IRA custodian denies investment in syndication

10 Replies

My IRA custodian denied an investment that I wanted to make in a syndication. They will not provide the reason for the denial. Their due diligence must have revealed a problem with the sponsorship group; otherwise, I believe they would have explained the reason for the denial. They approved an investment in my wife's IRA in a different fund from the same sponsor though. The sponsorship group is not exactly same in both funds though but there is material overlap. Both funds are with institutional grade sponsors with long track records. In addition, the funds were vetted by an established investment club and the club membership has invested with the sponsor numerous times over the years.

Has anyone experienced a denial before where the custodian would not provide a reason?  For the custodians out there, what would keep a custodian from providing a reason (I assume legal liability)?  It's problematic not knowing why, especially since I invested in the other fund.  And I don't know if my custodian is helping or hurting my investing.

@Mike Dymski I have not had issues with this happening with any of my investors and I'm not institutional grade:) Have you tried a 2nd custodian? Not sure if there is still time, but we have had great luck with New Direction IRA.

MIke, are you with a self directed IRA company or with a bank or trust company ?

I have always had self directed ( entrust ) and now Brain Eastman set me up with the best method which is solo check book IRA ... there is no over sight per se other than if you make an investment that is not allowed the IRS can ding you.. entrust would only stall if the docs were not correct.. they never vetted the deal just check the box's and of course 99% of my stuff is real estate notes.. so they just make sure notes and escrow docs were correct.

@Todd Dexheimer I am reluctant to make the investment with a different custodian or out of taxable funds without knowing the reason for the denial.  The custodian may have information that I don't have.

@Jay Hinrichs I am with a self-directed IRA company...one of the largest in the space. If they are adding value with their due diligence, it would be nice to know what they know. Thanks for the positive feedback on checkbook IRAs.

Hopefully some custodians will chime in...maybe tomorrow during business hours.

@Mike Dymski Interesting. I have never heard of a custodian going beyond just making sure the transaction is a legal use of IRA funds. I did have an interesting request from a well known custodian, asking me to modify my operating agreement to state that I was not investing in the deal with IRA funds. I couldn't figure out what this had to do with protecting their client. When I told them that I wouldn't make the change, they let their client invest anyway.

If my custodian wouldn't tell me why they are refusing the investment, I would change custodians.  I would also do a more extensive vetting on the sponsor/deal, and see if I could find anything.

@Mike Dymski

If they will not tell you why they will not process the investment, they do not deserve your business.  Plain and simple.

The custodian will not perform diligence on an investment. If they are aware that an investment sponsor has had fraud or a generally bad reputation, they may choose not to process the paperwork - simply to cover their own backsides. More likely there is something about the paperwork that is not complete or perhaps the investment will trigger IRA taxation such as UBIT they do not want to be in the middle of. Some custodians have a policy of not handling "complex" transactions.

As a general rule, however, the custodian simply says "do we have all the correct paperwork to document the transaction?" and does not perform additional vetting.  To do so would potentially expose them to liability they do not want.

Without seeing the details, we can all only guess, but as I noted above... if they will not even tell you, something is wrong with their service.

Originally posted by @Jeff Greenberg :

@Mike Dymski Interesting. I have never heard of a custodian going beyond just making sure the transaction is a legal use of IRA funds. I did have an interesting request from a well known custodian, asking me to modify my operating agreement to state that I was not investing in the deal with IRA funds. I couldn't figure out what this had to do with protecting their client. When I told them that I wouldn't make the change, they let their client invest anyway.

If my custodian wouldn't tell me why they are refusing the investment, I would change custodians.  I would also do a more extensive vetting on the sponsor/deal, and see if I could find anything.

In the past, this custodian has also requested that a sponsor change a note agreement and the sponsor has accommodated the change.  I have three outstanding investments with that sponsor.  One of the note agreements with this sponsor has gone past it's maturity date and the custodian has requested a note modification; so, they are on top of things.  They may just be overstepping their bounds in some cases (or they know something that I don't in this case).

@Mike Dymski

That is odd that they are giving a reason as they generally will. It could be a number of reasons. Is the investment sponsor on some watch list, or have they ever had any legal action served against them from the state or SEC?

Originally posted by @George Blower :

@Mike Dymski

That is odd that they are giving a reason as they generally will. It could be a number of reasons. Is the investment sponsor on some watch list, or have they ever had any legal action served against them from the state or SEC?

How do I find that out?  I have detailed background information on them but that will not include SEC action (unless it resulted in criminal charges and I have that information).

I would start off by asking the investment sponsor if they have or are under investigation by the government.

Originally posted by @George Blower :

I would start off by asking the investment sponsor if they have or are under investigation by the government.

I reached out to the sponsor today (but you're typically not going to catch a spider in it's own web, at least, not at first).

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