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How to Choose a Custodian For Your Self-Directed Retirement Account

When you’re ready to switch to a self-directed retirement account, the next thing you may want to do is to find a custodian for the account. A custodian is not mandatory by IRS regulations, but most investors find that having a custodian does simplify things. Here’s how to find qualified custodians and then how to choose among them.

How to Find Qualified Custodians for Self-Directed Retirement Accounts

There aren’t as many qualified custodians for self-directed retirement accounts as there are stock brokers. Still, if you know where to look you’ll surely be able to find one that suits your needs.

Conduct an Online Search

First, you need to know what search terms to use. Custodians for self-directed retirement accounts are also sometimes referred to as trustees. Less often, they’re referred to as managers or administrators. So when you’re conducting your online search, you may need to try out a variety of these terms along with “self-directed retirement account” to get sufficient results.

Second, the first results you’ll see will be paid ads for custodians for self-directed retirement accounts. You might want to scroll on down past the paid ads so you don’t simply get funneled into a limited choice of custodians based on computer algorithms.

Get Recommendations to Find a Self-Directed Retirement Account Custodian

If you know of anyone in your professional or personal life who’s willing to share information, you could ask for recommendations. The most trusted testimonials as to a custodian’s level of service come from people you already know and trust. You may also ask your banker, accountant or tax preparer if they happen to know of a custodian they can recommend. The other source for custodian recommendations is the investment sponsor. If you’ve already identified a potential investment, such as a private lending opportunity, the sponsor may have the names of a handful of custodians they’ve done business with that they can recommend.

How to Choose a Custodian For Your Self-Directed Retirement Account

Once you’ve curated a selection of possible custodians, you’ll need to narrow it down to the one that you want to actually work with. Remember that ideally, you want this to be a long-term relationship, so keep the following in mind as you choose.

The Custodian Doesn’t Vet Investments

The whole point of a self-directed retirement account is that you’re in charge of the investment decisions. That includes making sure that the investments are sound. Your custodian’s job isn’t to vet investments for you. Some custodial firms have been around for many years, however. As such, they may have had previous experience with certain investment sponsors or investment types. You should certainly listen to and weigh any pragmatic advice offered, but you should not rely on the custodian for your final decision. The more self-reliant and knowledgeable you become, the better—and more successful—investor you’ll be.

Pay Attention to Rapport

Your custodian will be executing your orders on a continuing basis over the long-term. It’s absolutely essential that you have a good rapport with whichever custodian you choose to work with. Therefore, pay careful attention to the rapport during the conversations when you’re interviewing the custodian. What are you looking for?

  • does not interrupt you when you’re speaking
  • responds to what you said, not just continues with what they wanted to say next
  • answers your questions fully, not just “yes” or “no”
  • asks you insightful questions
  • isn’t hurried or distracted
  • answers basic questions objectively, without judgment
  • offers to be available for future calls and questions
  • patient if you don’t immediately understand something

Ask About Security

Cybersecurity is paramount, especially when it comes to your self-directed retirement account. As someone with substantial retirement funds to invest, you’re automatically a target for identity thieves. Ask the custodian about their security measures. Ask outright if they’ve ever been hacked, and if so, what their response was. A quality custodian will use the latest encryption standards and should be willing to share with you what security protocols are in place.

Seek an Attractive Fee Structure

Every self-directed retirement account custodian’s fee structure will vary. It pays to shop around. The fee structures can be very different, and the right choice could save you hundreds of dollars each year. For example, some custodians charge less for account maintenance, but then they have a fee for each transaction. Other custodians charge a bit higher for ongoing account maintenance but offer fee-free transactions. Other fees that custodians may charge for include document transfer fees. Ask for the fee schedule upfront before choosing a self-directed retirement account custodian. It pays to spend some time comparing and contrasting the charges for each one. Then consider how you’ll be using your account. Do you anticipate making just one or two investments each year or over several years, or will your investments be more active? That will help you determine what kind of fee structure is likely to save you the most money.

Ensure Freedom of Choice

Finally, ensure that the custodian offers freedom of your choice of investments, within the allowed investments dictated by the IRS. Surprisingly, some self-directed retirement account custodians choose to limit the types of investments that they’ll allow their clients to make. This isn’t a true self-directed situation. Be sure to ask if there are any limitations like this. If there are, move along to your next prospect. Even if you’re only interested in one type of investment now, you won’t want to be limited like this in the future. The whole point of self-directing is freedom of choice. Make sure you retain that freedom under the guidelines set forth by the IRS.

At American Real Estate Investments, we’ve done business with several self-directed retirement account custodians. If you would like more information about how the process works, or if you’d like some recommendations, please feel free to contact us. We’re always happy to help in any way we can.