Summary: Choosing an investment advisor can be tricky for expats. Advisors abroad don't understand US taxation issues and advisors in the US don't understand the special issues of Americans abroad.

Problem: Brokers and advisors outside the United States do not understand how US taxation works and most brokers and advisors in the US do not understand the special issues of Americans abroad. Can I do it myself or do I need an advisor?

Modern information technology and the internet have made "do it yourself" a serious option for those expats who are prepared to make a substantial and ongoing time commitment to learning the applicable taxation issues and the theory and practice of sound portfolio management. Accounts can be established at a discount broker in the US and securely managed over the internet from anywhere in the world.

Recommendation: keep it simple if doing it yourself or seek out the help of a qualified advisor

If going it alone, focus on simplicity: mimic a "lazy portfolio" like the one offered by David Swenson, the head of the Yale University Endowment in his book Unconventional Success. Never forget to factor in the tax consequences of investment decisions. Most importantly, avoid the big pitfalls that get most people in trouble: not being sufficient diversified or investing in funds that supposedly "only go up" a la Bernie Madoff.

For individuals who think their time is more productively spent building their own careers or nurturing their families, we recommend seeking out the advice of a "fee-only" Registered Investment Advisor with experience working with expats.

Why fee only? Fee-only advisors are compensated only by their clients. By not taking commissions or maintaining fee splitting agreements with fund companies and brokerages, the potential for conflict of interest between the client and advisor is reduced.

Why Registered Investment Advisors (RIAs)? RIAs are legally bound to act as fiduciaries to their clients. That is, they have a legal obligation to put the clients’ interests ahead of their own. Brokers are not RIAs and do not have a fiduciary obligation to their clients.

What to avoid: Avoid relying on investment advice from advisors such as stock brokers or insurance agents, who are compensated by selling products through commissions and fee sharing agreements with the issuers. In these situations, the advisor is likely to recommend investments based on the size of their potential compensation rather than the quality of the investment. And be especially careful when considering investments registered in "off-shore" locations. There is a high incidence of fraud among these operations. Even legitimate investment schemes in these regions typically lack investor safe-guards that exist in the US. Finally, understand the tax rules regarding investments outside the United States.

About the Author David Kuenzi is the founder of Thun Financial Advisors. He is a Certified Financial Planner® and has previously held positions with Chase Manhattan Bank, Deutsche Bank and Bank Austria. His financial industry career included postings in New York, London and Moscow. Kuenzi grew up in Wisconsin but spent most of his professional career in New York City and in Europe, before returning to the Midwest in 2005. He received his undergraduate degree from the University of Wisconsin and completed graduate work in politics and economics at Columbia University and Harvard University before launching a career in finance.

First Published: Jul 16, 2009