Regulators Warn of Self-Directed IRA Risks

Industry regulators issued a collective warning Tuesday on the potential risks associated with self-directed individual retirement accounts — namely, that such investing can come with fraudulent schemes, high fees and volatile performance.

The updated bulletin was issued by the SEC’s Office of Investor Education and Advocacy, the North American Securities Administrators Association and the Financial Industry Regulatory Authority.

The SEC, NASAA and FINRA first issued a bulletin in 2011 on self-directed IRA risks, and NASAA warned in 2021 that self-directed IRA scams targeting seniors and retirees were on the rise.

The new bulletin highlights risks associated with cryptocurrencies, noting that some self-directed IRAs “may allow you to invest in ‘crypto assets’” that “might be securities that are offered without SEC registration or a valid exemption from registration.”

“The big message is you’re on your own” when investing in a self-directed IRA, Ed Slott of Ed Slott and Co., told ThinkAdvisor on Tuesday, commenting on the alert. ”The good self-IRA custodians want to separate themselves from the fraudsters.”

But investors, Slott said, “are on their own to make sure they don’t run afoul of any of the rules” associated with IRAs.

Slott said that he tells advisors they can’t “bless this transaction because they can’t follow all the rules and [the advisor] can’t monitor everything.” Advisors, Slott advised, must tell clients “this is risky.”