applies to all manufacturers (or remanufacturers) and financial intermediaries (including advisors) who distribute ‘packaged retail and insurance-based investment products’ (or PRIIPs) which are invested in by retail clients.”

Is this fearmongering? Why hasn’t my current advisor mentioned this?

It is not. See the insights of several top international law firms and investment banks who note that the law has extra-jurisdictional reach: KL Miller; Morrison Foerster, Brown Brother Harriman amongst others.

Information on PRIIPs has made its way stateside slowly, with many firms not implementing the restrictions right away as they worked with legal counsel to investigate how the laws have applied. While not all firms are responding with equal speed, eventually they will have to respond– likely by prohibiting the sale of U.S. ETFs to their EU clientele.

Will I have to sell all of my current ETF holdings?

No. Investors may continue to hold their U.S. ETFs; however, they may not be able to purchase new ETFs going forward. Consequently, if you are in a situation where you are only drawing down your account, you may be able to manage withdrawals and maintain your risk profile with minimal difficulty.

What should I do?

Investigate it yourself (including reading our white paper on the topic and visiting the various websites mentioned in this article) and speak with an experienced financial advisor to develop a long-term plan to handle this change.

Set up a no-cost, no-obligation appointment with us to schedule a meeting with Keith to explore your investment and financial planning options.