By Bill Dolan, Senior Portfolio Manager, California Wealth Management
Originally published in the Sacramento Business Journal

Investors are faced with many important decisions as we navigate a competitive and often confusing economic and business landscape. How we choose to allocate our resources (wealth) is the most important decision investors must make and largely the determinant of our success. Self-directed IRAs (Individual Retirement Accounts) offer investors the opportunity to allocate wealth to investments that are not available in IRAs where there is a regulated institutional trustee or custodian and this can be appealing to certain investors. Risk and reward are imbedded in investments, inherent to investing, and need to be assessed and understood in order to make sound investment choices. To be sure, the wide array of non-traditional investment options available in a self-directed IRA can be attractive to some investors. However, the very nature of “self-directed” leaves investors vulnerable without the added layer of due diligence and vetting of investment options that come with an IRA held with an institutional trustee or custodian that is screening the investment options allowed on its platform. This lack of professional screening and due diligence of investments coupled with the long term nature and penalties for early withdrawal of an IRA have served to foster an environment where fraudulent investment schemes can take root easier and go undetected longer. This condition has even prompted an SEC warning to investors-published in September of 2011. Check out www.sec.gov/investor/ alerts/sdira.pdf to see what can go wrong.

The key questions investors need to ask when considering a self-directed IRA are:

  • Do I have confidence that the reward and risk of particular non-traditional investments is better than traditional investments?
  • Do I have the time and skill to accurately analyze and monitor the risk and return of these investments?
  • Do I have the time, skill, and access to determine the integrity, track record, and qualifications of the managers and promoters offering these non-traditional investments?
  • Are the investments at arm’s length and allowable within IRS guidelines or do they run the risk of disqualification and losing their tax-deferred status?

If the answer is “no” or “I’m not sure” to any of these questions then you are well advised to stick with an IRA held with a fiduciary trustee or custodian that offers only regulated securities like stocks, bonds, mutual funds, and exchange-traded funds (etfs) in addition to a growing platform of liquid alternative funds, real estate funds, and private equity funds that have been screened, vetted, and are continuously monitored. As always, your First Bank trusted advisors are ready to answer any questions regarding IRAs, self-directed IRAs, or any other retirement plan options. Let’s discuss.


William “Bill” Dolan is a Senior Vice President, Senior Portfolio Manager, and a Team Leader for the Wealth Management Division at First Bank. Possessing more than 20 years of experience in multiple disciplines, including investment management, wealth management, and real estate investments, Bill is responsible for the overall development and coordination of wealth management activities for his team.
Some products mentioned are not FDIC insured and are not a deposit or other obligation of or guaranteed by the Bank or its affiliates, and involve risk including the possible loss of principal amount invested and are not insured by a federal government agency.