Investor Alert: Be Cautious of Bullion Dealer and Depository Red Flags

Choosing the Right Dealer is Crucial

When it comes to investing in physical bullion, one of the most valuable pieces of advice is to carefully select your dealer. An incorrect choice can lead to a complete loss if an untrustworthy dealer takes the client's money and vanishes before delivering the metal. This is particularly true for those who are incorporating bullion into their self-directed IRA accounts. These investors not only have to choose a reliable dealer but also have to make a wise decision about where their IRA metal will be stored.

Recent Failure of First State Depository

First State Depository in Delaware recently collapsed when it was discovered that the vault owner had absconded with a significant amount of the metal that was supposed to be securely stored. In the context of IRAs, the term "self-directed" carries a crucial legal implication. The account holders will be held accountable for the choices they make. Thus far, IRA custodians have generally refrained from making recommendations about which dealers or depositories might be the best. They have interpreted IRS guidelines to mean they should maintain neutrality and simply act as a record keeper, as these IRAs are "self-directed."

Equity Trust Company Involved in Scandal

Equity Trust Company, a provider of self-directed IRAs, was implicated in a class-action lawsuit last month. Oxford Gold Group, a disreputable metals dealer, had used Equity Trust as the custodian when clients bought metal for their retirement accounts. When Oxford collapsed, reports indicated that a large number of orders had been paid for from client IRA funds held at Equity Trust, but the precious metals purchased were never delivered to the IRA holders' chosen depository. The victims of Oxford Gold Group are now seeking to hold Equity Trust accountable for not warning them about Oxford's delivery failures.

Investor Responsibility

Regardless of the lawsuit's outcome, it's clear that self-directed investors should not rely solely on a dealer list or depository list provided by the IRA custodian. The fact that an IRA custodian has listed a particular dealer or depository as "approved" does not guarantee that the dealer or depository has been thoroughly vetted by the custodian. It also does not guarantee fast delivery or excellent customer service. These lists merely indicate that some minimal setup has been completed, and conducting additional due diligence is advisable.

Online Reviews and Red Flags

One way to conduct due diligence is to look at customer reviews online. However, it's important to note that unscrupulous precious metals dealers have been known to create seemingly good reputations online using fake or paid reviews. In our opinion, the Better Business Bureau (BBB) is the only reasonably credible review site. Buyers should be wary of BBB reports of delivery delays and should carefully monitor delivery speed, communication, and service regarding their own orders. Increasing complaints about delivery delays can be a reliable indication of a dealer's impending trouble.

Depository Selection and Assurance

The chosen depository should be able to provide independent audits of the company's financials and the metal they store. They should also be able to provide a Cover Note of Insurance or a similar document showing that stored metals are fully insured. Money Metals Exchange, for example, has an A+ rating with BBB and many satisfied clients leaving reviews. Additionally, Money Metals Depository readily provides disclosures, audits, and insurance information. Investors who choose Money Metals for buying, selling, or storing their gold and silver can have peace of mind.

Bottom Line

Investing in physical bullion requires careful selection of both the dealer and the depository. Recent scandals have highlighted the need for thorough due diligence and the importance of not relying solely on IRA custodian lists. What are your thoughts on this issue? Do you think more regulations are needed to protect investors? Share this article with your friends and start a conversation. Remember, you can sign up for the Daily Briefing, which is delivered every day at 6pm.