Self Directed IRA Industry

Innovative Advisory Group is an industry thought leader and expert when it comes to alternative investments held in Self-Directed IRAs and Self Directed 401(k)s. Based largely on the extensive due diligence we do for our clients, we have developed considerable industry knowledge. We know the major industry players, personalities, who is appropriate, who isn’t, who are the fast growing companies, and why you should consider some companies over others for your Self-Directed IRA needs.

The Self-Directed IRA industry itself is fragmented, difficult to understand and lacks transparency. It is our mission to change that. Part of that process entails creating and providing a central repository of information that prospective clients can use to make their decisions. While most people engage the help of their professional advisors, these advisors also need access to this information so that they can provide you with the most accurate information.

Self Directed IRA Industry Resources

What You Need to Know

Our research will help shed some light on the Self-Directed IRA industry participants (Custodians, Administrators, Financial Advisors, Licensed Facilitators, Coordinators, and Investment Sponsors), what their roles are, and how that affects their potential clients (you). Our due diligence team has aggregated this information from both public and private sources1. If you need help with your due diligence, our research is available to you upon request.

If you are interested in learning more about our research you can contact us here.

– Terms and Definitions –

The Self Directed IRA industry lacks a transparent set of definitions that the investing public can easily understand. This page is intended to provide some of those definitions. Some of these participants are licensed and/or regulated practitioners and others are not. There is currently no strict licensing requirement for many of these industry participants. However, that does not reflect on their ability, knowledge, or competence.

Custodian

A Custodian is a firm that provides custody and safekeeping of client assets. They can also offer account administration, fund accounting, maintain cash bank accounts, foreign exchange transactions, arrange settlement of any purchases and sales of securities and currency, provide legal, compliance and tax support services.

Custodians are chartered, licensed and regulated by governmental agencies. The requirement stated in the Internal Revenue Code (IRC) for an IRA is, a “qualified custodian” must be used to provide custody for IRAs and 401(k) plans. This is important, if you are not using a qualified custodian, then your IRA will have engaged in a prohibited transaction. Many administrators will use a qualified custodian for your account, however, you should always verify that your accounts are ultimately held at a qualified custodian.

* It should be noted that both banks and trust companies can be custodians. This is typically the case with firms that specialize in the custody of self-directed IRAs. If you have questions about where your assets are held, you should ask, then do a background check. Banks and trust companies are regulated by their state, the Office of Comptroller of the Currency (OCC), or Office of Thrift Supervision (OTC) recently merged with the OCC.

➔ If you are looking for a list of self-directed IRA custodians and administrators, you can find the most accurate one here.

Administrator

Administrators or Third-Party Administrators (TPA) can handle many aspects of employee benefit plans such as the processing of documents for employer-sponsored retirement plans, plan design, and tax preparation. Some employee benefit plans have highly technical aspects and difficult administration that can make using a specialized entity such as a TPA more cost effective than doing the same processing in house.

Third Party Administrators can also engage in other types of activity such as fund administration, or processing insurance claims.

There is not typically a requirement for administrators to be licensed in order to administer self-directed IRAs or self-directed 401(k) plans. Most of the ones we have reviewed are not licensed.

Financial Advisor

A Financial Advisor is a general term used to describe someone providing financial advice. This person is not always licensed. Most commonly a financial advisor is someone who is licensed or registered as an Investment Advisor or a Registered Representative. An Investment Advisor works at a RIA and is a fee-only advisor. A Registered Representative works at a Broker Dealer and can get paid commissions. If someone calls themselves a financial advisor, ask if they are licensed or registered. You can read more about the differences here.

A financial advisor’s role is to provide advice to clients regarding their investments. A fee-only investment advisor has one of the highest levels of responsibility to their clients in that they have a fiduciary duty to them. This is something that you should desire as an investor. Someone who is looking out for your investments from start to finish.

Most financial advisors provide minimal or no advice regarding alternative investments inside a self-directed IRA or self-directed 401(k). If you are considering this type of investment strategy, make sure your financial advisor is knowledgeable in this area.

Licensed Facilitator

Licensed Facilitators are individuals who help their client with the setup and processing of a self-directed IRA account with the desired investment. Licensed facilitators can be licensed attorneys, accountants, financial advisors, or other professionals who have obtained a license in their field and have a level of proficiency in the area of self-directed IRAs with alternative investments.

If you are looking for a licensed facilitator to help advise your with your self-directed IRA investment strategy, you should look for one on this list of advisors for self-directed IRAs.

➔ You should note that there are still many companies who still call themselves facilitators, yet they are not licensed. Since these people are not licensed, it may not be clear to you if they are being paid to be helpful, or they are promoting their own products or investments. For many of them, there is no supervision from a regulatory authority. Be careful if you engage one of these people to help you.

Coordinator

A Coordinator is a person who helps to coordinate a portion of the process of setting up a self-directed IRA or self-directed 401k. This may include using their “approved” plan documents, creating LLCs, account forms, or other specific duty. While coordinators may be helpful, they are not essential to the process of setting up a self-directed IRA and investing with it.

This is a relatively new category in the Self-Directed IRA industry. Coordinators were formerly called facilitators. Many of them still refer to themselves as facilitators. However, there is a big distinction between someone who is a licensed professional, helping to facilitate the process of setting up and maintaining a self-directed IRA and someone who is not. This clarification in the definition above should help give prospective investors a better understanding of the person they are working with.

Investment Sponsor

An Investment Sponsor is a person or company that is sponsoring or soliciting interest in an investment that they personally benefit from. An example of this is a company which sells real estate to investors as ready-to-invest investments. Another example is a real estate investor who uses hard money to rehabilitate properties and solicits investors to loan him money so he can complete his project.

It should be understood that the primary motive of the investment sponsor is to sell their product. In some cases, these investment sponsors may assist investors to coordinate the setup and investment of the prospective investors IRA or 401(k). To the investor who is unaware of how self-directed IRAs work can be a beneficial service that they offer. However even if they assist you with this process, you should still consult your own financial, legal or tax advisor to ensure the transaction was completed properly and that it will not create a prohibited transaction.

 

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1. Private or confidential information is aggregated in a non-identifiable manner so as to retain the confidentiality of its owners.