Applying for Another US Brokerage Account

Today I applied for another US brokerage account. In so doing, I hit one of those pain points for US citizens living abroad.

Right now, I have two brokerage accounts: I have my main Interactive Brokers account, and I have a Robinhood account, which was actually the very first brokerage I opened. When I first opened that Robinhood account, it was years ago when Robinhood was the hot new thing. I was vacationing in the US, and it was no problem to open the account. I began my stock purchases, and when I hit the $10,000 threshold for Interactive Brokers, I moved everything over there. Interactive Brokers has thus far been pretty great.

The problem with Interactive Brokers is they are bound by the laws of the EU as well as the US. Since they have my German address, which means I'm shuffled into their Irish - previously UK - subsidiary, I'm unable to buy any funds that are US-sourced. Under the MiFID II rules, brokers in the EU can't allow EU residents access to funds that don't follow these rules. This rules out all US funds, including ETFs.

Interactive Brokers does allow the purchase of European funds, but this is where my citizenship bites me. If I buy EU ETFs, I'll have to report them as Passive Foreign Investment Companies (PFIC) in my yearly US tax return. It's unfair and ridiculous, but it's the current legal reality, so I can't go that route.

Why now? I've been happily buying individual stocks for years now, but increasingly, I feel like I'm out of my depth. I've saved enough money in these stocks that the risk is starting to feel real. I've also learned a lot about investing, and what I'm learning is that the experts are experts, and even they have a hard time doing this.

Therefore, I would like to begin indexing in some form, but all my outlets in Europe are ruled out.

I could use the Robinhood account for this purpose, but I'm concerned about Robinhood's viability as a company. They also just raised their fee for an ACATS transfer. Robinhood also doesn't offer things like automatic rebalancing. Really, the whole app is very casino-ish.

I'd also like to cut down on the chain of transfers I have to do. If I want to buy ETFs in Robinhood, I'd have to: get paid, transfer the money to Interactive Brokers, convert from euros to dollars, withdraw that money to my bank, transfer that money to Robinhood. Each step can add days of waiting, and since my US bank offers a brokerage, I hope that I could open an account with them just to simplify.

Naturally, though, my application was not instantly approved. For some reason it triggered their extra diligence check. I'm worried that their research into me will not only result in being denied the brokerage but also result in my bank account being closed, which would be bad. Not quite disastrous but definitely bad.

Citizenship Worry

And so I'm once again staring into that bottomless well of worry about my continued relationship to the United States. These rules are unjust and unfair, and citizens living abroad should not have to put up with this. We are punished for living abroad. Congress could fix this at any time: enact Residence Based Taxation (RBT), create a PFIC exception for people living outside of the United States, create a FATCA exception for citizens living outside the United States. But they choose not to out of either inertia or ill will.

What's all the more frustrating about this is that I'm forced to lie. In filling out applications for banks, credit cards, and now this brokerage, I have to use an address where I don't truly live. I also can't name my actual employer, since this employer doesn't exist in the US. So I lie. But what's the alternative?

The United States compels its citizens to use its financial system no matter where those citizens reside, but they don't provide guarantees that the companies there will allow us. We must have a financial relationship with the United States, but when we do exactly that, we're breaking the terms of service or lying on our applications, and from then on, we're worried that we'll be found out and shut down.

In any case, I'll add an update here with the result. Hopefully, my worries are unfounded, and I'll have the new account in a week.