Making SDIRAs Part of Your Capital Raising Playbook

Most fund sponsors spend months perfecting their pitch decks, crafting investor presentations and fine-tuning their marketing materials. They spend considerable time focusing on return projections, risk factors and competitive advantages. But, often, they miss one of the easiest potential ways to expand their investor base: simply mentioning that retirement accounts can invest in their fund.

Specifically, letting investors know that they can invest in your fund through a self-directed IRA can be a simple shift that unlocks potential new capital.

Here, we'll take a closer look at how to better integrate SDIRAs into your capital raising playbook.

What is a self-directed IRA?

A self-directed IRA is a type of individual retirement account (IRA) that instead of just offering access to publicly traded assets — like stocks, bonds and mutual funds — also allows for alternative investments, across assets like:

• Real estate
• Precious metals
• Private equity funds/private companies
• Promissory notes

In general, SDIRAs provide more flexibility and control for the account owner. Still, there are specific IRS rules to follow so that SDIRAs can take advantage of the tax advantages generally afforded to retirement accounts. Plus, some SDIRA investments, like certain private placements, still need to follow securities law, such as only opening these investments to accredited investors.

Why investors sometimes overlook SDIRA opportunities

The status quo can be hard to shake up in any industry. For the most part, retirement investing has historically revolved around public market investing, such as how 401(k)s generally have a preset menu of mutual funds to choose from. And traditional IRA custodians typically don't offer alternative investment options; so, often, both advisors and investors may assume these opportunities don't exist within retirement accounts.

Even some savvy financial professionals may see alternative investing as too risky for retirement investing. So, those interested in investing in areas like private equity or real estate often do so outside of their retirement accounts.

Yet, these dynamics create opportunities for fund sponsors to explain how SDIRA investing opens access to alternative investments. You can also communicate the value proposition of your fund, such as providing diversification to aim for better risk-adjusted returns, as opposed to trying to take on more risk within a retirement portfolio.

There's currently over $45.8 trillion in U.S. retirement assets, including nearly $18 trillion in IRAs, according to the Investment Company Institute (ICI)¹may potentially stand to gain a significant amount of capital.

How to integrate SDIRAs into your capital raising playbook

Given the opportunities that accessing SDIRAs offers, it's important for fund sponsors to ensure they're positioning themselves to bring on these investors. Some of the most important steps to take/areas to focus on include the following:

1. Simple language changes that work

You don't need to overhaul your entire pitch deck or rewrite your marketing strategy to capture SDIRA investors. Small additions to your existing materials have the potential to make a significant difference in investor awareness and participation.

For pitch decks, for example, you can consider adding a single slide that mentions how SDIRA and 401(k) rollover funds invested in SDIRAs are welcome or how retirement account investing is available through qualified custodians. You can also touch on the potential tax advantages and long-term potential of making these investments within a retirement account. (Refer to IRS rules regarding the taxation of SDIRAs).

Similarly, you may consider adding a section on your website that talks about how retirement account investing is possible, and you could add specific, clear language such as "Investors can use IRA funds through self-directed accounts" in your investment summary.

Similarly, in investor presentations or other types of investor communications, when you're discussing areas such as investment minimums or funding sources, consider mentioning that self-directed retirement accounts can be used. Since these accounts often have higher balances than what many individuals have in non-retirement investment accounts, it can make sense to let investors know that SDIRA investing is a way to access alternatives that might not otherwise be available.

Essentially, the more you can make SDIRA investing feel accessible, the more you can improve your chances of raising capital from these accounts. While it can make sense to strategize on more nuanced timing of your messaging, these simple changes often provide a good baseline.

2. Addressing common investor concerns

While SDIRAs can be a great way for investors to allocate tax-advantaged money into alternative investments, they might not be familiar with these accounts or could potentially have concerns about SDIRA investing process(es). So, be prepared to answer common investor questions like the following, and consider addressing these in your investor communications and marketing materials, too:

• "Is this legal?"
  • Yes, the IRS allows investing in alternative assets through SDIRAs, although certain types of alternative assets are not allowed in SDIRAs, including life insurance and certain collectibles. ² In addition, SDIRA investors should be aware of prohibited transactions , which involve transactions between an SDIRA and a disqualified person.

• "Will this complicate my taxes?"
  • SDIRA investing typically does not create additional tax complexity for investors beyond the tax implications of normal IRA investments. Instead, SDIRAs provide tax advantages, like allowing for tax-deductible contributions into the accounts, subject to IRS limits, which potentially gives investors more net capital to invest.

• "How do I get money out of my current IRA?"
  • Most investors can directly roll over existing IRA funds to a self-directed custodian without tax consequences. Or you could do an indirect rollover, which involves taking the money out of your traditional IRA, and then depositing the funds into an SDIRA yourself within 60 days of getting that money. ³ The rollover process can take anywhere from a few days to several weeks, depending on the parties involved in the transfer. In general, though, a qualified custodian like Forge Trust helps streamline the process.

• "What if I need the money from the SDIRA?"
  • SDIRAs are subject to the same IRS rules regarding distributions as traditional IRAs. However, alternative assets come with longer lock-up periods, which can potentially make it more difficult for account owners to liquidate such assets. It is important that any lock-up period and limitations on liquidating investments are clearly disclosed to potential investors, including SDIRA owners. ⁴

• "How complicated is this whole process of using an SDIRA?"
  • The right custodian can help make SDIRA investing more straightforward. Investors can open a self-directed IRA account through a custodian like Forge Trust, who can guide account owners through the process of transferring funds and allocating to a fund.

3. Making custodial relationships part of your pitch

A strategic way for fund sponsors to improve their SDIRA capital raising process is to partner with trusted custodians who can handle the administrative and custody processes necessary for SDIRA investment.

Instead of telling investors about the option to use retirement funds and leaving them to figure out the details themselves, you can offer more of a turnkey solution by explaining how they can open an account with Forge Trust and navigate the process through our platform.

Measuring SDIRA marketing effectiveness

Like with any type of marketing, you can't improve what you don’t measure. So, set goals and see how implementing SDIRA messaging into your messaging affects your fundraising targets.

For example, you might A/B test how in some investor presentations you mention the ability to engage in retirement account investing, while in others you more specifically mention SDIRAs. That can clue you in as to whether your prospective investor base responds better to broader, or more targeted, language.

Fund sponsors may consider demographics, too, like the average age of SDIRA investors. For example, you might find that those in their 40s are more receptive to these pitches than those who are in their 50s and, thus, do not want to adjust their retirement investing strategies so close to retirement age. But the opposite could also be true, such as if you find investors in their 50s trying to improve risk-adjusted returns to optimize their portfolios before retiring.

Also, a fund sponsor could track metrics like the average size of capital commitments from SDIRA investors. This may help both in determining which deals to pitch to SDIRA investors, as well as figuring out how to market these deals more effectively. For example, if the average investment is relatively small, you might position SDIRA investing as part of a broader diversification strategy, similar to how some investors include single-digit percentages of precious metals like gold in their overall investment portfolios.

How Forge Trust can help

Adding SDIRA language to your marketing and investor communications, including messaging around working with a qualified custodian like Forge Trust, can go a long way toward elevating your capital raising efforts.

Forge Trust specializes in alternative investment custody through SDIRAs, which help make investing straightforward for both sponsors and investors. Forge Trust handles account setup, fund transfers, document processing and ongoing administration, so you and your investors can focus on the investment side of things, rather than retirement account logistics.

If you’d like to learn more about how to make SDIRAs part of your capital raising playbook, please visit Forge Trust’s Resources page, and if you’d like to get started with a SDIRA, open an account today.