Building Your Clients’ Retirement Confidence with an Alternative Investment Strategy

Many Americans believe they’ll delay retirement due to the economy and market losses. Help reduce the time it takes to retire with alternative investments in retirement accounts.

According to the 2010 Retirement Confidence Survey, a quarter of responding workers say the age at which they expect to retire has increased in the past year (24%). Statistically, this is similar to the percentage indicating they were planning to postpone retirement in 2009 (25%) and an increase over the percentage planning to postpone retirement in 2008 (14%).

The report highlights the poor economy (29%) and a change in employment situation (22%) as the most frequently cited reasons for postponing retirement, followed by inadequate finances (16%) and the need to make up for losses in the stock market (12%). The remaining responses drill down on these concerns further, noting uncertainty on market performance and lack of faith in social security government to wanting to be sure they have enough to retire comfortably.

How do you protect retirement savings from systemic market risks as well as prepare clients for bleak social security benefits? Strong diversification and asset allocation in retirement plans like IRAs and 401(k)s offer part of the answer. But these avenues are most often limited to traditional investments. Conversely, a truly self-directed IRA enables your clients to invest in alternative investments such as real estate, tax liens, precious metals, renewable energy, promissory notes and more.

What are the Benefits to Your Clients?

Identical to the standard IRA, a self-directed IRA (Traditional or Roth) offers advantages like tax-deferred savings, tax-free growth, potential tax deductions, compound interest and the ability to pass assets to beneficiaries while mitigating taxes. It also provides your clients with nearly unlimited investment choices and frees them to invest in alternative assets that they know and understand. What’s more, many of these alternative investments often have a low correlation to market volatility making them attractive for achieving greater portfolio diversification.

“No matter what your client’s passion or knowledge base happens to be, there’s bound to be something that you can invest in to generate wealth for your client’s retirement,” says Laurie Bachelder, Principal of NUA Advisors, LLC. “Structured properly, alternative investments can benefit an investor’s retirement account just as easily as a stock or bond.”

Benefits Self-Directed Investing Provides to Your Firm

As a CPA or financial advisor, self-directed investing offers sustainable advantages to your business. In addition to enhancing your firm’s ability to attract clientele, this alternative investment strategy can be a retention tool by providing the value-add for your existing clients. And, by learning more in this specialized niche, you add value to your client’s counsel as you position yourself as an expert and reinforce your role as a trusted advisor.

“There’s a lot of American wealth locked away in 401(k) and IRA accounts invested solely in financial assets,” notes J.R. Getsinger, an attorney in Lincoln, MA. “I’m looking forward to unlocking them and assisting people in truly diversifying their retirement accounts.”

What are People Investing In?

Investors are diversifying in private equity and private debt, public or private real estate, precious metals, pooled investments, oil and gas, equipment leasing, tax liens and more. From the company executive investing his or her former 401(k) into a private placement for a biotech or clean energy firm to a physician utilizing his small business plan to invest in medical equipment to lease to other physicians, investors are actively taking advantage of the non-traditional options available.

What are the IRS Rules of the Road?

IRS rules state that when it comes to a self-directed IRA, the investment must be at arm’s length. The rules also dictate that the account may not: buy an investment from, sell it to, or otherwise be involved with disqualified persons. Disqualified persons include the IRA holder, his or her spouse, parents, grandparents and great grandparents, children and their spouses, grandchildren and great grandchildren – and their spouses.

The IRS has a short list of prohibited transactions for self-directed IRAs. Investing in collectibles like art work, rugs, antiques, metals, gems, stamps, coins, alcoholic beverages and other tangible personal property is not permitted. An exception to the list is that a self-directed account can hold gold, silver, platinum and palladium bullion which meet minimum fineness requirements. You can find out more about prohibited transactions at IRS.gov (IRS Publication 590).

“Using retirement accounts to invest in alternative assets requires additional knowledge of the rules, regulations and guidelines set forth by the IRS,” says Bachelder. “The best chance of succeeding in the world of alternative investing is to work with professionals who are knowledgeable, specialize in the industry and take the extra steps in making sure that the investment through the retirement account is in compliance with the guidelines.”

Which of Your Clients are Most Likely to Be Open to Self-Directed Investing?

As you look at your client base, it may be easier than you think to select those individuals who would genuinely consider the advantages of self-directed investing. They include:

• Entrepreneurs. Think business owners, real estate investors and developers, doctors and dentists, or those who have an entrepreneurial spirit. These are clients who are innovative and may be seeking higher returns.
• Clients with expertise about a particular industry. Choose persons who have knowledge in niche areas or industries – like real estate, oil and gas, precious metals, agriculture and so on.
• Investors looking to further diversify portfolios. Consider clients who’ve been hinting or directly asking for alternative ways to diversify their portfolios.

Knowing your client and what he or she is interested in may lead to an easy and unforced way of introducing and suggesting alternative investments. As an example, if you have a client who has committed to a “green” lifestyle, a natural segue may be simply to ask the question, “Would you ever consider investing in renewable energy?” A positive answer tees up the opportunity to suggest alternative investments like wind and solar energy.

“What is your passion, what are you knowledgeable about? What do you think will grow your retirement account wealth? These are the questions that many investors have already answered and have been enjoying rewarding returns within their self-directed accounts,” says Bachelder.

For one investor and advisor, being able to see your IRA “in action” is not only rewarding, but provides a better sense of control. According to the investor, “There’s nothing like driving across Iowa and seeing your IRA out there on the range.”

Strengthen Client Relationships and Revenue Streams

Helping your clients to move the dial on their retirement confidence meter with an alternative investment strategy certainly benefits them. But it also benefits you with strengthened client relationships and the additional revenue that’s possible.

It may be the perfect time to explore Roth IRA conversion opportunities with your clients and to collaborate with their financial and estate-planning partners to deliver an enhanced diversification strategy. Ultimately, your clients’ peace of mind will position you as a trusted advisor and the “go to” resource in any economy.

For more information on alternative investing and Roth IRA conversions, join the Equity Trust Professional Network. This members-only online community and free resource for CPAs, financial advisors and attorneys helps you navigate the world of self-directed retirement accounts. Become a member to:

• Access industry-leading educational programming
• Participate in exclusive networking opportunities with other financial professionals
• Expand and grow your business with innovative marketing and training tools

To join the Equity Trust Professional Network, register now at www.trustetc.com/pronetwork.

Disclaimer: Equity Trust is a passive custodian and does not provide tax, legal, or investment advice. It does not endorse or recommend any contributor, company, or specific investments. Any information communicated by Equity Trust Company is for educational purposes only and should not be construed as tax, legal, or investment advice. Whenever making an investment decision, please consult with your legal, tax, and accounting professionals.