Due Diligence on Self-Directed IRA Advisors
Fortunately, the vast majority of our colleagues in the Self-Directed IRA industry are honest and are out to do the right thing by investors. So, on the rare occasions when we do become aware of scams affecting Self-Directed IRA investors, it is no fun writing it up. But we believe all investors in the Self-Directed IRA space have a right and a need to know about them.
Here is an episode that came to light earlier this year, which underscores the need for investors to conduct proper due diligence on anyone advising them on their Self-Directed IRAs: Perry Santillo, the founder and CEO of Baltimore-based High Point Wealth Management and co-host of a popular radio broadcast called The Money Guys, has been found guilty of soliciting at least 99 investors, convincing them to sell annuities and other assets in their existing retirement accounts, and roll the proceeds over to a Self-Directed IRA.
There’s nothing inherently wrong with that, so far – provided the new investments meet the suitability standard expected of financial advisors, and that it is a bona fide financial advisor making the recommendation.
But once the rollover was in place, the State of Maryland says Santillo steered those investments into promissory notes for his other companies and those of an associate.
This is a blatant conflict of interest. At American IRA we do not attempt to steer clients in or out of any legal investment. The High Point Capital case underscores the very real danger a conflict of interest poses when an administrator or custodian is also acting as a financial advisor and has side business interests that present a temptation to steer investor’s assets to serve their own interests, instead of those of their clients.
Neither Santillo nor his firm were registered with the State of Maryland as financial advisors, and so should not have been providing specific investment advice at all. Furthermore, neither Santillo nor his firm were registered with the State of Maryland as financial advisors, and so should not have been providing specific investment advice at all.
According to court filings, Santillo and his staff at High Point Capital improperly steered at least $6,290,000 of their clients’ money into his other firms’ coffers via unsecured promissory notes. What’s more, he named himself as an “interested party” on the transfer forms.
Their transfer forms also did not include disclosures required by law that would have alerted investors to potential red flags.
The Maryland Commissioner ruled that in promoting his own interests under the guise of advising clients about their Self-Directed IRA investments, Santillo committed the following violations:
- Offering and selling unregistered securities.
- Improperly holding himself and his firm out as a financial advisor and appropriating the term “wealth management.”
- Recommending that advisory clients sell securities and invest in pooled real estate investments and/or promissory notes.
- Employing or associating with unregistered investment adviser representatives.
- By effecting or attempting to effect securities transactions in pooled real estate investments and/or promissory notes while they were not registered with the Division as a broker-dealer or agent.
- Offering and selling unregistered, non-exempt securities that are not federal covered securities to at least 21 investors, and by failing to disclose to those investors the risks associated with the securities, including that the FNS promissory notes are unsecured.
- Failing to disclose the risks of the unregistered securities they were improperly selling.
- Misrepresenting the investment track record of the unregistered securities they were improperly selling.
- Convincing clients to sell annuities and incur material surrender charges without informing them what they recommended as a replacement.
- Failing to disclose material conflicts of interest.
…and many others.
As a result of these violations, Santillo and his corporations were fined $3.99 million, plus an additional $430,000 for Santillo and FNS, and permanently barred from the securities industry in Maryland.
As a third-party administrator of Self-Directed IRAs and other retirement accounts, we have no conflict of interest that would lead us to steer investments to other investments that we control. We are investment neutral, and we do not give recommendations to buy or sell any given security or other investment. Instead, we work with your existing financial advisors, and simply execute the transactions that you direct, while in many cases saving thousands of dollars in AUM fees and expense ratios, thanks to our unique menu-based pricing structure.
However, as this incident shows, you should do your own due diligence on any advisors you choose to engage. Look into their backgrounds with state securities regulators and with FINRA, understand the required disclosures on any given transaction, and insist on frankness and transparency when it comes to any potential conflicts of interest.
To read the entire ruling, click here.
Interested in learning more about Self-Directed IRAs? Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation. Download our free guides or visit us online at www.AmericanIRA.com.