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Working with an IRA Custodian

Selecting the Right Self-Directed IRA Custodian

The growing popularity of self-directed IRAs has increased the number of custodians, administrators, and promoters offering self-directed investing options. As more self-directed IRA providers fill the marketplace, it is more important for you to research potential providers to be certain you have the utmost confidence in the handling of your account.


Access Your Free Self-Directed IRA Investing 101 Guide


It is important that you understand what you should know, look for, and ask of any potential self-directed IRA provider before investing.

Important Factors to Consider When Selecting a Self-Directed IRA Custodian:

  1. A custodian is required for all IRAs
  2. The difference between custodians, administrators, and promoters
  3. Experience, knowledge, and service are critical
  4. True value for services

A Custodian is Required for All IRAs

All IRAs must be held by a custodial entity such as a bank, credit union, trust company, or an entity that is licensed and regulated by the IRS as a “non-bank custodian.”

“An individual retirement account is a trust or custodial account set up in the United States for the exclusive benefit of you or your beneficiaries. The account is created by a written document. The document must show that the account meets all of the following requirements.

The trustee or custodian must be a bank, a federally insured credit union, a savings and loan association, or an entity approved by the IRS to act as trustee or custodian…”

–Source: IRS Publication 590

Difference between Self-Directed IRA Custodians, Administrators or Promoters

Custodian

IRA custodians must adhere to the IRS requirements to have the authority to hold title to the assets, investments, or properties of their clients. Custodians must meet all obligations to be allowed to issue funds, including writing checks and issuing wires for account funds. Additionally, custodians must allow for oversight and requirements for audits by regulatory bodies.

Administrator or Promoter

Self-directed IRA administrators and promoters are different from custodians and are limited in the services they can offer. These firms do not meet the IRS requirements to be a custodian or trust and cannot hold title to assets or issue funds.

Administrators or promoters are only responsible for marketing and selling, data entry, producing statements, and basic reporting. To complete transactions a self-directed IRA administrator must establish a relationship with a self-directed IRA custodian or trust that is allowed to hold IRA funds and investments.

An administrator or promoter must pass investor funds to and from a custodian to complete transactions. With little required oversight for self-directed IRA administrators and promoters, having an extra step to pass funds back and forth could be risky for investors.



Experience, Knowledge, and Service

When choosing a self-directed IRA custodian you should be comfortable with their industry experience, knowledge, and customer service.

Experience

When selecting a self-directed IRA custodian knowing their industry experience is important to building trust in their services.
Your financial future is in the hands of the custodian; you should be cautious if they have limited experience.


Knowledge

Self-directed IRA custodians are considered a directed custodian and therefore do not provide investment advice. However, a competent custodian should have a superior knowledge base of the industry.
The employees, from sales and marketing to client service and operations, should reflect this knowledge. The custodian should be able to provide detailed—but easy to read and understand—material on self-directed IRAs that reference authoritative resources.


Service

With any business relationship the quality of service should be a top priority.
From the first contact your interaction with a self-directed IRA provider should be friendly, professional, knowledgeable, efficient, and consistent.


True Value

All custodians charge fees, but what value and service do you receive for those fees? Fee schedules and structures vary between providers and you should beware of firms that are reluctant to discuss fees, that try to “nickel and dime” you, or that have hidden fees. It is important that you understand the fees and how they may be applied to your account.

 

Important criteria and questions you should ask potential custodians:

1

Custodial Experience

Questions you should ask regarding custodial experience:

  • How long have you been in business?
  • Are the principals of the company experienced in self-directed IRAs?
  • Have you been recognized as a leader in the industry?
  • Are there third-party endorsements, such as media coverage on the company, the clients and/or services?
2

Self-Directed IRA Knowledge

Questions to ask regarding self-directed IRA knowledge:

  • Do you provide ongoing education?
  • What type of education is provided, i.e. written materials, multi-media, online learning, in-person seminars and events?
  • Who provides the education and what are their qualifications?
3

Customer Service

Questions to ask about the quality of service:

  • How are accounts managed? Is there a client online account management system?
  • How are investments processed?
  • What best practices do you observe for the operations side of the business?
  • How are quality standards measured?
  • Do you provide training and education for your staff?
  • Do you provide training and education for your clients?
  • Do you have online brokerage as part of your company for my diversified investments?
  • What are your hours of operation?
4

Value for Services

Questions you should ask regarding true value for services:

  • Does your annual fee include all charges or are there any hidden transaction fees or fees for “administration costs” due to “uninvested cash”?
  • Am I charged based on each transaction or based on the value of my account?
  • When and how am I billed?
  • Can you provide a list or fee schedule of all the charges I might encounter when using my account?
Self-Directed IRA FAQs