151-TNG Radio – Hugh Bromma 12-5-09

This week Bruce is joined by Hugh Bromma. He is the CEO for Entrust Group. The Entrust Group was founded in 1981. Hugh is recognized as an industry spokesperson in the self-directed market. Entrust provides tax enhanced services such as self directed IRAs, and qualified plans to tax payers.

Bruce has known Hugh for a long time, so this interview is long overdue. The Entrust website is one of the most informative web sites that Bruce has ever seen.

When Entrust started in 1981, Hugh was the only person working for company other than his consultant. The consultant did financial industry consulting, but he was not in the IRA business. Hugh dealt with the IRAs and qualified plans. There are currently about 200 employees in Entrust. The company has over $4 billion in assets, and approximately 50,000 clients.

 

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The first book Hugh wrote was “How to Invest in Real Estate Using Your IRA or 401K”. That book was written in 2003. Hugh himself invests in real estate in California.

The growth of Hugh’s company has grown far greater than he had expected. Part of his company’s plan was to create individual retirement accounts that are available to everyone. Entrust is the only company with a franchise who does this.

Entrust is a record keeping and administrating company for individual retirement accounts and qualified plans. Its emphasis is for self-directed investment in real estate, notes, and private placements. In 1975, ERISA made it possible to make a self directed decision for retirement funds. Before 1975, companies had defined benefit plans. ERISA made it possible to have defined contribution plans and 401Ks, which allowed individuals to defer money into the plan that their employer has provided.

In a defined benefit plan, there is supposed to be a check for everyone in a predetermined amount. If someone makes a mistake, and money is lost from a year or two, then problems can occur. When there are losses, or insufficient funds, then the employer has to find a way to make up for that lost money. Sometimes a defined benefit plan can be closed, and then rolled into a defined contribution plan, so that the pension is no longer defined. This means that people will lose their defined benefit plan, and a large sum of their retirement fund. The people losing their retirement plans cannot stop their pension managers from doing this. A city in Northern California declared bankruptcy, because 90 percent of its income was lost in a fixed cost of retirement.

In the end, the ERISA did not make most people wealthier. Self-directed does not always mean that good decisions are always made.

Entrust does not give investment advice, but it does give people a lot of education. However, Entrust will often refer their clients to experts for advice. Bruce thinks that is a great service. Entrust does not often have to worry about people opening up accounts who do not know what to do with their money. Entrust emphasizes education before their clients open an account.

Entrust is an administrator and record keeper for custodian banks. This means that banks hire Entrust to keep records for individual retirement accounts. Many custodians suggest investments to their clients, and the investment advice they give you will most likely be directed toward their area of expertise.

People can easily discover the status of a bank fairly easily. If a bank is having problems, and if they’re ratings are low, then you may have to worry about that bank going out of business. Many of those banks will be absorbed by an FDIC selected bank.

Most custodians do not know the rules and regulations for their business, which is why they use Entrust. Entrust acts as a decision making filter for custodians.

Webinars have become incredibly popular, and many of Entrust’s offices do weekly webinars. You do not have to worry about audience interaction during a webinar. Most of the people attending Entrust seminars are sophisticated individuals, who know how they want to use their money, and know what a self-directed IRA is, and want to be more informed about what they can do with their account. Most of the people attending these seminars are not beginners, and some have had accounts for 20 years. Beginners are encouraged to attend introduction seminars.

There are some limitations on self-directed IRAs. Collectibles such as gems, works of art, beverages, collectible coins, stamps, and antiques are not permitted. Self dealing transactions are also not permitted. Any investment from which the investor may receive an immediate benefit is not allowed. Precious metals such as gold, silver, and platinum are allowed. However, you cannot hold these precious metals within your home. If someone does choose to illegally hold a precious metal, then it becomes a distribution at the market value as of December 31st of the year in which the transaction took place. It is distributed to the individual, and it is taxed, and it may include an excise tax, as well as other penalties. These taxes may be as costly as 150 percent of the value of each bar of gold.

Small rules change relatively frequently. There are private letter rulings and prohibited transaction exemptions that change the interpretation of the established rules. Primary Code changes do not happen very often. There have been about 10 code changes in the last 20 years.

In Hugh’s newsletter, there was an article that said, “Never let a good crisis go to waste”. Bruce asks if self-directed investors are more likely to buy at a bottom, or if they are more likely to invest according to a trend and be damaged by it. Hugh says there are investors that have an understanding of trends, and they are able to predict a good time to buy into the market. There are some investors that are not educated, and will injure themselves by investing during a trend. Hugh says that investors are now beginning to invest in real estate again. Hugh knows this because lots of people are obtaining more cash for real estate deals. Many people believe that we are near the bottom.

Approximately 1.5 to 2 percent of all U.S. dollars in retirement accounts are in self-directed IRAs. The other 98 percent of the retirement money is invested into stocks, bonds, mutual funds, certificates, and insurance products. Those decisions are not made by the people holding the retirement fund, the decisions are made by someone in the qualified plan market. 80 percent of the people who makes those decisions will never change their investments for the entire life of their 401K, so they will never be able to take advantage of a low or high market. They have to hope that they will retire during a market peak.

The most common retirement vehicles for self-employed individuals are SEP IRAs, or individual 401K plans. They can set aside anywhere from $46,000 to $51,000 per year for earned income. There is no percentage limitation on how much of your income you can put into those 2 plans, so long as you do not invest more than that maximum limit.

The Entrust website can be found at www.theentrustgroup.com. January 22nd, Hugh and Bruce will be teaching together.