3 Things Investors Really Hate About Self-Directed IRA Custodians

Self-Directed IRAs (SDIRAs) give investors full control of the reigns when it comes to choosing where to direct funding for alternative asset classes. Having a knowledgeable and trustworthy custodian is vital to the success of that account and IRA investor.

On the other hand, a self-directed IRA custodian is only responsible for holding and administering assets in accounts. They never offer investment advice or sell investment products. The account holder is responsible for following the rules and conducting their own due diligence surrounding their investments. 

Still, self-directed IRA administrators and custodians are tasked with reporting and filing to the IRS on behalf of their clients. This means needing to be in the know when it comes to rules that regulate alternative investment classes, like real estate IRAs, which can have more complex transactions when it comes to investments in rental properties, mortgage notes, and real estate shares in private placements. 

After much research and discussion with our clients as to why they've moved their individual retirement accounts to IRAR Trust Company, we’ve found three common recurring themes pop up. These are the top 3 things investors hate about their previous self-directed IRA company, in this order- directly from our clients:

#1 Lack of Industry Knowledge 

A lack of industry knowledge is the biggest client complaint across the board. There is a real cost to this shocking revelation that can feel like — or actually be — fraud. Clients have complained about former custodians whose staff just doesn't know their stuff. This has resulted in self-directed IRA account holders having to pay fees to the IRS because of a custodian error. 

Mistakes can and do happen; it’s an inherent risk built into holding a self-directed IRA. Sometimes they can be corrected. But the point is, SDIRA account holders need a custodian who will know where you went wrong to correct your mistake. If you don't have the knowledge to know you've made a mistake, how can you correct the error? 

It matters because investors can lose all tax advantages or suffer from costs that were meant to build up a retirement plan if a financial institution’s staff lacks knowledge in the following areas:

• Processing IRA investment
• Retirement account investing rules
• Alternative investment(s) not allowed in their state
• Identifying a prohibited transaction and a disqualified person
• Real estate investing process and rules
• Self directed Roth IRA vs Traditional IRA rules
• Required minimum distributions (RMD)
• Contribution limits

When talking to a self-directed individual retirement account (IRA) custodian, focus on how well versed in IRA investing the individuals you are talking to truly are, as these are usually the people handling the transactions for your IRA account. Assessing their level of expertise does not require any special powers — they either answer your questions knowledgeably or they don't. Here are some key items to consider. 

• How often they need to escalate your inquiry to get you an answer?
• How fast do you get a response?
• When you speak to a manager, is that manager knowledgeable?
• Do they understand the type of investment you are interested in?
• Do they have any knowledge in buying real estate in an IRA?
• How long have they been in the industry? 

Listing "lack of knowledge" as the number one thing IRA holders hate about custodians is the type of frustration anyone can empathize with. You are counting on your custodian to fulfill their role and do their job so you don’t get penalized when trying to plan for a retirement of financial freedom. Finding someone who is knowledgeable about the industry is crucial when it comes to protecting and growing your account.

#2 Phone Trees Without Response

"It's nice to not have to wade through a computerized phone system or be put on hold by clericals that don't know what you're talking about; experiences we were glad to leave behind with our previous IRA custodians."

We had to share this one because it so perfectly supports complaint #1- and honestly, who likes to be put on eternal hold or never get a response? You could clearly hear the frustration of this client. It makes sense that, as an investor, you would want to talk to a human to make sure all your questions are answered fully and completely. After all, the company holds your hard-earned retirement dollars- you should be able to reach a live person when needed. 

It’s a sad and all too common experience as a customer to constantly be provided with false promises that your satisfaction is a priority only to be met with seemingly the exact opposite. Who hasn’t experienced the frustration of being transferred from one person to the next, to different departments and different levels of support — playing phone line roulette, worried you’ll be disconnected before your issue is even resolved. 

It’s apparent when a company’s bottom line isn’t to meet yours — when their priorities don’t involve providing you with knowledgeable assistance when needed or they’re just in the interest of upselling you on services or products you don’t want.

We expect a personable experience, not getting hit by every branch of a nameless phone tree in pursuit of answers to our questions. We want someone who sees us as more than just a number and a wallet. We have options and don’t have to settle. Whether it's an IRA custodian or your cable service provider, you have the right to transfer your account to a provider that knows their space and can offer you exactly what you want and need, without all the expensive add-ons. 

This seems to be the issue with larger custodians that offer too many services — when they're spread too thin, no one benefits, especially not the IRA owner. 

Say you are interested in using your IRA to invest in real estate (or anything other than stocks, bonds, and mutual funds) — to avoid frustrations, find out if the custodian has experience in real estate investments. Perhaps they have a real estate department or dedicated staff to handle special real estate IRA inquiries. If so, are these representatives Certified IRA Services Professionals. This means that not only are they experts in real estate IRAs but they also took a special course to master retirement accounts. 

Clearly, getting someone to answer the other side of the receiver is just half the battle. Having someone that is knowledgeable and cares about the service they are providing is paramount to the success of your IRA investments.

#3 Fees and Invoices

Transparency is key when it comes to invoices and fees. Sometimes self-directed IRA custodians aren't very transparent with how they charge their fees.

As account holders, you should be aware of what you are paying for, and how much? You should know when funds leave your account and understand why. If you can't get the details of your transactions or if it sounds too confusing- beware. 

A custodian should be transparent when it comes to fees, both when and how they are charged. Read the fine print on how these are handled- the fees associated with your IRA account are usually for the administration of the retirement account and transaction fees for the investment (buy, sell, wire, etc.) but you'll want to make sure you know what you're agreeing to pay beforehand.

Know what fees you're paying with your self-directed IRA upfront — the wrong retirement account or fee schedule can eat up your retirement funds as fast as you put them away. 

There have been many Ponzi schemes targeting retirement savings, with providers charging out the nose for additional fees or services without providing any added value. Maybe you've heard of the Home Depot class-action lawsuit, with allegations of fund mismanagement and exorbitant plan fees, leading to losses of over $120 million for plan participants? Or Mark Malik- a 33-year-old investment banker who eventually bilked investors out of over $100 million?

Though you can't control scammers and mismanagement, you can keep yourself aware of your account activity and balance, which should help prevent massive fraud. Were the investors properly monitoring their IRA account activity? And if they were, did they understand the invoice or statement? When they called to inquire about the charges, was there a live, knowledgeable person to answer their questions?

Bad actors are going to find a way to scam people no matter what, but by monitoring your account and making well-thought-out investment decisions, you can work on protecting your retirement fund from the worst. 

Getting your account opened with a self-directed IRA custodian you can trust is an essential step in saving for your retirement. You can open an account yourself. You do not need a financial advisor to do this. Even if you're already investing, it's never too late to move your funds to a company that meets your needs. 

When talking to representatives, ask yourself the following:

• Are they knowledgeable and know what they're talking about?
• Is it easy to get a hold of someone who can help me?
• Are they clear and transparent about their fees and how they charge?
• If you are going to purchase real estate, are they well versed in self-directed IRA real estate investments including commercial real estate?
• Did they go over your investment options and tax benefits?
• Did they explain all their fees?

These are the types of questions that every investor should be asking because they truly reveal how a company functions behind the scenes — the type of thing that can make or break a retirement account. 

Self-Directed IRA Custodian FAQs

What is a self-directed IRA custodian?

A self-directed IRA custodian or real estate IRA custodian is a financial institution that holds your IRA's investments. They usually hold alternative assets such as real estate, cryptocurrencies, precious metal investments, and other types of private stock. They do not endorse or provide any products or investment advice — allowing you to make all of the investment choices for your IRA. Custodians are regulated, audited, and obligated to adhere to IRS rules and guidelines.

Do you need a custodian for a self-directed IRA?

Yes. You need a custodian to have any type of IRA. However, there are companies like administrators and providers that are not custodians but work with a custodian — these are not regulated by a government entity like custodians.

How do I choose a self-directed IRA custodian?

The best way to find the right custodian for your self-directed IRA is to conduct due diligence. Compare companies based on your investment of choice. Some custodians may focus on certain assets like private equity, precious metals, or real estate — while others on an investment strategy like an IRA LLC. Make sure to compare custodians and fee structures before choosing and investing.

Click here for more FAQs when it comes to choosing a self-directed IRA and your custodian.

How Can IRAR Help?

For more than 25 years, IRAR has been on a mission to help our clients build wealth by saving for retirement through alternative investments at a lower cost— with full transparency. This is made possible through our low self-directed IRA fees, which can save you over 50% compared to other custodians. 

If you don’t already have a self-directed IRA, you can set one up by opening an account today. Making the switch means you can expect help from a real expert immediately any time you call, email, or visit. 

Book a free consultation with one of our Certified IRA Services Professionals to find out more about how you can move your self-directed IRA to IRAR Trust Company or any other information regarding our fees or services.