Post on 22-Feb-2017
transcript
PRESENTED BY
IRON HORSE MANAGEMENT, LLC
WITH GUEST SPEAKERSLAURIE BACHELDER, PRINCIPAL OF FREEDOM WEALTH ADVISORS, LLC
AND FRANK BRIDGES, FOUNDER OF
HERITAGE DESIGN LAW GROUP LLC
How RIAs can Monetize the Self-Directed IRA
Opportunity
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
All written material(s) provided by Iron Horse Management, LLC, Freedom Wealth Advisors, LLC and Heritage Design Law Group, is/are for informational purposes only. It is not intended and may not be relied upon as direct actionable opinion, guidance, or advice on any legal, tax or investment matter(s). Any strategies discussed, including examples using actual investments, are strictly for illustrative purposes and are not to be construed as an endorsement, recommendation, or solicitation to buy or sell any investment. © All rights reserved. Any reproduction, modification, or use of these materials without the prior written consent of Iron Horse Management, LLC, Freedom Wealth Advisors or Heritage Design Law Group, is strictly prohibited. Any authorized use by third party(ies) may not be construed to imply Iron Horse Management, LLC, Freedom Wealth Advisors, LLC or Heritage Design Law Group, has endorsed or recommended the third party(ies). Iron Horse Management, LLC, Freedom Wealth Advisors, LLC and Heritage Design Law Group is only responsible for its own written content and verbal representations made by its legal representatives. Any and all oral commentary and any non-related materials disseminated by third party(ies) is solely the responsibility of those third party(ies).
Our Objective with this Webinar
Current size of the marketplace
Trends and the opportunity available to Financial Advisors
How to eliminate the drain on resources for the small to medium size advisory firm and still win
We will identify how to add this service to your business model to attract new HNW clientele
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
RIA Market Continues to Grow
From 2008 through 2011, RIAs’ holdings of retail investor assets grew by nearly 50%, to over $1.3 trillion
Dually-registered advisors (RIA and independent broker-dealer) enjoyed even faster growth, increasing assets by more than 140%, to $883 billion
By contrast, total retail channel assets grew by 28.5%, to $22.4 trillion
According to Cerulli report (Oct. 2012)© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Size of the Retirement Market
Retirement Market is over $18.5 Trillion
IRA Market is $5.1 Trillion
Retirement Assets by Type – IRAs represent the largest segment of the US Retirement Market
ICI Retirement market stats as of 6/30/2012
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Why advisors are not jumping for this opportunity?
Highly technical aspects of the law and rule that surround Self-Directed IRAs such as:
Prohibited TransactionsSelf-Dealing issuesDOL interpretations of the codePlan asset rules Ongoing potential for the client to create a
PTLiquidity and Valuation issues
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Our First Speaker Today
Laurie Bachelder, PrincipalFreedom Wealth Advisors, LLC
Portland, ME.
RIA firm with an extensive background with alternative or non-traditional assets held within retirement plans.
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Brief History of IRA
1974-Congress created Employee Retirement Income Security Act (ERISA)
•Created IRAs to supplement Social Security
•IRA was intended to be a self directed retirement account.
Types of retirement accounts that can be ‘Self Directed’
SEP IRA
401(k)/ProfitSharing
403(b) 457 Plans
HSA
Simple IRADefined Benefit
Plans
Self-Directed
Traditional IRA
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Characteristics of a Self Directed Retirement Account
All rules and regulations including contributions limits, distributions, tax treatment, etc are the same as retirement accounts that invest in traditional investments.
The major difference for a self directed retirement account is the custodian.
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What can a Self-Directed Retirement Account invest in?
The rules only specify what you CANNOT invest in (which assets are excluded or prohibited)
What You Can’t Invest in: Collectibles Life Insurance Stock of a Sub-chapter “S” corporation
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What is Allowed
As long as the transaction is:
For Investment PurposeNot creating a prohibited transaction (with a
disqualified person) Then the list of possible asset types or eligible
investment structures is virtually limitless!*
*Limitations and restrictions apply per IRC 590
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Some possibilities …….
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Real Estate Property Foreclosures, Options, Pre-construction, Raw Land, Mobile Homes,
Public Storage Units, etc. Trust Deeds / Mortgage Notes Promissory Notes Privately held C-Corp Stock, LLC Membership, Limited
Partnership interests Private lending Raise Capital Horses Businesses Bus stop stations Sports team ………….Invest in what you know, your passion or core
competency!!!!
The Reality
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Significant loss in retirement asset value over past several years
Unstable Economy
Fluctuations in the markets
Slow financial recovery…..………coupled with the break down of consumer confidence in corporate America, is leading investors to actively looking for ways to diversify their retirement accounts.
How Do Self-Directed IRA accounts Help?
Asset Allocation Permit far greater diversification than traditional
accounts. A portfolio comprised of only stocks, bonds and mutual
funds may not be enough to provide true diversification.
Allow investors to invest in what they know and understand!
Tax-deferred compound growth.
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
‘Self Directed’ does not mean ‘Self Supporting”Need for Expertise
Expert that has knowledge of the rules and regulations for non-traditional assets in a qualified account.
Expert to provide the review on the investment, initially and ongoing. Review and advise on Investment suitability, Investment
risk, investment structure and exit strategy.
Expert to provide monitoring and oversight on the investment.
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
COMBINING INVESTMENTS CLIENTS KNOW AND UNDERSTAND WITH THE ADVANTAGES OF AN IRA OR 401(K) –
NAMELY, TAX BENEFIT INVESTING – IS THE TRUE DEFINITION OF A SELF
DIRECTED RETIREMENT ACCOUNT, AND A POWERFUL INVESTMENT STRATEGY
AND A LOGICAL HEDGE AGAINST MARKET VOLATILITY
Words of Wisdom
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Our Next Speaker
Frank Bridges, Founder of Heritage Design Law Group, LLC
Newton, MA
Key member of our national professional network ready and able to assist clients, CPAs, and lawyers nationwide.
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
TO MAKING A PRIVATE INVESTMENT IN LOCAL REAL ESTATE
Six Basic Steps to Start
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Six Basic Steps
1. Choose a Custodian
Phil’s IRA
Phil
SDRA Custodian
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Six Basic Steps
1. Choose a Custodian
2. Open an Account
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Six Basic Steps
1. Choose a Custodian
2. Open an Account
3. Transfer Funds to Your New Account
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Six Basic Steps
1. Choose a Custodian
2. Open an Account
3. Transfer Funds to Your New Account
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Six Basic Steps
1. Choose a Custodian
2. Open an Account
3. Transfer Funds to Your New Account
4. Choose Your Investment
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Six Basic Steps
1. Choose a Custodian
2. Open an Account
3. Transfer Funds to Your New Account
4. Choose Your Investment
5. Structure Your Deal
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Six Basic Steps
1. Choose a Custodian
2. Open an Account3. Transfer Funds to
Your New Account4. Choose Your
Investment5. Structure Your
Deal6. Instruct the
Custodian to Make the Investment
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Six Basic Steps
1. Choose a Custodian
2. Open an Account3. Transfer Funds to
Your New Account4. Choose Your
Investment5. Structure Your
Deal6. Instruct the
Custodian to Make the Investment
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
What You Can Do
1. Contribute up to the annual maximum2. Receive Qualified Distributions3. Make Rollovers to/from Qualified Plans4. Invest for Tax Free Returns5. Choose Your Custodian6. Designate Beneficiaries7. “Stretch Out” Distribution Planning8. Convert Traditional IRAs to Roth IRAs
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Prohibited Transactions
Prohibited Transactions Thumbnail Guide
Any direct or indirect business transaction involving plan assets between one or more disqualified persons and a plan, and
Any direct or indirect personal benefit to one or more disqualified persons involving plan assets (other than qualified distributions).
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Prohibited Transactions
The Meaning of “Indirect”(One Man’s Opinion)
A transaction intended to circumvent the rules and achieve the same result (doing “indirectly” what you can’t do “directly”)
Includes an element of concealment or evasion
Not something that happens as an unintended collateral result
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Why Be Good?
Three Potential Disasters:1. 15% Excise Tax on the “Amount Involved” 2. 100% Excise Tax on “Amount Involved” for
Failure to Correct in the Taxable Period3. Disqualification of the IRA for Tax
Deferred Treatment
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Managing the Property
Top 3 Mistakes1. The Wrong Owner
Phil
What Can Phil Do?Decide Lease Terms?Prepare the Lease Document?Receive Rent Checks?Send Checks to Custodian?Collect Rents?Sweep Floors?Fix Toilets? © Iron Horse Management, LLC www.Iron-Horse-
Mgmt.com
Managing the Property
Top 3 Mistakes1. The Wrong Owner
Phil
What Can Phil Do?Decide Lease Terms OKPrepare the Lease DocumentReceive Rent ChecksSend Checks to CustodianCollect RentsSweep FloorsFix Toilets
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Managing the Property
Top 3 Mistakes1. The Wrong Entity
Phil
What Can Phil Do?Decide Lease Terms OKPrepare the Lease Document XReceive Rent ChecksSend Checks to CustodianCollect RentsSweep FloorsFix Toilets
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Managing the Property
Top 3 Mistakes1. The Wrong Owner
Phil
What Can Phil Do?Decide Lease Terms OKPrepare the Lease Document XReceive Rent Checks OKSend Checks to CustodianCollect RentsSweep FloorsFix Toilets
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Managing the Property
Top 3 Mistakes1. The Wrong Owner
Phil
What Can Phil Do?Decide Lease Terms OKPrepare the Lease Document XReceive Rent Checks OKSend Checks to Custodian OKCollect RentsSweep FloorsFix Toilets
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Managing the Property
Top 3 Mistakes1. The Wrong Owner
Phil
What Can Phil Do?Decide Lease Terms OKPrepare the Lease Document XReceive Rent Checks OKSend Checks to Custodian OKCollect Rents XSweep FloorsFix Toilets
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Managing the Property
Top 3 Mistakes1. The Wrong Entity
Phil
What Can Phil Do?Decide Lease Terms OKPrepare the Lease Document XReceive Rent Checks OKSend Checks to Custodian OKCollect Rents XSweep Floors XFix Toilets
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Managing the Property
Top 3 Mistakes1. The Wrong Owner
Phil
What Can Phil Do?Decide Lease Terms OKPrepare the Lease Document XReceive Rent Checks OKSend Checks to Custodian OKCollect Rents XSweep Floors XFix Toilets X
PropertyManager
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Managing the Property
Top 3 Mistakes1. The Wrong Owner
Phil
PropertyManager
What Can the Manager Do?Decide Lease Terms OKPrepare the Lease Document OKReceive Rent Checks OKSend Checks to Custodian OKCollect Rents OKSweep Floors OKFix Toilets OK
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Dealing with Disaster
Top 3 Mistakes1. The Wrong Owner
Phil
What Can Phil Do?Pay expenses from his non-SDRA funds?
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Dealing with Disaster
Top 3 Mistakes1. The Wrong Owner
Phil
What Can Phil Do?Pay expenses from his non-SDRA funds? XGuarantee a loan from a bank?
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Dealing with Disaster
Top 3 Mistakes1. The Wrong Owner
Phil
What Can Phil Do?Pay expenses from his non-SDRA funds? XGuarantee a loan from a bank? XAdd more IRA funds to his SDRA?
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Dealing with Disaster
Top 3 Mistakes1. The Wrong Owner
Phil
What Can Phil Do?Pay expenses from his non-SDRA funds? XGuarantee a loan from a bank? XAdd more IRA funds to his SDRA?
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Dealing with Disaster
Top 3 Mistakes1. The Wrong Owner
Phil
What Can Phil Do?Pay expenses from his non-SDRA funds? XGuarantee a loan from a bank? XAdd more IRA funds to his SDRA? Ok
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Dealing with Disaster
Top 3 Mistakes1. The Wrong Owner
Phil
What Can Phil Do?Pay expenses from his non-SDRA funds? XGuarantee a loan from a bank? XAdd more IRA funds to his SDRA? OkLend money to his SDRA on an emergency basis?
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Dealing with Disaster
Top 3 Mistakes1. The Wrong Owner
Phil
What Can Phil Do?Pay expenses from his non-SDRA funds? XGuarantee a loan from a bank? XAdd more IRA funds to his SDRA? OkLend money to his SDRA on an emergency basis? OK?
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Dealing with Disaster
Top3 Mistakes1. The Wrong Owner
Phil
What Can Phil Do?Pay expenses from his non-SDRA funds? XGuarantee a loan from a bank? XAdd more IRA funds to his SDRA? OkLend money to his SDRA on an emergency basis? OK?Have the IRA borrow money from his sister?
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Dealing with Disaster
Top 3 Mistakes1. The Wrong Owner
Phil
What Can Phil Do?Pay expenses from his non-SDRA funds? XGuarantee a loan from a bank? XAdd more IRA funds to his SDRA? OkLend money to his SDRA on an emergency basis? OK?Have the IRA borrow money from his sister? OK
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Dealing with Disaster
Top 3 Mistakes1. The Wrong Owner
Phil
What Can Phil Do?Pay expenses from his non-SDRA funds? XGuarantee a loan from a bank? XAdd more IRA funds to his SDRA? OkLend money to his SDRA on an emergency basis? OK?Have the IRA borrow money from his sister? OKDid Phil instruct the custodian to buy liability insurance?
Tenant
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Dealing with Disaster
Top 3 Mistakes1. The Wrong OwnerPhil
LLC
Tenant
PropertyManager
Custodian
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Dealing with Disaster - OK!
Top 3 Mistakes1. The Wrong OwnerPhil
LLC
Tenant
PropertyManager
Custodian
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Capital Conundrums
Top 3 Mistakes1. The Wrong Entity2. The Wrong Partner
Phil
LLC
Custodian
50%
50%
Simultaneous Funding
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Capital Conundrums
Top 3 Mistakes1. The Wrong Entity2. The Wrong Partner
Phil
LLC
Custodian
50%
50%Simultaneous Funding
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Capital Conundrums
Top 3 Mistakes1. The Wrong Entity2. The Wrong Partner
Phil
LLC
Custodian
50%
50%
Can the IRA add more capital?
Simultaneous Funding
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Capital Conundrums
Top 3 Mistakes1. The Wrong Entity2. The Wrong Partner
Phil
LLC
Custodian
50%
50%
Can the IRA add more capital?
Can Phil add more capital?
Simultaneous Funding
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Capital Conundrums
Top 3 Mistakes1. Wrong Entity2. The Wrong Partner
Phil
LLC
Custodian
50%
50%
Can the IRA add more capital?
Can Phil add more capital?
What if Phil can’t afford to buy the property himself?
Simultaneous Funding
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Capital Conundrums
Top 3 Mistakes1. Wrong Entity2. The Wrong Partner
Phil
LLC
Custodian
50%
50%
Can the IRA add more capital?
Paul, Phil’s Brother
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Capital Conundrums
Top 3 Mistakes1. Wrong Entity2. The Wrong Partner
Phil
LLC
Custodian
1/3
1/3
Paul
Mary
1/3
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Capital Conundrums – OK!
Top 3 Mistakes1. Wrong Entity2. Wrong Partner
Phil
LLC
Custodian
1/3
1/3
Paul
Mary
1/3
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Managing the Property
Top 3 Mistakes1. Wrong Entity2. Wrong Partner3. Failing to Maintain
Phil
What Can Phil Do?Decide Lease Terms OKPrepare the Lease Document XReceive Rent Checks OKSend Checks to Custodian OKCollect Rents XSweep Floors XFix Toilets X
PropertyManager
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Capital Conundrums
Top 3 Mistakes1. Wrong Entity2. Wrong Partner3. Failing to Maintain
Phil
LLC
Custodian
50%
50%
Can the IRA add more capital?
Can Phil add more capital?
What if Phil can’t afford to buy the property himself?
Simultaneous Funding
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
The Role of the Custodian
Self-Directed Custodians are fiduciaries but do not provide investment evaluation or advice.
Custodians are often banks, subject to supervision by the banking regulators.
Banks have to avoid “risky” investments. Capital Cover Banking Requirements
Prohibited Transactions are “risky” investments.Custodian holds the investment f/b/o the IRA’s ownerCustodian reports account value to IRS annuallyCustodian reports distributions to IRS and account
holder
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Monetizing the Opportunity
Current size of the marketplace – It is to large to ignore.
Capturing the opportunity – Data research and current trends have identified that client interest in alternative assets is not going away.
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Finding the right partners can be game changing
How to eliminate the drain on resources for the small to medium size advisory firm and still win
Consider Outsourcing!
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The Outsourcing Solution
Everything from assisting with your clients initial questions to the selection process for the appropriate special asset custodian can be outsourced.
Asset compliance review by a third party and ongoing compliance review.
You the advisor will not have to add staff or do the research – it can all be handled by reputable experienced professionals.
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com
Thank you for attending this webinar
For more information you can contact any of the speakers at the email below.
Begin capturing your fair share of the retirement market today.
Michael P. ScottMPS@Iron-Horse-Mgmt.com
Laurie Bachelder Laurie@Freedom-Wealth-Advisors.com
Frank BridgesFbridges@HDLawGroup.Com
© Iron Horse Management, LLC www.Iron-Horse-Mgmt.com