Last month I met with a potential client, who was unhappy with the service he was receiving through the company that was currently servicing his Self-Directed IRA. He described the challenges he faced trying to fund his investments, get paperwork completed, and the lack of communication between all the parties involved. I finally had to point out to him that part of the problem was that he was working with an administrator, not a custodian. He kept inquiring about our relationship with the bank and how quickly could we access funds. I responded, “We are the Bank.” This is a highly intelligent and business savvy person and he stared back at me with a blank face. I explained to him that all IRA service providers are not created equal; that they are not governed or regulated the same. I explained to him the difference between custodians, administrators and facilitators. After speaking with him, I wondered, how many other people don’t understand the difference?
Not All are Created Equal
When selecting a self-directed IRA service provider, it is important to look through all the hype out there and focus on what is important – THE SECURITY OF YOUR FUNDS. More and more people are seeking ways to take more control of their retirement portfolio, which has led to IRA service providers popping up all over the place. So, what does this mean to you? If you Google “self-directed IRA,” you’ll get over 1.6 million results ranging from advice and education, to “how to get started today!” While it may appear on the surface that all of these companies follow the same IRA rules and provide the same service, the truth is they do not. Knowing the distinctions between them can have an impact on the security of your retirement portfolio and/or put restrictions on your investment choices.
Choosing Who is Right for You
How do you decide which self-directed IRA company is right for you? You must first understand the distinction between custodian, administrator, and facilitator. These entities represent varying levels of service, expertise and risk. The chart above provides an overview of the differences. The most important component is that an IRA custodian is the only entity in this group that is regulated and authorized by the Internal Revenue Service (IRS) to act as an IRA custodian. Because custodians are subject to regulatory oversight at the federal and state level, there is comfort and trustworthiness that is not there with the other entities. In addition, an IRA custodian provides the most comprehensive IRA services from cradle to grave. IRA administrators and facilitators on the other hand work under a different set of IRA rules. Since they are not able to custody cash or investments, their only essential act is as intermediaries between the client and a partner custodian.
Administrators & Facilitators
Administrators, as their name describes are able to process paperwork, while facilitators most often specialize in helping clients to set up single member LLCs and C Corporation IRAs (commonly referred to as a Checkbook IRA or LLCs).
With no oversight or annual examination to worry about, administrators and facilitators can afford to be liberal in terms of accepting investments. This leaves the account owners open to unknowingly engaging in a prohibited transaction which can lead to a disqualification of the entire IRA and potentially expensive tax repercussions. Since many of these companies align themselves with investment sponsors, their priority is to sell you something they will make money on, rather than facilitate a compliant investment strategy that is right for you.
Preferred Trust is a custodian, not just an administrator or facilitator and as such, the security of your funds is our top priority and our exemplary customer service experience is the cherry on top! For more information regarding Custodians, Administrators and Facilitators, please visit http://www.innovativewealth.com/wealth-management/research/self-directed-ira-industry/the-ultimate-list-of-self-directed-ira-custodians-and-administrators/ or www.irs.gov.
This sponsored content can be found in the print and digital format of the December 2017 Think Realty Magazine Investor Review section.