Self-Directed IRA investors have always been an independent lot. But the rules governing self-directed retirement accounts can be tricky for novices and people who aren’t financial professionals who specialize in these kinds of accounts.
Things are going to get a little trickier starting in April 2017. That’s when a series of new rules put into place by the Obama Administration become effective. Essentially, the Obama Administration has expanded the scope of fiduciary rules, so that any broker or advisor dealing with Self-Directed IRA transactions act as a fiduciary, putting the client’s best interests ahead of their own.
Previously, the rules for most broker/dealer transactions only required that the broker believe the transaction be suitable, a much lower standard. The new rules allow firms and advisors to provide general information and education to investors, without worry. But the minute the conversation gets into specifics, the fiduciary standard kicks in.
This has advantages and disadvantages. The intended advantage, of course, is that some less-than-optimal securities will not get as much traction in the retail investor market – at least until they’re priced appropriately.
The disadvantage is that Self-Directed IRA investors who have been relying on broker/dealers to provide specific, actionable, personalized investment advice may soon find it more difficult to get frank advice at all.
The new rules are already changing how financial services companies do business: Edward Jones plans to stop offering mutual funds and ETFs in any retirement accounts in which investors are charged a sales commission. In other words, relatively unsophisticated investors most likely to rely on mutual funds and ETFs to provide instant diversification to their retirement accounts would have less access to them, as Edward Jones prevents its advisors from selling funds and ETFs at all in these accounts.
For most Self-Directed IRA investors, however, life should go on more or less as before. In general, Self-Directed IRA investors tend to be more willing and able to make their own investment decisions, or have specialized knowledge of one or more of their chosen asset classes that gives them a market advantage. That’s why they chose to self-direct in the first place.
The new rules will mean that depending on the business and compensation model in place, some advisors will be reluctant to provide meaningful recommendations to buy or sell a given security. This is especially true for unusual or non-traditional types of assets, since if the investment doesn’t perform, they could potentially get sued, and be held to a fiduciary standard. It’s all risk and little upside for them, so they will possibly stick to very safe, standard investments with comparatively tame reserves.
Self-Directed IRA investors should continue to develop their own skills and knowledge so that they can successfully identify promising investments for themselves, without relying on advisors to pick and choose investments for them.
It will also be more difficult for these advisors to add sufficient value to their clients to compensate for the high fees, commissions, 12-b-1 charges and other costs.
But general information about the rules and regulations that impact Self-Directed IRAs and 401(k)s and other retirement accounts that doesn’t rise to the level of recommending buying or selling securities will still be necessary, and will not generally trigger the new fiduciary law.
What’s more, it makes more sense than ever to explore a Self-Directed IRA administrator with a flat fee schedule, rather than a commission schedule. By reducing your reliance on investment recommendations from expensive stockbrokers (who sadly, usually earn more than most of their clients!), you can make it easier to transition to a superior fee structure where you’re paying a flat rate per transaction, rather than a high expense ratio or a fat percentage commission on every trade.
The difference can save thousands of dollars every year on your self0directed IRA.
For more information, call us today at 866-7500-IRA(472), or visit our Website at www.americanira.com