A step-by-step guide to directly investing in the U.S. stock market for non-U.S. residents

or: five steps to opening a U.S. Brokerage Account

TL,DR:

• Investing directly in the U.S. stock market from the Philippines is possible through a U.S. broker
• The online U.S. brokerage account creation process is arguably as easy as creating a Philippine brokerage account
•  The challenge in investing in the U.S. stock market from the Philippines is in finding ways to lower the costs of transferring money in and out of the account

So you want to invest in the U.S. Stock Market? Like most people with an internet connection, you would probably try googling this. However, there seems to be a lack of online resources on the actual steps Filipinos need to undertake to easily invest in the U.S. stock market (along with options, ETFs, and other vehicles). So, I’ve decided to jot down my experiences in opening an account in TD Ameritrade, one of the largest brokerages in the U.S. Your mileage may vary from mine, as I am currently visiting the U.S., making some steps relatively painless. Regardless, I am optimistic that you can open an account from the Philippines, though with some additional cost.

This guide is meant for individuals with moderate financial sophistication who require access to the global markets. While you can accomplish all of the steps from this guide on your own, consider consulting a financial advisor and be aware of any legal requirements involved with holding offshore assets before proceeding. That said, having a U.S. brokerage account is a powerful diversification tool to have exposure to not just the U.S. equity market, but by extension, many other investment vehicles from around the world. The ‘why’ of opening a U.S. brokerage account will be discussed in a latter post.

STEP 1: HAVE A MEANS TO FUND YOUR U.S. BROKERAGE ACCOUNT

Before trying to apply for a U.S. brokerage account, you need to have an account in a bank which supports interbank transactions, specifically Electronic (ACH) or international wire transfers.

If you find yourself visiting the U.S. as a tourist, you can simply open a savings account in your nearest Bank of America branch. I personally found making an account at Bank of America to be easy and over in less than an hour, as the bank is open to foreigners on short visits opening savings accounts. It’s simple because you don’t even need a U.S. Social Security Number and the associates fill out your application for you. Account creation in a Bank of America branch needs two I.D.s and one or two credit cards, along with your physical presence and signature.

If you are in the Philippines, you have two options: you can (a) try and create an account at PNB Los Angeles through PNB branches in the Philippines (cheaper but requires more work) or you can (b) opt to fund your U.S. brokerage account via international wire transfer from your local bank (more expensive but might be less of a hassle).

I have not personally tested this, but PNB’s website[1] indicates that they are able to facilitate certain types of transactions, including the “Withdrawal and Transfer of Funds from a Dollar Account for Payment thru PNB LA.” In theory, and with the necessary paperwork, it should be possible to create an account at PNB in the PH and then facilitate a payment through PNB LA[2].

Alternatively, you can fund your account through international wire transfers which is more expensive but require less footwork. Investment gains factor in transaction costs and brokerage commissions, so you should try to find the most cost-effective (cost in terms of money, time, and effort) method for yourself.

Once you have a U.S. bank account which you can use to transfer funds to your broker or a means to wiring money from the Philippines, you can move on to the next step.

             

STEP 2: FILL OUT THE FORMS IN YOUR BROKERAGE WEBSITE OF CHOICE

We will be using TD Ameritrade as an example because that is the one I use and the one I have experience with. While TD Ameritrade is currently one of the most expensive brokers at $9.99 a trade, it is also one of the few that allow non- U.S. residents to easily open accounts, not to mention that its ‘thinkorswim’ platform is one of the most versatile (so says the Internet) trading platforms available.

Most of the fields in TD Ameritrade’s online application are pretty self-explanatory:

Just make sure to correctly state your Citizenship Status, country of citizenship, and country of birth (for reference, I am neither a U.S. citizen nor a permanent resident, was born in the Philippines and am currently a Filipino citizen).

Your type of visa should also be chosen (I chose B1/B2 as I have a U.S. Tourist visa; ‘None’ is also an option if you do not have a U.S. visa). For the account type, I chose ‘Individual’ as I do not work in the U.S. and none of the other account types are applicable to myself. For the last field, you have to decide if you expect to trade occasionally or regularly. I think you can change this later by contacting TD Ameritrade. For reference, I chose ‘Actively trade stocks, ETFs, options…’

You can leave the Social Security Number blank (I did) if you do not have a U.S. Social Security Number. Remember that you should not put your Philippine SSS Number here. You DO have to put your Philippine TIN on the ‘Foreign Tax ID’ field if you are not a U.S. resident.

I highly recommend putting a Philippine address in the Home Address fields if you reside in the Philippines. If you instead decide to input a U.S. address in those fields, you have to fill out an extra form later (major, major hassle) explaining why you have a U.S. address even if you are not a U.S. resident.

The Employment Information and Financial Information fields are typical risk assessment questions and would not bound the account that you will open. Even as I chose ‘Unemployed’ with an approximate annual income of $0 - $24,999, TD Ameritrade still approved my request to write options.

             

You will then have to print the application and sign it. The form to be signed contains the information that you had just given for review, along with four questions that you have to answer by checking either the ‘Agree’ or ‘Disagree’ boxes beside each one. (I checked all ‘Agrees’ on mine; if you are a Filipino citizen currently residing in the Philippines, you are generally not subject to Backup Withholding from the U.S. government, though you should consult a lawyer just to be safe). In the following picture, I have pasted a ‘SIGN HERE’ where you are supposed to sign.

I will be referring to this printed and signed form as the “TD Ameritrade application” from here on. Your TD Ameritrade account number will also be in this form. Be sure to take note of this number as we will be using it later.

STEP 3: FILL OUT THE FORM W-8BEN

All U.S. brokers require a form W-8BEN from non-residents. The form W-8BEN is a ‘Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting’. You can download the form at http://www.irs.gov/pub/irs-pdf/fw8ben.pdf. Non-U.S. residents need to fill out this form and include it in the TD Ameritrade application as a supporting document. If you need further information on what this form is for or are unsure of your answers, please consider consulting a lawyer.

             

Field number three (3) is to be filled out with the same permanent residence address as the one provided in the TD Ameritrade application. If you put a different address there, TD Ameritrade would not accept this W-8BEN and you would have to send them a substitute W-8BEN (another major hassle), so be sure to provide the same address that you used in the TD Ameritrade application. If you are not a U.S. resident, you are not required to fill out field number five (5), but are required to put your Philippine TIN in field number six (6). Put your TD Ameritrade account number in field number seven (7); your account number can be located in the TD Ameritrade forms that you had printed earlier.

In part II, I only answered field number nine (9). In my case, I put ‘the Philippines’ as it is my current country of residence. This certification is necessary for the broker to apply a proper withholding tax to dividends. To my understanding, TD Ameritrade will withhold 15% of dividend and interest income for tax purposes IF you are a Filipino citizen residing in the Philippines, while capital gains are tax exempt[3][4]. [Optional: If you would like to know more about the Philippine - U.S. tax treaty, feel free to check out http://www.irs.gov/pub/irs-trty/philip.pdf or consult a lawyer]

We’re almost finished! Part III of the form needs to be signed and the “Capacity in which acting (if form is not signed by beneficial owner)” field left blank. Be sure to review the form W-8BEN before deciding to send it along with the TD Ameritrade application to avoid having to fill out this form again.

STEP 4: MAIL THE TD AMERITRADE FORM AND SUPPORTING DOCUMENTS

Now that the TD Ameritrade application and form W-8BEN are complete, you need to prepare supplemental documents. Generally, TD Ameritrade will ask for (1) a photocopy of your current U.S. Visa if you have one, (2) a photocopy of your passport, and (3) an original copy of your bank (or financial institution) statement, written in English characters (make sure the name and address on your bank statement match the name on your new TD Ameritrade account.)

 In my experience, TD Ameritrade also asked for a deposit slip during, though I chose to ignore that and funded my account later on via an electronic transfer.

You then need to place the TD Ameritrade application, form W-8BEN, and supplemental documents in an envelope and seal it. Mail the documents to:

TD Ameritrade, Inc.

 PO Box 2760

 Omaha, NE 68103-2760

TD Ameritrade does not accept a form W-8BEN sent by fax or mailed electronically; you have to send the documents by regular mail to finish creating your account. For those in the U.S., mailing it to TD Ameritrade in Nebraska should cost less than $5 and a trip to your local USPS office/ FedEx/ UPS.

For those in the Philippines, you can try asking FedEx if they send documents to the U.S. A quick Google search shows that the FedEx World Service Center is at 11/F Zuellig Building, Makati. FedEx should also have an office in Cebu. I am not sure if local services such as 2GO or LBC offer international courier services, though you could try.

TD Ameritrade will contact you by email after they receive and process your application. This might take anywhere between a few business days and a few weeks depending on where you sent your application from. This wait can be quite confusing as TD Ameritrade will also send advertisements on why their platform is the best and what services they can offer you.

Once your account has been set up, try logging in to TD Ameritrade’s website with your account number as your user name and the last four digits (or first four digits… I forgot!) of your account number as the password. You can then set up your real username and password after logging in.

STEP 5: FUND YOUR TD AMERITRADE ACCOUNT

Funding the account is easy after setting up a bank. You might encounter a bank setup page after your first login and it might look something like this. I suggest Electronic (ACH) transfers as neither Bank of America nor TD Ameritrade charges for that service. However, ACH transfers are between U.S. banks and are not available from the Philippines. If you do not have access to a U.S. bank account, you might have to resort to international wires (see APPENDIX A)

The ABA number can easily be googled (Bank of America’s is 121000358). During my application, I mistakenly put my card number instead of my bank account number in the bank account information field; I had to call up TD Ameritrade to clear that up.

After submitting the setup request, TD Ameritrade would then need to verify if the bank account is valid. The company does so by depositing two (2) amounts into your bank account. Once you see those two deposits, login to your TD Ameritrade account, under My Account > Deposits and Transfers > Account/Bank Setup click ‘verify’. The two deposits are both below one dollar (i.e. $0.12 and $0.08); you just have to input the centavo values (in this example, 12 and 08) into the verification blanks and submit.  If after a week, the two deposits do not show up in your account, you should check that you have inputted the right bank account number and name on the account.

Congratulations! You now have access to purchase U.S. equities and, through ETFs, many other investment vehicles. Note that shorting and margin accounts require additional processes so if you are interested in those, contact TD Ameritrade directly.