Financial Planning - December 2012

of coins are generally a lot more pre-
dictable than for, say, paintings, Henn
says. “We know the approximate value
of the coins,” Henn says, “whereas
with an artwork, you’re guessing until
it goes to auction, unless you can find
a private market.”
Planners and clients should
consider carefully before wading into
this market nonetheless, Henn says.
Rare coins are “something you want
to have for a long time.”
As an investment, a rare coin is
“more appropriate for families or indi-
viduals with higher amounts of wealth.”
A 2007 study found that from 1979
through 2006, the average return for a
coin mix graded as “mint” was 13.3%.

There are fewer Than
600
STradivariuS
violinS
now in exi STence.

Such IRAs can include many types of non-financial assets, such as real estate, some rare coins, even racehorses and bowling alleys, as long as the asset is not for personal use. Real estate, for instance, must be for rental only.

back at their retirement investments
has not returned anything, and we’re
seeing the regulatory environment
shift toward more independent IRAs
offering more flexibility in a wider
range of assets.”
A self-directed IRA investor may,
of course, seek the advice of a finan-
cial planner. Pensco has a network of
nearly 7,000 independent advisors
with which the company works.

When it comes to exotics, independent advice is certainly in order. As niche investing draws more interest, the dangers are also rife.

Custodial fees for self-directed IRAs can be high. Violating tax rules can jeopardize all the money in a tax-

Wine investors are at the mercy of weather and vine-eating pests, as
well as changes in taste among wine connoisseurs.

Henn, who works on a fee basis, has helped some clients enter rare coin investing. Other planners or advisors who may not be experts themselves can negotiate fees for helping clients find appropriate consultants or dealers.

When a successful niche investment like a portfolio of rare coins is cashed out and reinvested in traditional assets, a planner can benefit from an increase in assets under management, Henn says.

Exotic REtiREmEnt Much of the growing interest in non-financial assets comes from investors seeking to diversify retirement portfolios. Yet a whole new layer of complexity is added when high-net-worth investors include the assets in self-directed IRAs.

Art and most collectibles, however, are prohibited. If prohibited assets are included in an self-directed IRA, the whole account becomes taxable.

Alternative-asset IRA providers ensure that IRS and Department of Labor rules are followed, although the firms don’t act as financial planners.

REAL EStAtE Boom

Kelly Rodriques, CEO and president of Pensco Trust in Denver, one of the largest alternative-asset custodians in the country, says the company’s assets now stand at $11 billion and have been doubling roughly every four years. Some of the biggest gains have been in real estate.

“What we’re seeing is the perfect
storm,” Rodriques says. “We’re see-
ing boomers near retirement age at
the same time as the 10-year look
deferred qualified fund. Given the risk
profile and illiquidity of exotic invest-
ments, most remain suitable only for
high-net-worth individuals.