A fallback option, but not my first choice
So I wrote a teaser post about Interactive Brokers just over a week ago and promised to report back once I had opened an account.
After considering a few things I decided not to go through with opening an account (details below) but I think I learned enough about the company to write it up here.
The short version is that it is a financial account that you can open from Japan using English and keep if you move to another country, but has several important drawbacks that make it a less attractive option than Japanese stockbrokers.
This is a long post, so if you just want the pros and cons skip to the last section.
In Japan the major stockbrokers (Rakuten, SBI, Citibank, etc.) all have a legal requirement to have clients read and understand their terms and conditions. At the moment I haven't found one that is willing to provide the T&Cs in English. I guess the market isn't big enough to deal with the legal hassles.
So in fact there is a linguistic barrier to opening a stockbroking account in Japan. In practice your Japanese does not have to be good enough to read the T&Cs (you can do it at home with a friend or use an online dictionary to help you or, as I'm sure many Japanese customers do, just skim through them) but it does need to be good enough to take a confirmatory phone call from the company and allow them to think your Japanese is good enough.
For a lot of my readers this is a problem, so I was really interested to find a company that allowed people to open an account in Japan using English.
What are Interactive Brokers?
Interactive Brokers (wikipedia page here) are actually a US broker. They have a Japan office, but it seems the only purpose of the Japan office is to funnel people to the parent company in the US and comply with Japanese regulations to be registered with the Ministry of Finance in order to do business with residents of Japan.
What's the process to open an account?
It's fairly straightforward, although the website is not as slick as it could be, and some of the information is missing or wrong in some cases.
I'm going to write about my experience of opening an account, and I may misremember some parts, or they might have changed by the time you get around to applying, so don't take my word for this :)
The application is mostly done online and you need to read a bunch of terms and conditions, check some boxes, choose which account to open, and upload some documents.
You can choose to open a bunch of different accounts (I am only really interested in stocks but bonds, forex, options, and some other things I don't understand are also available). They have access to dozens of markets in the US, Europe, and around the world.
You have to choose whether you want an account to deal on the Japanese market (for which you need to submit your My Number as part of the application) or one for other markets (which does not require the Number). I already have access to Japanese markets through my Rakuten account so I chose to only open a foreign account.
I was then asked to upload two documents, one to prove identity and date of birth, the other to prove address. I chose to upload my passport and a bank statement as indicated on the website but I received a phone call in English the next day from a woman with an American accent asking me to upload my zairyuu card instead, as they require this from all Japanese residents.
I did this then got another phone call the next day telling me they needed the back too ;)
Finally got through all the paperwork, and the last step was to receive a security device via registered mail (to confirm the address you submitted). I signed for it, then received an email that my account was approved and I needed to fund it by transferring $10,000 US to the US home company by wire transfer in the next 45 days. Failure to do so will result in the account being closed and the whole process restarting.
What did I do?
Well, I thought about going through with the application, but decided I don't really need a US stockbroking account, don't have $10,000 in cash right now (I could get it, but I don't really feel like it), and don't want to deal with the complications in reporting taxes (see below).
The pros and cons of opening an Interactive Brokers account
- You can do it in English
- The costs seem fairly reasonable
- Easy access to a huge number of markets
- You can keep the account if you move countries
- They have an office in Japan so your account probably won't be closed at short notice due to pressure from the MoF
- They are not really based in Japan (just have an office here)
- They can't provide you with a kakutei kouza (tax reporting account) which sends you a single piece of paper to submit to the tax office
- You will have to report dividends, capital gains, etc. to the tax office, who will know about the account because of the initial funds wire transfer
- I believe you won't be able to use losses to offset gains for tax purposes
(edit: I can't find any evidence of this so please ignore for now)
- You have to send money to and from the US to use the account
This is probably not the best option for long-term residents. If you have good enough Japanese, or have some way of getting around the language requirement, an account with a Japanese stockbroker will be much cheaper and more convenient to use.
Edit: if you are a US citizen or green card holder, and thus have to deal with the IRS, then for reporting purposes this may be a better option for you than a Japanese stockbroker.
If you don't have access to a Japanese stockbroker or are not planning to stay in Japan for the medium-long term, then Interactive Brokers may make more sense. The initial $10,000 to fund a new account may be a barrier, and you need to send it pretty quickly, so I would make sure you have the full amount before starting the application process.
Anyone else use Interactive Brokers? Any questions or comments?