How Kickstarter Can Help IRA Investors

Pensco provides its clients with access to those alternative investments, but isn’t a fiduciary, Orr said. The SEC noted in its 2011 alert that self-directed IRA custodians are only responsible for holding and administering the assets in the account. They generally don’t do any due diligence and the custodial agreement might explicitly state that the custodian isn’t responsible for investment performance. That puts a lot pressure on a client to evaluate an investment on their own. Another risk is the potential for fraud. The wealth of assets held in self-directed IRAs that makes them attractive to entrepreneurs and startups also makes them attractive to con artists and thieves. The SEC warned in the alert that self-directed IRAs are particularly attractive to fraud promoters “because they permit investors to hold unregistered securities and the custodians or trustees of these accounts likely have not investigated the securities or the background of the promoter.”

Among the strategies employed by fraud promoters, the SEC wrote, are misrepresenting the responsibilities of the IRA custodian to the investor to make them believe the securities are legitimate or protected against losses; exploiting the IRA’s tax-deferred nature to keep assets in the account longer than they might be in an account that doesn’t incur a penalty for early withdrawal; and not providing full or accurate information about an investment.

Advisors can benefit from these private equity strategies, too. “I’ve worked with many advisors and what I see a lot is that while some advisors can’t necessarily help directly with this, giving that handoff, giving that connection to someone who can help the greater portfolio strengthens their relationship,” Orr said.

Clients don’t want to hear their advisor say, “‘I can’t do that. You should probably just forget about it.’” he said. “They want to hear, ‘Absolutely. I can’t help you directly with that, but I know someone who can.’ For strengthening relationships with their clients, that’s probably the biggest thing I’ve heard from advisors over the years.”