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5 Need-to-Know Questions before You Choose an International Broker
Most people are truly unaware of the opportunities that lie outside their borders. The opportunities to grow both personally and professionally, but also from a strictly dollars and cents point of view.
But before you can profit, you need access.
That's where a good international broker comes into play. One who can offer that access to as many markets as possible, allowing you to take advantage of the best opportunities.
Unfortunately, choosing a competent and trustworthy broker isn't that easy... So where do you start?
By asking the right questions.
Well, thanks to a new report by US-based Peter Martin, InternationalMan.com's members now have access to a list of important questions he uses when conducting due diligence on the brokers out there. As someone with a financial background, Peter knows the right questions to ask.
And, not only that, but this report also includes a summary of the research on 12 overseas brokers, most of whom will actually work with American clients (a tough find nowadays).
This report, A Second Look at International Brokers, is available at no charge to our members under the "Special Reports" section of International Man Members Area.
Here's just a preview: 5 of the 11 most important questions to ask...
- Who is the custodian? Is it dependent upon what country's securities are held (American, Canadian, etc.)?
Unquestionably, this is the trick question that almost no one even bothers to ask. Ask it! An investor seeking to remove assets as much as possible from U.S. control and influence will definitely want to ask this question of foreign brokerages. In the U.S., less than 10% of brokerages have their own back-office. The generally accepted model is to outsource clearing functions to specialist providers called custodians who can obtain scale and efficiency benefits. By outsourcing what are essentially administration functions, brokerages can concentrate on value-added front-office functions like client servicing. The remaining less than 10% of American brokerages are self-clearing, meaning that they are their own custodian. When one's assets are held in the United States, it is really not of any consequence whether one's brokerage is self-clearing or not. But when one's aim is to hold assets outside the United States, it becomes very important to know that the custodian as well as the brokerage is indeed outside of the U.S. There are many foreign brokerages, for example, that use U.S. companies as custodians! Imagine finding a Panamanian or Danish brokerage that one would like to trade with, but then realizing that one's securities are actually held by a U.S. custodian. That wouldn't exactly accomplish the goal of getting one's securities outside of the United States! In some cases, certain securities are held by a non-American custodian, but other securities are held by a U.S. custodian, even though both are traded through the same international brokerage account.
- What are the fees?
Clearly, one must ask for the fees associated with trading securities. They can vary depending upon whether the account is owned by an individual or a business, such as an overseas LLC. Trading fees are also sometimes dependent upon the number of shares being traded or the price of the security being traded, or a combination of both. Of course, online trades are typically less expensive than offline trades, and one should know the costs of each. There often are different fees for trading the securities of different countries. In addition to trading, many brokerages will charge custodial fees that represent remuneration merely for the custodian's safekeeping of one's assets.
- Do you have a branch in the United States?
It's an important question, particularly for those looking to get away from the control and influence of one of the world's most powerful and dominant governments. Think UBS. In that case, the U.S. government successfully applied pressure to the Swiss banking giant because UBS conducts so much business with U.S. citizens. There was a credible and real threat to UBS of potentially no longer being able to conduct business with a large segment of its client base.
If, on the other hand, an international brokerage does not have a U.S. branch, then its interaction with U.S. citizens is likely minute enough such that there can never be a similar threat to the brokerage's business. As stated earlier, also make certain that the custodian has a minimal interaction with U.S. citizens. Those who are particularly wary of U.S. dominance may also wish to consider whether the brokerage in question has strong ties to Canada, Panama, or the UK, for these countries have a history of acting in concert with American authorities. Other investors may wish to determine the prospective level of U.S. influence by investigating the level of trade between the brokerage's home country and the United States. The Cayman Islands, for example, counts the United States as its largest trading partner, and is an overseas territory of the UK.
- Can I hold my cash in many different currencies? Which ones?
Cash can occasionally be the best investment. It's good to know that one can hoard cash in many different ways, particularly as the world moves toward an eventual currency crisis that can serve to take down just a few currencies at a time, leaving others intact.
- Are options available?
Not everyone requires the availability of stock options from their brokerage house, but some investors do. Don't just assume that every brokerage offers them because many of them don't. Some brokerages will offer warrants or CFD's instead.
For the rest of the questions, including the research on various brokers, please download the report, A Second Look at International Brokers, available through InternationalMan.com's Members Area.
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