IRA Custodians vs. Third-Party Administrators - What’s the Big Deal?

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Congratulations! You’ve selected New Direction Trust Company (NDTCO) as the independent custodian for your tax-sheltered account. Of course, we think you made the right choice. But what exactly does a "custodian” do? Is a custodian different from an “administrator?” We think you should know the difference, and we’ll explore why below.

As your custodian, NDTCO acts like a bank, in that we hold your assets and handle your account’s financial transactions, providing the buffer between you and your investment required to retain your account’s tax advantages (click here to learn more about the role of an IRA custodian). Administrators (sometimes called third-party administrators or TPAs) do not hold any deposits but act as more of a recordkeeper to manage client requests and generate statements and necessary documents.

It is important to note all tax-sheltered accounts have a custodian, but some custodians outsource the required recordkeeping and other administrative services to third-party administrators. With this relationship, some custodians operate behind the scenes and leave most client-facing interactions to the administrator. To streamline and optimize investment processes for our clients, NDTCO operates as a one-stop shop and does not work with a third-party administrator.

Below we discuss three benefits enjoyed by NDTCO clients who custody assets with us, as opposed to administrators and sometimes even other custodians.

Accountability

NDTCO was founded on the principle of accountability — enable access to investor choices while providing the best customer service in the self-directed retirement industry.

As a custodian, NDTCO is directly accountable to federal and state regulators and the IRS. Since we are chartered in the state of Kansas, we are regulated by the Office of the State Bank Commissioner of Kansas as well as by the aforementioned government bodies. Because custodians answer directly to their regulators and must follow their guidance, we are also regularly subject to examinations and review of a vast array of information processes, operations, and compliance mandates.

Administrators are not held to the same regulatory standards as custodians since they are merely intermediaries and only interact with account holders versus holding their deposits. Ideally administrators would act in accordance with the regulatory standards their custodians are subject to, but this cannot be assumed in every instance.

Security

In addition to adhering to stringent regulations, custodians must carry errors and omissions insurance covering the administration and custody of all accounts. Administrators have no such explicit responsibility, although some custodians do require it of their administrators’ partners. NDTCO carries errors and omissions insurance and has a $2 million bond. We also carry $2 million in cybersecurity insurance.

NDTCO has gone even further to increase security and privacy for our account holders through our recent upgrades to the Client Portal security tools and secure transaction processing.

Custody with Quality

Government accountability and financial security notwithstanding, the lines between custodians and administrators can blur. Administrators can perform many of the administrative services that custodians do, such as assisting account holders with investment documentation and executing investments upon receipt of account holder authorization. However, just as administrators may not engage in all the same operations as custodians, not all custodians offer the same level of personal touch and assistance some self-directed investors need.

NDTCO clients enjoy the highest level of service available matched with the technical abilities and oversight inherent in working with a custodian. While we are as accountable and secure as custodians are required to be, we also pride ourselves on responding quickly to client questions and personally assisting in important transactions.

Get in Touch!

As your custodian, we want you to be prepared as the end of 2020 approaches. Please join our upcoming webinar End-of-Year Reminders and Tax-Planning Strategies to learn more about end-of-year considerations for your accounts.

For all other matters related to your self-directed IRAs, 401(k)s, and Health Savings Accounts, please don’t hesitate to give us a call at 877-742-1270 or send us an e-mail at education@ndtco.com.