Is an IRA Custodian a Fiduciary?
When selecting a self-directed custodian, make sure they specialize in the type of investments that interest you. Custodians that focus solely on traditional investments (stocks, bonds and mutual funds) might not be suitable if your portfolio includes real estate purchases, private mortgages, tax liens, livestock or physical gold assets.
These investments usually require more paperwork and may not be as marketable to an IRA custodian.
Custodians of retirement accounts must protect and act in your best interests when managing assets in these accounts, which means not purchasing or selling investments without your approval and reporting gains and losses to both yourself and the IRS on an annual basis.
The best IRA custodians provide alternative nontraditional investments such as real estate and precious metals without offering advice or selling financial products; their fees come from providing custody and administration of these investments that an IRA owner directs them to invest in.
A reliable self-directed IRA custodian should offer knowledgeable specialists who are readily available online or by telephone to answer your inquiries, while offering you user-friendly website features to allow for monitoring your account and transactions easily. In addition, good custodians should quickly resolve any issues they encounter – both their depth of knowledge and speed of response being key considerations when searching for one.
Best Interest Contract Exemption
The Department of Labor Fiduciary Rule has instituted stringent regulations on financial planners, brokerage firms and mutual fund companies. Though its strict standards appear to prohibit certain annuities, managed account programs or other products from retirement accounts due to new rules imposed by DOL fiduciary rule; financial advisors can still find relief through an exemption called Best Interest Contract Exemption.
The BIC exemption allows financial advisors to receive various forms of compensation, such as commissions, revenue sharing or 12b-1 fees; provided they commit to placing clients’ best interests first and implementing anti-conflict policies and procedures as well as disclosing any conflicts of interest that might compromise advice quality.
The BIC provides transitional relief by permitting level fee fiduciaries to rely on it without complying with certain contractual, fiduciary duty acknowledgement, transaction disclosure and website requirements. They still must adhere to its Impartial Conduct Standards however. In addition, DOL issued a temporary enforcement policy which states it won’t pursue prohibited transaction claims against institutions working hard to meet BIC conditions.
Required Fiduciary Duties
An IRA custodian and administrator must be competent, honest and fair when providing investment services to an IRA investor. This is especially important with Self-Directed IRAs which enable users to invest in alternative assets like real estate and private notes; for these investments to succeed properly they require safekeeping by an administrator who will facilitate proper IRS reporting for investors.
If you decide to open a traditional or Roth IRA, the custodian must abide by IRS banking regulations in order to maintain its tax-advantaged status. They should refrain from buying and selling securities without authorization, keeping accurate records, reporting activity to IRS regularly and refraining from performing prohibited transactions.
When selecting a custodian, you must take their fee structure and investment options into account. Some custodians levy fees such as annual account maintenance costs, load fees for mutual funds and commission charges when you trade. In addition, consider which geographic areas the custodian serves, as some may only provide their services within certain states or regions.
Self-directed IRA custodians must verify any investments listed in their account statements for accuracy, which may involve seeking professional advice from an impartial third party or conducting tax assessment records research.
Self-directed IRA custodians allow their clients to invest their retirement funds in a wider selection of IRS approved investments than traditional custodians do, including real estate, precious metals and commodities, private placement securities, promissory notes and tax lien certificates.
Self-directed IRA custodians may charge fees for custody and administration services; however, they cannot offer investment advice or sell the investments on behalf of clients – this would constitute breaching fiduciary duties and breaking their fiduciary duties.