In the world of retirement investments, gold has often played a well-known, if not well-understood, supporting role. Financial advisors use it to diversify stock heavy accounts, while gold companies tout high gold prices as a way to push glitzy gold based IRAs. Caught somewhere in the middle is the mid-level investor who just likes the idea of solid gold as a retirement asset. For this demographic and for financial advisors, it’s not so much a question of asset as much as it is a question of procedure. What’s the best way to buy the gold for clients, and what do they do with it once the purchase is made? Recent trends have given these questions surprising new answers for advisors.
Traditionally there are three steps that are involved in facilitating a gold investment. The first is setting up a specialized IRA account. Standard IRA accounts from the big brokerages usually only allow for stocks, funds, or other market products. Consequently, financial advisor clients who want to buy physical gold go the self-directed route and open an account with a custodian that allows for alternative assets. This step can provide a nice opportunity for confusion. Different custodians can offer vastly different options and fee schedules. The right choice will depend on the specific investor’s goals and investing style. This is where the financial advisor adds value.
The second step is finding a gold supplier. It’s at this stage that many investors really begin feeling lost. The ubiquitous radio ads can be discouraging as they sound like used car commercials with promises of gold’s next plateau. When potential clients finally do make the call, they’re given a vast choice of product that they didn’t even know existed. It begins with standard coins and bullion (of which there are many), and then continues on to premium products like exclusive proofs. Which gold products are the best for a long term investment is not a simple question and usually requires more background than can be given over in a quick sales call.
The third step of the process is placing the gold in a holding facility. Retirement accounts follow fairly strict rules as to where gold may be held, and the most common destination is usually one of the nation’s private depositories. These depositories are heavily regulated and your clients can feel fairly safe with any of them. The only problem is that holding gold in a depository takes away some of the “real” allure that made it desirable in the first place. Clients may have trouble accessing the gold, and future buying and selling can quickly become fee heavy.
These issues associated with gold often find similar expression with alternative retirement assets in general. The lack of control, the constant fee mongering, and the feeling of being locked in to a specific course have all turned off investors from becoming more seriously involved in their retirement fund management. As a result, a relatively recent style of IRA has been gaining popularity. This platform is commonly known as the Checkbook IRA. The basic idea behind it is that a client’s retirement funds are set up with a LLC which can then open a checking account at any bank. This realistically means that the retirement funds can be invested by merely writing a check. Although a custodian officially holds the account, there is no need to go through it in order to effect transactions. For clients wanting a pice of their IRA invested directly in the gold the implications are huge. Investors can shop around gold dealers and not limit themselves to those who promote gold IRAs. This allows clients the presence of mind to research the kind of gold that they should be investing in, and then getting the best possible price for it.
Perhaps an even bigger selling point is the storage option for financial advisor clients. The Internal Revenue Code mandates qualified third party storage (e.g. a depository), but makes a specific exception for the gold coins known as American Eagles. Technically American Eagles can be held personally by an investor at home. The only problem is that all of the standard gold IRAs currently populating the marketplace do not allow investors that option. Rather they insist that any gold product be held by a qualified third party. The Checkbook IRA platform gives your clients the freedom to skip the depository and take personal possession of American Eagles. Gold can finally find a home in your client’s home.
Daniel Sentell is DOC of Broad Financial, which specializes in Checkbook IRAs and their gold applications. He can be reached through http://www.broadfinancial.com
