Podcast – Episode 154 – How Use Your IRA To Invest In a Hedge Fund

Podcast Transcript

Allen: All right, everybody welcome passive traders to another edition of The Option Genius Podcast. Today I have with me Mr. Brad Janitz of Midland Trust. How you doin, Brad?

Brad: I am doing great. Happy to be here.

Allen: Thank you for spending some time with us. The reason I brought Brad on is because when we were starting the fund, we had investors were people that I was talking to, and they’re saying, Hey, that sounds great. I want to do it. Can I do it with my IRA? And I do it with, you know, some other money I have in a retirement account? And to be honest, I didn’t know the answer to. So I went back to my lawyers and other people that I’ve met in the hedge fund community, and I’m like, Hey, Ken, how do we do this? How do we set this up? And they’re like, oh, you know what? Just talking to Brad. Okay, who’s Brad, that talked to somebody? Oh, yeah. Just talk to Brad. And I’m gonna give you Brad’s number. So I finally got Brad’s number, I gave him a call. And he explained everything to me. So I said, Well, this is pretty cool. I think more people need to know about this. So I wanted to have Brad on the show, and have him explain how it works, basically, because what I realized is that you can use your IRA, for a lot more than just having it at your broker and buying and selling stocks and options. So that’s what we want to talk about today with Brad, is that true, Brad?

Brad: That is true. That is true, you know, so quick little summary of who I am, who Brad is, you know, the infamous Brad here. So, you know, I’ve been with Midland now for 13 years, this is my first job out of college. And really what we are, is an alternative investment custodian also called a self directed IRA company.

And really, what that means is, we allow you to put your retirement money to work and things outside of the stock market. Okay. And I will say when I went through going through college and was trying to learn about financial products, this was not something that I knew about. And then all of a sudden, I joined Midland and learn this whole new world of alternative investing and specifically alternative within IRA accounts. And so, really where this whole ideology comes from, is that there is something in the world of our IRAs called an IRA custodian. And IRA custodian is an IRS-approved company, financial services company that’s allowed to hold retirement assets, basically, open an account for an individual, deposit money, and to deploy money at the discretion of the individual, do some tax reporting requirements and effectively kind of provide the landscape of investments that the individual wants to get into.

Nobody really knows that this whole IRA custodian thing even exists out there. Because we’ve all just went to brokerages throughout time and you know, Fidelity’s, and Schwab’s and all those institutions out there that we’re all used to, and they are great institutions that allow you to set up retirement accounts, start investing, but they are known to allow you to invest in the public markets, mutual funds, Apple stock, ETF, that kind of thing.

And, you know, and so, we all just kind of know the IRA custodian as also the brokerage because the big brokerages out there basically are allowed to play both sides of the equation, okay, leaving the IRA company and also the investment arm, which is the brokerage, okay. But then when you get into other types of investments out there, what I’ll call alternative, but mainly private investments, so think real estate think, private investment funds, like a hedge fund, think startup companies like a bar restaurant or a new tech company, think precious metals, gold and silver, think cryptocurrency, all of those different avenues out there of investing, those aren’t both the investment option and the IRA company. And so what happens is you have the investment side, and then if you want to invest IRA money into it, then you have to find somebody like Midland that operates as the IRA company side to allow you the opportunity to go into other investments.

Okay? And where most people probably don’t realize is, you know, it takes a little bit of wherewithal, you got to know about these opportunities in order to really take advantage of them. And so and so you have to find these opportunities, and it really kind of takes a somebody that’s a little bit more wanting to and willing to take control of their own retirement account to go out and find these new opportunities. No one were to you know, take advantage of them into your into your IRA account. Right? Right.

Allen: Okay. So because like in the past I’ve had, like we teach at option genius, we teach people how to trade stock options. And in the past, we’ve had several people approach us and say, I want to do this in my hedge fund, what can I do? And they’re like, Well, depends on your broker. Some brokers will allow you to do something some brokers will allow you to do other things. It really depends. There’s no one size fits all. But even in certain situations, there are some strategies that you can do, but you can’t, other people cannot do. So it’s like depending on the person. And we’ve always, always told people like, look, this is your money, this is your IRA, right? This is your retirement, if you want to be able to do something, you should be able to do it your IRA, you know, it’s not the law that is saying that you cannot invest in this stock option, or you cannot do this strategy. It is that particular broker. And so if you don’t like what they’re doing, you find another broker, right? In this case, you’re saying that, as a custodian, you guys allow people to do a lot more things than just like you said, public stocks, bonds, options, instead, including hedge funds, real estate, loaning money, all these other kinds of things. But you guys are the custodian, not the brokerage. So if I have my money with you, then I can’t trade that money, correct? It just sits in the account until I’m ready to invest it somewhere?

Brad: Yeah, that’s correct. So that that’s a great, that’s a great point in question. So with somebody like us, we are not a brokerage. Okay. So we’re not nobody sets up an account with us to trade equities or options or futures contracts or anything like that. Okay, we are, we are kind of an avenue to get in to another vehicle of some sort. Okay. And so let’s take a hedge fund, for example. Okay. So hedge funds can have lots of different types of strategies, options, strategies, future strategies, crypto strategies, long only long short, equity, lots, lots of different types of strategies, okay.

And you’re allowed to use your IRA to invest in all the, all of those different types of strategies. Okay, so then it comes down to the IRA company, allowing you to do such thing, which really just comes down to the comfort level of the IRA company that you have in place, okay. And so if you have somebody like such as Midland where we specialize in helping individuals get their money into hedge funds at the discretion of the individual, you know, and really how that works is, you know, they’re going to, let’s say, you have an IRA and a more traditional brokerage, like a fidelity or Schwab, you’re going to set up that same type of IRA account with us here at Midland, transfer over whatever amount of money that you feel comfortable with deploying, so you know, that’s completely up to you, and that you as the investor and the, you know, the investment that you’re getting into, and whatever you have to agree upon, okay, and will be responsible for transferring your money over from your existing retirement account, then that money comes over to Midland, but then again, you don’t do any sort of trading through us.

So you have to find some sort of vehicle that you want to go into. And then there’s usually a document associated with such vehicle, like, if you’re going into a hedge fund, there’s going to be a subscription agreement involved. And then it’s our job along with the investment manager to make sure that subscription agreement is, is kind of completed the way it should to read that your IRA is making an investment to this private instrument. Okay? And so basically, you’re giving us the IRA custodian direction to facilitate an investment on your behalf, then your money would then be deployed into, you know, said hedge fund for you to effectively be in, you know, whatever strategy you see fit. That hedge fund managers job is then to trade the strategy make money, and then but it’s all done within an IRA account just in a more privatized paper instrument, rather than, you know, trading on a on a more tech training platform on public exchanges.

Allen: Okay. Now, one of the questions I get a lot is, and people don’t, they’re unfamiliar with it. Is that “Can I have more than one IRA account?”

Brad: Yeah good question. So yeah, you can have as many different IRA accounts as you please. So there’s just all the only thing that there is a maximum on is the amount of money that you’re allowed to put into a set of retirement account, from your personal money into retirement accounts.

Allen: Every year? So as the deposit?

Brad: Yeah, yeah, each year, so its contribution limit, okay. So each year, you know, kind of a anywhere from 6500 bucks to 20,000 bucks, depending on your IRA type. But let’s say you have a million dollars in a, you know, fidelity IRA account, you could transfer over 100,000 to an IRA and Midland 100,000 over to another IRA at Schwab, another Ira somewhere else. So you can have as many different IRA accounts as you want to deploy in a bunch of different ways, if that is what makes sense to you. So that’s kind of the nifty thing of IRA accounts, it’s very easy to move money in and out of them. And then you can deploy in lots of different ways, if that makes sense for you.

Allen: Awesome, cool. Now, we’ve had recently we’ve had some issues with financial institutions going under. So I just wanted to ask, you know, about Midland and how secure you guys how many accounts you guys have, how long you’ve been doing this? And then the money that we have Have on deposit with you if it’s not invested somewhere, is that secured?

Brad: Yeah, no good question. I mean, that is a, that’s on everybody’s mind. I mean, it’s honestly, what’s funny is, you know, we never got this quote, I never, you know, my 13 years never got this question ever. And now over the past six months, it’s, it’s came to came roaring up. So, yeah, so so, you know, what’s interesting about our business is that money comes in and leaves very quickly.

So you know, so for example, we’re never really holding on anyone’s cash for an extended period of time. So, you know, when working with us, you know, again, we’re going to transfer your money over from Fidelity, or wherever it’s going to come over, and it’s going to sit with us for usually about 24 to 48 hours before we, in turn, get that money allocated to whatever financial product that you’re looking to get into. So I guess from from that perspective, you know, you get the peace of mind and knowing that really, you know, the money is really not sitting with us very long. So you don’t really have to stress too much about that question. But with that said, we are regulated like any other banking institution, we are not a bank. So our money is held with third party banks, in which we mix and mingle depending on the health of those banks. It’s like right now, a lot of our cash is positioned with a Capital One Bank, trying to kind of stay away from more of the community banks, given the nature of that, but we do choose FDIC insured banks, just to make sure that, you know, the protections are in place for the clients, you know, just in case anything does ever happen, that we need to be worried about.

Allen: How many accounts do you guys have right now?

Brad: Yeah, good question. So we have over 20,000 users. So that’s 20,000 individuals that have set up IRA accounts with us to invest in something private, that’s all organic clients, do we have bought, or sold any of our clientele, that’s all people have chose to work with Midland to do something that makes up of about 5 billion in assets. And that makes up about 5000 different fund products that we have worked with over the course of our time. Right. So that could be hedge funds, private equity, venture capital, early stage ventures, real estate, all kinds of things.

Allen: Right, cool! Okay so now the traditional brokerage, IRA custodian, they make their money on commissions and stuff like that. So how do you guys get paid?

Brad: Yeah, good question. So we are, you know, we don’t make money off the investment, we make money off services that we provide, which is the administrative work that goes into moving the money around and making sure that all the investments are properly documented. So really, what that is, is it’s a flat 325 years, 325 bucks a year that we charge per IRA. And that’s not really based on value. So $5,000, a million dollars, flat 325. So you do it’s not baked in and the expense ratio, so it is a little bit more front and center, you know, so it’s not hidden, a lot of other financial products. So it’s front and center to you, you’re gonna see it. And then we have some kind of ancillary fees. Take, we do charge $50 to establish an IRA account with us. And then anytime you buy an investment for the first time, it’s a transaction fee of 1.5. Basically, what you’re looking at is if you were to invest X amount of dollars into a hedge fund, now, you’d be $500 for the first year, and then 325 For each year thereafter. That’s pretty much what you’d pay with anybody kind of similar to us. Right?

Allen: I mean, that’s not a big deal, right? You’re making you’re thinking about making like 100,000 or 200, or more investment, $500 is not that bad.

Brad: Yeah, and stay stagnant, which is, you know, the good thing. So a lot of people, if you ever looked at your 401 K fees that you’re charging, you know, a lot of people don’t even know what they’re charging, or what they’re paying, which, you know, that’s that’s another kind of issue, but, but it always continues to grow. And so you start charging things, or paying things you don’t really even understand you’re paying and it keeps growing, and you don’t even know why it’s growing on you. So we’d like to be front and center with it. So everyone knows that they’re paying us. And you know, and it stays flat. So it’s not regardless of value. Right?

Allen: Now, I’m kind of biased because I want people to invest in our hedge fund, right? So what is the process? I know we’re signed up with us, anybody that comes to to invest with us is going to be working with Midland. That’s who we’re aligned with. So let’s say I have somebody that says, hey, you know, I want to come in, I want to join, but I want to do it through my IRA. What is that process? How do I walk them through it?

Brad: Yeah, so So anybody’s Welcome to give us a call for staff to just like talk through their scenarios, we understand retirement accounts, or, you know, there’s a lot of lingo out there that nobody really understands. And then also, you may have never removed a retirement account before. So you may just be a little squeamish on that whole process. So, first off, you’re welcome to give us a call to just talk through your situation and we can walk you through the mechanics of what that looks like. But moral of the story what actually happens is that you will be establishing a Midland IRA account. So if you have a traditional IRA or Roth IRAs and other institution will be setting up that same type of IRA with us here at Midland, which is an online application process that you can go to our website to accomplish, and, you know, roughly five minutes, all right, and then when you go through that application process, you’re going to initiate the movement of money from your existing retirement account. Okay, so you’ll just input your existing account number and say, Hey, I have an account at Fidelity, here’s my Fidelity account number of yourself, I’m transitioning, or here’s how much I wish to transition from Fidelity over to Midland, okay. And then that gives us authorization to go and request those funds on your behalf. Okay, so then we’ll pull those funds over, bring it over into Midland. And then at that point, your cash is sitting on with us. And that transfer process usually will run a course about three to five business days. And while that transfer process is running its course, then we will actually be trying to sort through the documentation associated with the hedge fund. And, you know, presenting that to the client for completion. You know, one thing that we’ve learned is that completing documents associated with private investments can be very cumbersome to somebody that’s never done it before. Or even if you have done it before, it’s very cumbersome.

Allen: That’s a lot of paper. Yeah.

Brad: Yeah and so we just tried it, we tried to present it in a digital format, we actually take it upon ourselves to pre fill most of it for the client to where they just have to review the documentation in their inbox, and then just kind of click a couple buttons and say, yep, this looks good, this is what I want to do. And then once they execute that document, we push that document off to the fund manager for their review. And then once we get the money from Fidelity, we will call the client for one last verbal authorization and say, Hey, we’re about to send your money off, to be invested this what you want to do, they give us the blessing. And then we send wire the money from us over to the investment of their choosing. And then they’re often running from there.

Allen: That’s cool. I actually like that the personal touch we actually get on the phone. Yeah, I like that.

Brad: Yeah. And you know, it’s, you never can be too careful, especially with lots of money around here. So it’s kind of another layer of like, identity protection, just to make sure we know who will work with. All right.

Allen: And how long does that whole process take?

Brad: Yeah, full process about seven days, kind of give or take a day or two. But that’s, that’s generally what to expect. And then after that, you will have online access with Midland, so you can follow the investments as they kind of run their course. And then if you ever need to get tax forms down the road, you can log into your Midland account, to facilitate. And then if you ever want to add additional funds or distribute funds for any reason, you can do that too. So anything that you would ordinarily be able to do with, again, a more traditional brokerage, you’ll be able to do those same actions with the Midland account. Okay. All right.

Allen: Okay. All right. Now, now, I know we’ve been talking about IRAs, I’m assuming that’s Roth IRAs, and regular IRAs, are there any other type of accounts you guys work with?

Brad: But I would just say, so the two other types would be employer plans be it SEP IRA, which self employed pension driven in a simple IRA, which is kind of similar to a 401k. It’s, it’s more of a more designed for, for small businesses, but again, they’re more employer sponsored plans. The other types are kind of accounts, I would say, that we work with the most is just people that have old 401k is out there, that they would like to rollover into IRA accounts to do this. Okay. And so if you do have a 401k, out there, usually does need to be with the previous employer, okay, in order to be eligible to roll that money over. But if you do, you can roll up 401k directly into an IRA At Midland, again, you can do just a portion or a whole thing, it’s up to you. You can roll that money over into a Midland account, and then use that Midland account, again, to facilitate into whatever investment you want to do.

Allen: Okay, wait, yeah, for no, for the self employed, you know, the SEPs, and simples they allow you to put a lot more money in. So those are..

Brad: Yeah no those are, those are great accounts. So so the two more popular ones would be so the SEP IRA self employed pension, which is a little bit of a, an easier, cost effective version, okay. And then you have what’s also called a solo 401 K. It’s basically a 401k for somebody that’s self employed but does not have employees, okay? Because once you have one employee, a 401k, just totally changes from the complexity and testing and all these other rules that you have to worry about. And so 401k is specifically for individuals that want to put away a lot of money. And good thing about 401k They have Roth components to them, so you can actually put away a lot of money up to $60,000 in Roth money. It’s very powerful tool.

And then also, if you ever want a loan against that, you can take a loan up to $50,000 sort of just kind of allows you some flexibility if you want to put away money but yeah, it’s a SEP IRAs is very simple. There’s very similar just doesn’t have the doesn’t have the loaning tool, and then a couple other little things. smaller nuances to it, but both of them together, if you want to, if you if you’re a small business owner, and you really want to save some money on taxes, or just put a lot of money into retirement, you know, it’s an easy way to get 60 grand and an order and to a retirement account. So cool.

Allen: Cool. Cool. So that’s all questions I had, is there anything that I did not ask?

Brad: I think you nailed everything. I mean, I think just, I guess one little less kind of common is that no shoe being in the in the hedge fund space, it’s, it’s really growing in popularity, especially now, after you know, everyone put money into kind of the, the cheap, ETFs forever, and they just went up and then everything just kind of fell off a cliff, I feel like alternative investments, you know, are now growing and growing really fast in popularity. So good space for you to be in. And you know, if anyone has any questions or curiosities about this stuff, I’m an open book, feel free to reach out to me and we can have a chat.

Allen: Awesome, sweet. Yeah, I mean, like you said, I do see that people are becoming more aware of this kind of stuff. And I think it’s part of, you know, people like you doing interviews and getting the word out there. We still have people all the time telling us Oh, I don’t know what to do, you know, my IRA, I can’t, like, ya know, you’re you’re not that limited as you think you are. This just takes it to a whole nother level. So this is, you know, the self directed IRA. And I think it’s something that everybody should be looking into, at least, you know, so you can do a lot more with it than just, you know, buy your ETF like,

Brad: Yeah, no, I agree. I mean, yeah, people like me, that, you know, provide the IRA product, but also people like you that are coming up with new and interesting products for people to invest in. So I do think at the tag team, you know, we provide the avenue, but there needs to be solutions out there for people and if, you know, if, if individuals like you are being entrepreneurial and creative, just provides more people opportunities to access the marketplace. So, so I think it’s a dual effort. And, you know, hopefully people find it interesting.

Allen: So, Brad, how do people get a hold of you?

Brad: Yeah, so I’m the only brand that works in Midland trust. So you can just go to Midland trust.com and kind of track me down that way by giving us a call. And I’ll just kind of leave it at that. If you want to shoot me an email. It’s B as in Brad, Janet’s je n AI tz At Midland. trust.com. Otherwise, yeah, just go to our website, you know, track me down and the only Brad, alright?

Allen: Awesome. Appreciate it. Thank you so much for being here.

Brad: All right. Thanks, Allen, for sharing. Thank you.


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