How an IRA Custodian Facilitates the Alt Investment Process
Investors are increasingly turning to alternative investments to create a diversified retirement portfolio, yet holding alternative assets in an IRA is not always a straightforward process. That’s why it's important to understand how well your self-directed IRA custodian is equipped to work with you and your financial professional to make the alternative investment process as smooth as possible.
As a company that specializes in holding alternative investments for our clients' IRAs, PENSCO understands the ins and outs of a whole spectrum of investments — from promissory notes and mineral rights, to real estate and private equity deals. After all, our clients hold 40,000 unique assets in self-directed IRAs.
It’s my group, the Deal Office, which helps to review those 40,000 assets. We work not only with IRA accountholders directly, but also with Registered Investment Advisors (RIAs) and other institutional clients to meet the needs of their clients who want to invest in alternatives.
We review assets for adherence to both IRS requirements and PENSCO’s own administrative guidelines. Our comprehensive knowledge of rules and regulations that govern self-directed IRAs can help identify issues before becoming problematic for investors. For example, self-directed IRAs cannot conduct transactions that benefit the IRA holder or your personal business. These prohibited transactions can prevent deals from being funded and the assets could not be held in a retirement account. Helping clients navigate these types of issues can also help them avoid potentially avoid taxable events.
Besides being able to provide resources to educate clients and financial professionals on the IRS rules that regulate IRA investing, here are three ways that PENSCO’s Deal Office helps to streamline the alternative investment process for self-directed IRA investors and investment sponsors:
1. Assist our sales team in assessing potential deals. Financial advisors often have clients who want to hold alternative investments in their IRAs. At times, clients want to pursue deals that require a nuanced understanding of alternatives to assess whether they can be held in an IRA. For more technical investment opportunities or structures, the Deal Office will work with the financial professional and the client to go over the process and review the investment documents.
2. Review an investment opportunity for an asset sponsor. When an investment sponsor has a deal that they would like to make available to self-directed IRA investors, our sales team will provide the necessary deal documents to our Deal Office. This allows us to examine the opportunity before it is made available to investors and determine if it passes administrative muster. Once the deal is accepted, PENSCO’s Alt-Nav™ technology ensures funding the deal is as smooth as possible for investors.
3. Work out the snags. As I mentioned before, not all alternative investments can be held in an IRA due to rules and regulations. But at the Deal Office, we view it as part of our job to work with investment sponsors, brokers, and real estate professionals if a deal hits a snag. As an IRA custodian, we can review deals for administrative feasibility only, which means that the Deal Office does not review the merits of deals and cannot offer investment advice. But if a deal hits a roadblock in the investment process, we can ask clients to supply additional documents so we can gain a thorough understanding of the investment structure, know whether it can accept tax-advantaged dollars, and help asset sponsors work through obstacles.
Knowing the investment process typically needs to be completed quickly, the Deal Office is able to review an investment within three to five business days once we have all of the necessary documents.
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.