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Ways to Avoid Fraud with a Self-Directed IRA: “Check Before You Invest”

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Preferred Trust Company is a member of the Retirement Industry Trust Association (RITA), a professional trade association, comprised of regulated banks, trust companies, and industry-related professionals who are passionate and dedicated to high ethical standards and adhere to best practices.

Since 1987, RITA has worked closely with the Securities and Exchange Commission (SEC), FBI, IRS, Department of Labor (DOL) and United States Treasury Department to help identify fraud trends and educate financial professionals in the latest rules and regulations pertaining to alternative assets in retirement accounts.

Having an IRA comes with many responsibilities for both the custodian and the IRA account owner. It may come as a surprise to some of you that so many governing regulatory bodies watch over the IRA industry. We are proud to be associated with RITA as they continue to educate the SEC, FBI, IRS, DOL and Treasury about our industry and lobby for the protection of IRAs.

Series- Check before you Invest – Part 1

With that being said, we want to share with you a RITA’s best practice called, “Check Before You Invest.” This investor educational awareness campaign was created for the purpose of promoting investor awareness through educational materials and resources provided by state, federal, and private agencies.

RITA and its member firms encourage each investor to review the following questions when considering an investment. It is not the responsibility of the custodian to provide investment analysis or recommendations or to perform due diligence concerning your investment decisions. The questions have been designed to help you in your efforts to evaluate the soundness, prudence and merit of your investments. Please note that this is not a comprehensive list of questions but simply a starting point. The answers to these questions are not substituted for your due diligence. We strongly encourage investors to make use of legal, tax and financial advisors to support these efforts.

Series- Check before you Invest – Part 2

HOW THE INVESTMENT WAS MARKETED TO YOU

  1. Does the sponsor/advisor use professional or hard sell tactics in marketing presentations or materials?
  2. Does the sponsor/advisor pressure you to make investments quickly?
  3. Was the investment marketed through newspaper, internet or other broad based advertising materials?

Series- Check before you invest – Part 3

THE INVESTMENT

  1. Does the investment contain unusually high interest rates or returns?
  2. Is the investment described as “safe” or “guaranteed?”
  3. Is the investment described as “IRA-approved”, “custodian-approved”, or “approved by any government agency”?
  4. Is the investment framed as having any tacit approval from a passive custodian, such as “exclusive provider for custodian x”?
  5. Does the investment claim to perform better than industry or market average for no apparent reason?

Series- Check before you invest – Part 4

BEFORE YOU INVEST

  • Be sure your IRA investment is consistent with your investment goals.
  • Understand that any investment outside of an FDIC-insured product is subject to risk including loss of principal.
  • Understand that neither your IRA custodian nor any governmental agency endorses or guarantees non-FDIC insured investments.
  • Watch out for fraud red flags including, but not limited to; guaranteed investment returns, high pressure sales techniques, and too good to be true statements.
  • Ask a trusted professional (such as your accountant, lawyer or financial adviser) for a second opinion.
  • Be sure to utilize information and resources from; the Securities and Exchange Commission (investor.gov), the National Association of State Securities Administrators (www.nassa.org), and the Financial Industry Regulatory Authority (www.saveandinvest.org).

Series- Check before you invest – Part 5

AFTER YOU INVEST

  • Carefully review each account statement and follow up with questions to the investment sponsor if you do not understand it or something does not make sense or seems suspicious.
  • Remember Preferred Trust Company maintains your account and forwards account information to you but it is not responsible for any profits or losses on your investment.
  • Report any suspicious activity related to your investment to your custodian and state or federal authorities.