The Retirement Industry Trust Association (RITA) and the North American Securities Administrators Association (NASAA) joined forces to conduct a webinar Wednesday on the risks of self-directed IRAs.
Tom Anderson, RITA president, founder and vice chairman of PENSCO Trust and Matt Kitzi, NASAA enforcement section chairman and Missouri securities commissioner, held forth on some of the opportunities presented by self-directed IRAs and how sometimes those opportunities can become pitfalls when exploited by fraudsters.
Former Texas Securities Commissioner Denise Voigt Crawford moderated the discussion, which covered the difference between conventional and self-directed IRAs, warning signs of possible fraud and what investors should do if they suspect fraud.
As a class, self-directed IRAs have been around for 30 years. Anderson explained that they are “functionally same as other IRAs, but the owner of the IRA or someone they designate makes all the financial decisions.”
Self-directed IRAs basically fall into two types, the first of which allows the IRA owner to choose nontraditional or alternative investments such as real estate; private equity, domestic and foreign; precious metals—“or just about anything outside the disallowed class,” according to Anderson. That lets the owner take advantage of specialized knowledge— for example, a real estate broker with years of experience might choose to invest in real estate rather than the stock market.
The second type of self-directed IRA uses more conventional options such as stocks, bonds and mutual funds, but again, the owner chooses among the investments rather than being restricted to a limited field of choice.
Kitzi said that the problems regulators have seen with self-directed IRAs have nothing to do with the fact that they are self-directed and everything to do with scam artists and products or investments that are not legitimate in one way or another.