For those here long enough to read some of my past posts, you know that I have spelled out the differences between a self-directed custodian, administrator and facilitator. No sense re-hashing all the differences now, but we will keep it simple. To the layman, the difference between a custodian/administrator to a facilitator typically is perceived as the difference in fee structures and the ability to control (write your own investment checks) your own retirement account. Typically, custodians and administrators control the funds and the “checkbook”, whereas the facilitator model typically establishes your plan for a one-time fee and you control the “checkbook.”
Without getting into a long dissertation on the other, more salient differences, in comparing whether you should establish a self-directed plan using any of the aforementioned formats, typically the final decision by the individual will boil down to those two primary issues (fees and control of the account). All models have their potential pros and cons, but the choice is clearly yours as the consumer.
In making a decision based in part on fee schedules, individuals must always compare “apples to apples”. The custodian/administrator model will always (initially, anyways) have lower fee structures as compared to a facilitator model; however, those fees charged by the custodian and administrator are annual fees, not a one-time fee, and they DO add up over a relatively short period of time. Not to mention as well that they do not give you full control of the account. Oh, finally, they also do not assume any responsibility for your plan’s compliance with IRS regulations. Custodians and administrators will not only charge you annual transactional and account balance fees, there are many other “additional” fees that they can and typically do charge the client.
Interestingly enough, without identifying the custodian, let’s look at a self-directed custodian and the kinds of fees they charge for. These are ALL transactions you, the account holder can do yourself and, in most cases, for no fee — and you control the account, as well. Be prepared, the list isn’t necessarily short:
Transfer Funds Within IRA
Termination of IRA, Partial
Termination of IRA, Complete
Roth Re-characterization for conversions done at different custodian
Distribution / Withdrawal / Investments / Asset Acquisition / Miscellaneous
Distribution, Regular Retirement Stream, Each
Quarterly paper account statements
….think we are done…..uh, no
Overnight Courier Delivery, Letter Envelope
Returned Check/Insufficient Funds
Copy of sent or canceled checks
Change of account type
Reversal of fees for alternate payment method
Re-producing tax documents
Document Research or Production
….do you think we can stop the list at 20 potential fees? Would like to, but….uh, no
Rush Fee For 24 Hour Expedite Requests
Hourly Rate For Extraordinary Services
Wire Transfers – Outbound
Wire Transfers – Inbound
….now, I think this is it, unless of course you want to review the “fine print” (e.g., keeping the interest or majority of the interest on your non-invested funds)…didn’t think so.
this isn’t to say that these fees shouldn’t be charged by a custodian/administrator, but the bigger question is why would you want to pay those fees if you don’t have to?
Ultimately, if you are considering a self-directed IRA or 401K, you have to elect the format that makes the most sense to you. What you want to do is to execute an “apples to apples” comparison and, ultimately, elect the model and format that makes the most sense to you.