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To Robo or not to Robo....


All Robos are not created equally

Robo-advisors have grown in popularity, barely a day goes by that we don't hear about a new company entering the market. In a 2016 study by A.T. Kearney, a consulting firm, assets under management by Robo-advisors in the US will grow to over $2.2 trillion in the next five years.

Should an American expat utilize a Robo?

American based Robo-advisors generally will not allow an American who lives in Singapore, and using their legal Singapore address, to open an account. There are some Robo-advisors in Asia who will work with Americans, but I recommend to exercise caution. Do not assume the offshore Robo-advisory company knows US tax rules for expats. Speak with your tax consultant, financial advisor or tax attorney before proceeding.

Other things to consider:

- Even though the Robo-advisor trades US ETFs, it doesn't mean it won't require PFIC reporting. The way the account is custodied may create a PFIC.

- You probably will not receive the required reporting (1099 equivalent) for your US tax returns.

- Robo-advisors based outside of the US don't always buy the underlying holding, some use swaps which are derivatives.

- The accounts may not have the same investor protection security as in the US. US accounts are covered up to $500,000 USD by SIPC.

- Fees range from 20bps up to 80bps. As fees increase, it may be best to consider working with a CFP professional who offers more than algorithmic investment management.

Additionally, what is often overlooked by an expat when considering a Robo-advisor is the tax loss & gain harvesting. Due to the foreign earned income exclusion, housing exclusion & foreign tax credit, US expats may not need the tax loss & gain harvesting which is done regularly by Robos-advisors. There are expats who have thousands of dollars in losses accrued which can't be written off since they don't have enough US taxable income.

While the lure of having a Robo-advisor manage your money as an expat may sound appealing, we recommend to invest globally through a US based investment platform.