Do you Offer Self-Directed IRAs to Your Clients?
Has a client ever asked you about investing in real estate or private equity within a tax-advantaged account? And did you have to reluctantly turn them away due lack of information on how the process works?
If so, you’re not alone. As a supervisor of business development at PENSCO, a self-directed IRA custodian, I work with a lot of financial professionals who started out in that exact position. But in my experience, eventually the need to service your client will be greater than your reticence to expand into the world of self-directed IRAs. And when you do reach out to me, you’ll learn that a good custodian can make the process of using self-directed IRAs not only smooth, but also beneficial to you and your clients.
Alternative asset custodians like PENSCO have been assisting clients with these requests for over 25 years now. In addition to assisting the self-directed IRA accountholder directly, a few of these specialized custodians also assist Registered Investment Advisors (RIAs). Advisors typically come to custodians for help because an existing client would like to invest in a specific opportunity using their tax-deferred dollars within a traditional or Roth IRA.
At that point, a self-directed IRA custodian is sought out– and that’s where I come in. My team and peers assist with the onboarding process from establishing the IRA, getting the account funded, performing the administrative review of the asset, and ultimately sending the cash to the investment issuer for the purchase. After the onboarding process is complete, we continue assisting in the process of maintaining the account by processing unique transactions for these alternative assets requested by the client. For example, we process expense payment requests from the client, e.g. payment requests for property taxes and general repairs for real estate investments.
With the media reporting that the stock market is overvalued, many advisors may learn about self-directed IRAs because of a client’s request for increased diversification, but they soon realize that – with the help of a good custodian – they can provide a valued service to those clients. RIAs want to offer their clients a more diversified portfolio of investments including both traditional and non-traded, alternative assets. And more and more clients are demanding these unique assets to complement their investment portfolios, so advisors must adapt to better serve their clients.
With this increased demand for alternatives, self-directed IRA custodians are identifying ways to make it easier for advisors to work with them. For example, many custodians understand the need to cut down on the amount of paper being physically sent back and forth between the advisor, client and investment sponsor. Premier custodians like PENSCO are continuously enhancing technology, allowing accounts to be opened online as well as offering a variety of other online self-services. There are also technology services available to third parties (RIAs, asset sponsors, etc.) who may be affiliated to an account or asset transaction.
The demand for alternatives is out there, whether it’s coming from the advisor or the investor directly. And self-directed custodians like PENSCO are ready to assist you, making the process simple so that you can spend more time focusing on what’s important: your clients.
This Blog does not provide investment, tax, or legal advice nor does it evaluate, recommend or endorse any advisory firm or investment vehicle. Investments are not FDIC insured and are subject to risk, including the loss of principal.
PENSCO Trust Company performs the duties of an independent custodian of assets for self-directed individual and business retirement accounts and does not provide investment advice, sell investments or offer any tax or legal advice. Clients or potential clients are advised to perform their own due diligence in choosing any investment opportunity as well as selecting any professional to assist them with an investment opportunity. Alternative investments are not FDIC insured and are subject to risk, including loss of principal. PENSCO is indirectly affiliated with a registered broker dealer and with a licensed small business investment company through Opus Bank (“Opus Affiliates”). Other than the Opus Affiliates, PENSCO is not affiliated with any financial professional, investment, investment sponsor, or investment, tax or legal advisor.
Editor’s Note: This is an updated version of a post we originally published in February 2014. We welcome new comments and questions below.