Kelly Rodriques, CEO of PENSCO, and Tom Steinberger, senior vice president and head of business development at the firm, give guidance on transferring alternative assets to an independent custodian.
Individuals and families with substantial holdings of alternative investments at the nation’s largest financial institutions may soon be forced to decide where these assets will be held.
To reduce systemic risk, regulators are guiding banks, wirehouses, trust companies and brokerages who custody alternative assets to transfer them to custodians who specialize in administering these assets.
In the past six months, several of the major wirehouses and banks have started directing advisors to transfer, or “remediate” alternative assets to independent successor custodians. These specialized custodians are designed to hold alternative assets such as real estate (real property), private placements (private equity), hedge funds, foreign currency and secured loans, among other types of assets.
Some financial institutions have given clients and their advisors the names of independent custodians. Other institutions have not, and offer no guidance to their advisors or clients. Often, advisors and their clients must find a successor custodian in 30 days. If any of the alternative assets are in retirement accounts, time is of the essence to prevent a taxable event from occurring.
A tricky transition
For family office executives and RIAs, the task of finding a successor custodian can be time-consuming and difficult. Alternative assets are complicated and paperwork-intensive. Given the complexity, it can be easy to mishandle the process.
To help family offices and RIAs, PENSCO Trust Company, an independent custodian specializing in alternative assets, suggests a number of steps to manage this transition and ensure continued client satisfaction.
First, wealth management professionals need to find a successor custodian that has investment and technology capabilities to hold a wide range of assets and to serve sophisticated clients. Second, family offices and advisors need to carefully handle the transfer of alternative assets in retirement accounts to prevent an (avoidable) taxable event.
The complexity of administering alternatives
The major challenge with alternative assets is that they are more problematic to administer and less transparent than exchange-traded assets.