Many Investors Falsely Assume their Self Directed IRA Custodian is Required to Conduct Due Diligence Investigations
Investment research is NOT the function of an IRA custodian. The responsibility for researching alternative investments lies with the individual account holder, and performing due diligence properly can mean the difference between investment success or a complete financial loss.
Diving headfirst into the due diligence process by yourself is overwhelming. Fortunately, The IFPB has made it our mission to developed specialized skills and resources that investors typically don’t have the time or access to implement.
It’s worthwhile to allocate funds upfront to ensure an investment offering is legitimate, and that the claims made in the prospectus are verifiable. You wouldn’t buy a home without having it inspected or purchase a used luxury car without a CarFax. The Investment Fraud Protection Bureau An Investment Research Agency believes the money you may be investing from your Self Directed IRA deserves the same respect and protection.
Verify the information in self-directed IRA account statements. Alternative investments may be illiquid and difficult to value. As a result, self-directed IRA custodians often list the value of the investment as the original purchase price, the original purchase price plus returns reported by the promoter, or a price provided by the promoter. If possible, take steps to independently verify information—such as prices and asset values—provided in account statements.
Avoid unsolicited investment offers. Investors should exercise extreme caution before investing in any unsolicited investment offer that promotes the use of a self-directed IRA. Fraudsters may attempt to lure investors into transferring money from traditional IRAs and other retirement accounts into new self-directed IRAs.
Ask questions. Always ask if the person offering the investment is registered or licensed and if the investment itself is registered. Then check out the answers with an unbiased source, such as the SEC or your state securities regulator. The SEC has a short publication called “Ask Questions” that discusses many of the other questions investors should ask of anyone who wants them to make an investment, including about the background and history of the promoter. Please take a look at it before making any investment decisions.
Be wary of “guaranteed” returns. Every investment carries some degree of risk, and the level of risk typically correlates with the return an investor can expect to receive. Lower risks generally correspond to lower yields (or returns). By contrast, higher yields typically involve higher risk. Fraudsters often spend a lot of time trying to convince investors that extremely high returns are low risk by calling them “guaranteed” or “can’t miss” opportunities. Be extremely wary of such claims. High returns typically represent potential rewards for investors who are willing and financially able to take big risks.
Consult a professional. For investment opportunities like alternative assets in self-directed IRAs, investors should consider getting a second opinion from a licensed, unbiased investment professional or an attorney. This is especially important if an investor is opening or creating a new account outside a traditional financial institution or well-recognized broker-dealer.
