Advisor Asset Growth from Tax-Advantaged Alternative Asset Programs

The growing demand for tax-advantaged alternative investing - Last week we talked about the significant

opportunities for financial advisors, by helping some of their clients with tax-advantaged alternative investments through Self-Directed IRA ("SDIRA") accounts.  Not only do the investors who are interested in alternative assets tend to have a higher degree of wealth, but the interest level in such programs is increasing significantly.  This week we will look at the roles of advisors and SDIRA providers, some of the rules pertaining to SDIRAs and how you can evaluate and choose an SDIRA provider.

Roles of advisors and SDIRA providers - Advisors and SDIRA providers have very compatible roles when enabling client to take advantage of alternative assets in their IRA accounts.  The SDIRA provider and its custody services is, of course, required by the IRS for these kinds of accounts.  A good SDIRA provider can make the asset acquisition and account reporting smooth and efficient for you and your clients.  Fortunately for advisors, SDIRA providers generally cannot give their clients the financial advice you provide. Comprehensive financial strategy, analyzing the potential return of an investment, and vetting that investment are all items that you, the advisor, are ideally suited to handle.  Think of the SDIRA provider as a strategy-specific support service and expert information source.

 

Factors behind choosing an SDIRA provider - When choosing an SDIRA provider, it is important to consider a few items. 

  #1.Factor - You are looking for a provider that services the assets and account types that you and your clients want to acquire.  Not all providers to can handle the same types of investments. The plan type, whether a Traditional, Roth, SEP, or SIMPLE IRA, an HSA or a 401k plan, does not directly impact the type of investments allowed. 

 

"Real Estate, stock or equity in private companies, precious metals, secured and unsecured notes are relatively common 'alternative' assets, but we have also seen IRAs that own such things as trucks, data sets, trees, and tax liens" said Clay Malcolm, Director of Business Development at New Direction IRA. A general guide is that almost anything that is legal that a person can make money with outside of their IRA, can be put to work within their IRA.

 

   #2. Factor - There are significant differences among SDIRA providers.  Some factors to consider are:

-              Speed – some providers are faster than others when it comes to asset acquisition and information reporting

-              Technology – innovative technology has created ease and efficiency but not all providers have embraced these advantages

-              Client Service – you and your clients expect prompt, knowledgeable  service - but not all providers can deliver this level of service

-              Depth of Knowledge – an SDIRA provider can be a source of detailed information in their field, but not all providers have real expertise

 

   #3. Factor - With a provider that is agile enough to work with you, you set the relationship up the way that is most comfortable and efficient for you.  You don’t have to have a contract with the provider set up ahead of time.  You can set up payment from the IRA according to your business model.  And, again with the right provider, you can set up electronic (and/or paper) reporting on the assets in the account.

 

   Additional thoughts on selecting an SDIRA provider - When you have an asset in mind for a client and need a reminder on disqualified persons and prohibited transactions (included below), an SDIRA provider can be an easy source of information.  Perhaps a client has asked about “Checkbook” control IRAs, and you need some information about their structure, advantages, and limitations.  Or, maybe you have a question about “in-kind” distributions of hard assets.  This detailed expertise can be at your fingertips by having a responsive company as your source for custodial account information and services.

A look at SDIRA Rules

An IRA alternative asset investment may not have a “transaction” with or for the benefit of the following “Disqualified Persons”:

•             Account Holder

•             Account Holder’s Spouse

•             Account Holder’s Ascendants (Parents and Grandparents)

•             Account Holder’s Direct Descendants (Children and Grandchildren) and their spouses

•             Certain Fiduciaries (CPAs, Attorneys, Financial Planners, etc.)

•             Retirement Plans held by Disqualified Persons

•             Any entity that these persons own or control.

 

“Prohibited Transactions” include:

•             Sell something you already own to your IRA

•             Buy something from your IRA

•             Be compensated by your IRA

•             Extend credit to your IRA

•             Have personal use of the assets in your IRA

•             Pledge your IRA to secure a personal loan

Details & Registration on free FAN webinar 
New Direction IRA website