Guidant Financial Group Blog

What is compliance?

The legal definition of compliance, according to Miriam-Webster’s Dictionary of Law, is:

Main Entry: com•pli•ance
Function: noun
1 : an act or process of complying with a demand or recommendation
2 : observance of official requirements

When industry professional s or Guidant employees refer to compliance issues with a self-directed IRA, most are referring to the restrictions put upon retirement plans and their investments, as directed by the Internal Revenue Code.

In general, compliance issues arise because a proposed investment is structured so that is in violation of IRC § 4975(c) (1), otherwise known as the “prohibited transaction codes.” These codes are a specific section of the Internal Revenue Code that dictate what a person cannot invest in, and who the IRA cannot invest with.

Per this code section, a prohibited transaction includes any direct or indirect:

• Selling, exchanging, or leasing any property between a plan and a disqualified person. For example, your IRA cannot buy property you currently own from you.

• Lending money or other extension of credit between a plan and a disqualified person. For example, you cannot personally guarantee a loan for a real estate purchase by your IRA.

• Furnishing goods, services, or facilities between a plan and a disqualified person. For example, you cannot use personal furniture to furnish your IRAs rental property.

• Transferring or using, by or for the benefit of, a disqualified person the income or assets of a plan. For example, your IRA cannot buy a vacation property you or your family intend to use.

• Dealing with income or assets of a plan by a disqualified person who is a fiduciary acting in his own interest or for his own account. For example, you should not loan money to your CPA.

• Receiving any consideration for his or her personal account by a disqualified person who is a fiduciary from any party dealing with the plan in connection with a transaction involving the income or assets of the plan. For example, you cannot pay yourself income from profits generated from your IRAs rental property.

Because these codes are somewhat vague and are often difficult for the average investor to interpret (we have several attorneys on staff who spend most of their time deciphering these codes), Guidant has put in place several compliance stops. These different stops make up Guidant’s c compliance process, which is easily the most robust in the industry.

1st Stop: The Client Coordinator
The client coordinator is the first point of contact for all of our prospective clients. The client coordinator’s job is to learn about each person’s investment ideas and current retirement plans. By asking several questions, the client coordinator can determine, on a basic level, whether or not the proposed investments are feasible within a self-directed IRA, and if the types of retirement plans already in place can be moved to a self-directed IRA.

2nd Stop: The Senior Consultant
Once the client coordinator has determined that a potential client’s proposed investments do not violate the prohibited transaction code, and that the client is otherwise qualified to open a Guidant IRA/LLC, all prospective clients are require to hold a phone consultation with one of our senior consultants. These senior consultants typically invest up to an hour with every qualified person, before they make any decisions about working with Guidant. These consultations are held to explain, in detail, how Guidant’s services work, what requirements the client and their investments will need to meet, and what potential issues may arise with their investments of choice. Each of these consultants have coached hundreds (and some thousands) of individuals on investing through a self-directed retirement plan.

3rd Stop: Compliance Review
Once a person decides that they would like to become a Guidant client, our consultants send a detailed outline of the client’s proposed investments and current retirement account status(es) to our in-house senior counsel. Our senior counsel reviews every client scenario that comes through our compliance process and will either give the go-ahead to open a Guidant account, or to go back to the client for more clarification.

4th Stop: Outside Counsel
Every Guidant client is entitled to two separate consultations with an outside ERISA tax attorney, or an attorney who is also a CPA. This attorney is contractually obligated to provide advice that is in the best interest of the client, not Guidant. These attorneys are available for legal questions and will serve as a 4th set of eyes on the proposed investments.

5th Stop: Ongoing Coaching and Education
Of course, many of our clients decide to pursue multiple types of investments. At times, a client will consider an entirely new investment after having a Guidant account open for several years. If this is the case, there is no need to worry. All of our clients are linked to their senior consultant for the life of their account. This means that they are welcome and encouraged to contact their senior consultant at any time to review their new investment idea – and potentially start the compliance process over again.

As you can see, Guidant’s compliance process is like no other. We know that it is difficult to obtain qualified advice and direction from outside sources. Because of this, we have done everything we can think of to make our clients comfortable, and to ensure that their investments have been reviewed from every angle.