New Direction IRA Founder Explains Self Directed IRA Regulatory Structure

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With the recent increase in self directed retirement investors, Bill Humphrey, founder of New Direction IRA, a leading provider of self directed IRA and other retirement accounts, has found a similar increase in confusion about who is regulating the self directed industry. Humphrey said, "Potential and new customers, and an occasional existing one as well, often ask about our regulatory structure. They want to know, 'Who is watching what we are doing?'"

Bill Humphrey has worked with self directed IRAs for ten years, both as an investor and self directed IRA holder, and now as the founder and president of New Direction IRA. Humphrey said, "With the increase in self directed retirement investment, more people have more questions about the regulatory structure. Who is watching what New Direction IRA is doing?"

As the result of the recent change from being a franchise to being an independent entity, New Direction is now responsible for regulatory reporting responsibilities previously handled via the franchise system. The business structure is one of two main possibilities for self-directed IRA provider structures. The details of the two options are described below. Humphrey explained, "To understand how regulatory oversight works, you must first know what structure your provider uses." Following is a summary and highlights of duties performed at various levels.

Top Level:
Custodian with Agent: Regulated by State or Federal Banking Authorities
Custodian Alone: Regulated by State or Federal Banking Authorities

Custodian with Agent:
*Performs Audits of Custodian and its agents
*Establishes Requirements for Custodian
*Maintains License of Custodian Entity

Custodian Alone:
*Performs Audits and Establishes Requirements for Custodian
*Maintains License of Custodian Entity

Bank or Trust Company Level:
Custodian with Agent:
Custodial Bank or Trust Company
*Engages Agent to perform certain duties – Custodian is responsible for the performance of those duties.
*May perform audits and reviews of the Agent’s activities.
*Establishes requirements and procedures sufficient for control and as required by the Regulators
*Reports directly to Regulators including activities of Agent

Custodian Alone:
Custodial Bank or Trust Company
*Performs all duties itself and may perform internal audits on its operations.
*Establishes requirements and procedures sufficient for control and as required by the Regulators
*Provides reports, procedures, asset access, and systems to meet the needs of the Regulators.
*Interfaces with the individual client
*Executes transactions at the direction of the client subject.

Administrator Level:
Custodian with Agent- Administrator:
*Provides reports, procedures, asset access, and systems to meet the needs of both the Regulators and the Custodian.
*Interfaces with the individual client.
*Executes transactions at the direction of the client subject to the approval of the Custodian

Custodian Alone:

As one can see from this breakdown, there is more regulatory attention paid to the Custodian with Agent model. Not only is the Agent monitoring himself, but the custodian is providing oversight related to the agent. And, of course, the custodian is being monitored by the banking regulators. The net effect, from a client perspective, is that the possibility of discovery any irregularities is greater with a discreet Agent and, thus, the client is more protected.

It is important to be aware that in addition to the two primary business structures outlined above, there are also companies that promote Self Directed IRAs who are not the actual provider of the IRA, meaning that they are neither custodian or agent. They usually offer services, related to particular types of IRA assets, which include the engagement of a Custodian for your account. However, these business models usually but who try to keep the involvement of the Custodian to a minimum. Therefore, these companies are not under scrutiny by the custodian nor are they under the jurisdiction of any banking regulator.

There are two core services that need to be satisfied for retirement funds to be held properly. Every IRA requires a custodian, typically a bank or trust company regulated by Federal or State banking regulators. Some life insurance companies and certain IRS approved entities may also act as the Custodian of IRAs. The second core service is administration and bookkeeping. Depending on the Custodian’s business model, they may decide to provide these services directly, or hire agents to perform many of the services.

New Direction IRA provides services to the Custodian of its accounts, First Trust Company of Onaga (FTCO). FTCO is actively involved in oversight of our activities and documentation. First, to ensure compliance with their internal rules, but secondly, and more importantly, to ensure compliance with the rules of the Division of Banking of the Office of the State Bank Commissioner of Kansas, their primary governmental regulator. FTCO undergoes on-site audits performed by as deemed necessary by the Banking Commissioner, but at least approximately once every 18 (24) months. Those audits include any or all of New Direction’s files and transactions.

The result of the structure is that New Direction IRA has potential direct reporting to the Banking Commissioner and also to the Custodian directly. FTCO has a staff dedicated to oversight, and that of similar IRA providers. When considering the question of who is watching a self-directed IRA provider, in this case New Direction IRA, the answer is internal compliance officers, oversight staff from the custodian, and then banking regulators. All of these entities are part of the team that the IRS requires to hold the IRA’s assets in such a way as to receive the tax advantages associated with the retirement account.

New Direction IRA, Inc., a self-directed IRA plan administrator with half a billion dollars in assets, also offers self-directed Health Savings Accounts and can be reached at 303-546-7930 or toll free at 877-742-1270. New Direction IRA teaches hundreds of free webinars and classes to educate new and experienced real estate investors and real estate professionals, so even a person with a small IRA fund can make big money for their IRA. Visit their website at

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John Sheflin
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