Changes to American law means that more and more international investment firms are now registering with the SEC. And here’s the surprise—SEC registration can actually enhance the value of an offshore advisor.

You want someone who will make investment decisions using the best vehicles available in the international markets, right? Someone to help manage your risk and grow your portfolio.

Well, an SEC-registered international firm can offer the best of both worlds…and it’s becoming much more common.

Let me explain…

Increasing numbers of Americans are being denied investments and banking services overseas—a trend that will increase as a result of the HIRE Act. Working with these SEC-registered firms is a viable solution.

You need a solution at all because last March, Washington signed the latest incarnation of the “Foreign Account Taxpayer Compliance Act.” It’s neatly tucked into a jobs bill, cleverly entitled the Hiring Incentives to Restore Employment (HIRE) Act, H.R. 2847.

Not only does this legislation expand reporting and disclosure requirements for foreign accounts held by Americans, but also on foreign banks, insurance companies, brokers and other foreign financial institutions (FFI) that do business with Americans.

These stringent U.S.-imposed requirements will cost international institutions millions of dollars and thousands of manpower hours. As a result, many of them are eliminating U.S. dollar-denominated accounts completely. No U.S. securities either.

By avoiding U.S. investments and currency, they’re telling the U.S. government it should have no say in their business. Fine. Except if you’re looking to venture offshore with your wealth, you’re paying the price.

But there are still some international banks catering to U.S. clients instead of shunning them. And these are the ones teaming up with the Securities and Exchange Commission (SEC).

What’s in it for You?

SEC registration gives you much more direct access to your offshore advisor. Your advisor can make frequent trips to the U.S. to meet with you, and he can communicate openly via telephone and mail. Also, larger firms may offer educational, client-only seminars in the States — allowing you to learn more about the international markets and your advisor without having to make a trip overseas.

The SEC acts as a consumer-protection agency. If you have any issues with an offshore provider, you can make a complaint directly with the SEC. While we can debate whether the SEC is actually fulfilling this role, some investors prefer having a U.S. regulatory body that can investigate on their behalf. Of course, all offshore investment advisors are dually registered—with their home country’s financial authority and then with the SEC. This means there are two regulatory bodies that the firm must answer to. Layers of regulations make the environment much cleaner and straightforward, which protects investors.

Offshore advisors who register with the SEC typically focus on American clients only. All the investment decisions they make are based on the fact that the U.S. dollar is your base currency. What does this mean to you? It means your advisor brings international insight to the markets (which may be very different from the views of a U.S.-based advisor, who may do little more than recommend a mix of stocks and bonds). That way, you are protected from economic challenges at home, which can enhance your investment returns when compared with a strictly U.S.-oriented portfolio.

What Firms Must Report… Less Than You’d Expect

For an offshore firm, SEC registration means the firm itself is registered. But they do not have to report your information to the SEC or IRS. Your personal information is not disclosed except in the case of a specific investigation. In other words, if you’re looking to protect your privacy offshore, an SEC-registered firm may still be able to meet that goals. Remember though: All Americans are currently required to report and pay taxes on all worldwide income.

The real value to you is that you can have independent offshore advisors who will direct your account from Denmark, Switzerland or just about anywhere else.

Editor’s Note: Erika Nolan is The Sovereign Society’s Executive Director and Publisher. Co-author of The Insured Portfolio, she is a highly respected expert in global investments, tax havens, and international asset protection. See here for more information.

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The “HIRE Act” Could Affect You
If you’re a U.S. citizen or permanent resident and hold foreign “bank, brokerage, or ‘other’” financial accounts valued at $10,000 or more, you must already make two separate annual disclosures: 1) to the IRS on Schedule B of Form 1040, and 2) to the U.S. Treasury on Form TD F 90-22.1.

However, if the value of your offshore assets exceeds $50,000, the HIRE Act has created a special reporting regime that requires you to also report any ownership of non-U.S. securities, any financial instrument or contract held for investment from a foreign issuer, and any interest of more than 10% in any foreign entity. For investments in financial institutions engaged in trading securities, partnership interests, or commodities, you must report any ownership interest.

The HIRE Act also imposes a 30% withholding tax on many types of U.S.-source income and gross sales proceeds to foreign financial institutions (FFIs) such as banks, insurance companies and brokers.

The only way to avoid the tax is for the foreign institution to enter into an information reporting agreement with the IRS. This goes into effect on January 1, 2013.

Editor’s Note: This article was taken from a past issue of International Living’s monthly magazine. To get full access to all past and future articles and to receive the magazine in the mail or online each month, you can subscribe here.

Read more articles from our sample issue here.