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Choosing the right custodian? It’s all about asking the right questions

Every investor knows that markets can be volatile, and are often unpredictable. Whether you manage your investments with a financial advisor, or on your own, keeping your portfolio on track requires continuous diligence. Picking the right investments is challenging enough, but picking your self-directed IRA custodian doesn’t have to be. By asking the right questions and choosing the right custodian, you can be on track to better investing potential – and STRATA can help.

These important questions will help you get started.

1. What investments can be held in my self-directed IRA?

We have previously shared our insights on why excess returns are getting harder to find, and how alternative investments in a self-directed IRA can potentially boost your returns. With this in mind, it’s very important that you and your financial advisor are familiar with the investment options that are available to you in your alternative IRA. Don’t miss out on the potential for higher diversification and returns by not being aware of your options. Your self-directed IRA custodian should have the capability to support many alternative investments, including:

•  Directly-owned real estate (raw land, residential or commercial)
•  Private equity or private debt investments
•  Trust deeds or mortgage notes
•  Promissory notes or corporate debt
•  Closely-held stocks
•  Equity or debt crowdfunding
•  Public or private LPs or LLCs
•  REITs
•  Precious metals
•  Brokerage accounts for publicly-traded stocks, mutual funds or ETFs
•  Other alternative investments

2. Is my self-directed IRA provider a custodian or an administrator? What’s the difference?

Knowing the different types of IRA providers is a critical step before opening a self-directed IRA.   Federal law requires that all IRAs have an appointed custodian, but there’s another class of IRA service providers called IRA administrators which may not have the same safety and soundness safeguards in place. For example, IRA administrators should never hold your uninvested cash in bank accounts in its name, or hold title to your IRA assets. Only IRA custodians are authorized to do this because they are directly regulated by state or federal banking authorities.

The potential risk occurs when a bank or trust company agrees to serve as the IRA custodian on behalf of the IRA administrator’s clients but lets the administrator take control of client’s uninvested cash and assets. It’s imperative for the IRA custodian to implement the necessary checks and balances before doing this because IRA administrators are not directly regulated by state or federal banking authorities.

Asking these important question can protect you from taking unnecessary risks with your retirement funds. See our list of the primary differences between IRA custodians and administrators.

3. What are my custodian’s values? How do they handle customer service? What’s their track record with alternative investments – and with the types of investments I will hold in my self-directed IRA?

We believe that any firm involved in the business of providing financial services should have clear, client-oriented values. Your self-directed IRA custodian’s philosophy drives how they do business, the service they provide and their vision and values. By understanding this, you’ll know what you can expect in terms of responsiveness to your account inquiries and transaction needs.

Understanding your custodian’s customer service model can give you an indication of the support you’ll receive and the clarity for when your investment transactions will be processed, asset valuations and activity updated, and account statements and tax forms issued. An alternative IRA custodian with a strong track record makes customer service a priority.

Knowing your IRA custodian’s experience level with the types of assets you plan to hold is important. The holding of certain investments may require extra steps from your IRA custodian – such as directly-owned real estate that requires expense payments or annual property taxes, or limited partnerships that require periodic capital calls.

In addition, choosing a custodian that is accredited by an outside agency such as the Better Business Bureau© can give you piece of mind, so review your custodian before you decide to invest. To view STRATA’s accreditation with the Better Business Bureau, click here.

4. What are the fees for my IRA? How are they calculated?

Fees have nearly become a four-letter word in recent years, due to the lack of transparency by traditional Wall Street firms. Nevertheless, understanding the potential fees that would be charged by your IRA provider for the investments held is another important factor for you and your financial advisor to determine if a self-directed IRA is right for you. Fees should be clearly stated before you decide to open an account, and fees charged or incurred should be straightforward on your account statements. The fees vary widely among IRA providers when it comes to self-directed IRAs. Looking at a breakdown of potential fees and costs can potentially save you thousands of dollars.

The Bottom Line

The right self-directed IRA custodian can give you an edge when it comes to having greater freedom to invest in alternative investments with your retirement portfolio. By harnessing the added potential for higher returns and investment diversification through alternative investing, self-directed IRAs can be a great retirement planning tool for investors and their advisors. Navigating the complexities that come with alternative investments in a tax advantaged account is made much easier with a reputable custodian.

At STRATA, we aim to empower investors to take control of their financial future by providing outstanding customer service and flexible investment options. Where traditional investing can come up short, a self-directed IRA with STRATA can offer more control for you to invest your retirement portfolio. We aim to be an innovative partner for investors to achieve their wealth goals. Learn more about what you can expect as a STRATA client at www.STRATATrust.com, or speak to one of our self-directed IRA experts at 866-928-9394.

 

ABOUT STRATA TRUST COMPANY

When alternative IRA custody is this easy, the possibilities are endless.

Founded in 2008, STRATA Trust Company has built a reputation delivering streamlined and straightforward custody. Our service-driven team has helped thousands of investors and investment professionals unlock opportunities in self-directed retirement accounts across a wide range of alternative investments. Formerly known as Self Directed IRA Services, Inc., STRATA has strategically realigned to support a broad range of investment professional partners in growing their IRA asset base – always with an eye on the future.

With offices in Austin and Waco, Texas, STRATA operates as a Texas-chartered trust company with direct oversight by the Texas Department of Banking. Led by a seasoned management team with over 150 years of collective experience, 33,000+ investors empowered and over $1.8 billion in assets under custody, our customers experience a clear difference in our approach to IRA custody.

Tags: all things retirement, alternative investments, ira custodian