Madison Trust Company
Making Control, Versatility Easy for Self-Directed Investors
by Carole VanSickle Ellis
In 2009, the real estate market was hovering near the bottom of the post-housing-crash slump of the mid-2000s, and Madison Trust Company CEO, president, and co-founder Daniel Gleich was focused on helping his father diversify his retirement investments. In the short-term, this was something of a challenging experience, as one investment manager after another informed Gleich retirement assets were “limited” to stocks and bonds. Gleich, a real estate developer who was well aware of the massive, positive potential in the coming decades’ property markets, was undeterred.
The long-term result of his mission to challenge what was, at the time, standard operating procedure for retirement investments, has been life-changing for more than 20,000 of Madison Trust Company’s clients today.
“When I heard these financial advisors say, ‘Retirement money is limited to stocks and bonds,’ I just thought to myself, ‘That doesn’t make any sense!’” Gleich recalled. “I understood that we would have to pay taxes on the money if we wanted to move it and diversify, but why couldn’t I invest it where I wanted to?” Soon, he had discovered a relatively unknown vehicle for the time, the self-directed individual retirement account (IRA), and one of its most valuable features, checkbook control. From that point forward, Gleich never looked back. He had found something that would change his father’s retirement investing and that of many, many others over the next 15 years.
“It worked beautifully,” Gleich said, “and I was telling friends and neighbors all about self-directed IRAs with checkbook control. After I had set the checkbook control structure up for a few other people, I spoke to one of my partners, Mervyn Klein, future co-founder and shareholder at Madison Trust Company, and we agreed there was a huge opportunity.” They, alongside E. Brian Finkelstein, shareholder and chairman, first opened Broad Financial, an IRA LLC facilitation firm, which worked with a third-party IRA custodian to help investors open checkbook IRAs. By 2012, the founders had realized, as Gleich put it, “the level of customer service that the custodian was offering was not nearly on par with what we were offering.” With an eye toward offering clients a “seamless transaction, all in-house,” the group began the two-year process of meeting with regulators and becoming a trust company. In 2014, the doors of Madison Trust Company opened for the first time.
“We wanted to make sure people could invest their retirement money and have more control over those investments,” Gleich said. “There are millions of people out there who could use this investment vehicle and should know about it. At Madison Trust Company, our goal is to help them make that happen.” It was a daunting task, particularly given that around the same time Madison Trust opened for business, the U.S. government actually started work on a report focusing on the dearth of information available on self-directed IRAs and calling for the retirement industry and the IRS to provide more guidance on the topic. That report would be published three years later in 2017.
Prioritizing Investor Education & Cutting-Edge Strategy
While the federal government began its own research on educational materials available to self-directed investors in the 2010s, Madison Trust Company began a carefully researched educational outreach of its own that would, ultimately, enable the company to grow to the size it remains today.
“We spend a lot of time working with our compliance team, consulting the IRS website, and making sure the content team is familiar with all of Madison Trust’s initiatives to ensure that all of our educational material is informative, accurate, and digestible,” observed Brianna Avillo, Madison Trust’s marketing manager. Avillo’s team spearheads content creation for all educational resources on the Madison Trust website, including animated “explainer” videos, infographics, educational webinars, written material, and beyond.
“We have an investor-first approach, so our goal is to always make things as easy as possible for our clients,” Avillo said. She explained that for Madison Trust, making things easy for investors means making operations within the organization smooth and pleasant as well. “One of our mottos is that happy employees lead to happy clients,” she said.
Gleich elaborated, “If we, as owners, take good care of our employees, and our employees are happy, they will take care of our clients, and our clients will be happy. If our clients have a smooth experience, our shareholders are happy, and the loop continues to go around.” He cited the company’s 900-plus Google reviews with an average star rating of 4.9 out of 5 stars as evidence of the success of this policy and the company’s clients in their self-directed investing endeavors.
“If people can successfully self-direct their retirement account, they will have a richer retirement, and Madison Trust aims to provide clients with a pleasant journey getting there,” Gleich said. “The key is providing investors with the opportunity to invest in what they know and believe in.”
Dana Udumulla, who serves as investments manager for Madison Trust, said her team relies heavily on the education element provided by the company when she travels on its behalf.
“We not only have an education-first approach with our current clients and investors; we are always trying to educate wherever we go,” Udumulla said. “There is a huge retirement crisis looming right now in America, and a lot of people are experiencing anxiety and insecurity when it comes to their finances. By providing education and insight that is simple and straight to the point, we make it possible for anyone to become educated on self-directed IRAs and begin gaining control of their situation.”
Walking with Investors Creatively & Constructively
Customer care and guidance are crucial elements at Madison Trust Company, Udumulla said, explaining that unlike many other SDIRA custodians in the industry, the Madison Trust investments team has the educational background and training to provide guidance with regard to client inquiries within the self-directed investing space. This means members of the investments team are available to clients to walk through the processes associated with different transactions and explain why certain types of acquisitions may not be feasible within a self-directed account.
“That level of customer service is why we have a retention rate of 95% in our client population of more than 20,000 and roughly $4.8 billion under management at this time,” Udumulla said proudly.
The sponsors team spearheaded by Udumulla prioritizes finding new ways to optimize opportunities for clients to invest in assets that meet their specific requirements and needs. Recently, Madison Trust debuted a new initiative designed to help private companies and startups raise capital by working with new or existing investors to leverage those investors’ retirement funds.
“This is a new avenue of capital raising beyond the traditional avenues of taking out restrictive loans from conventional financial institutions,” Udumulla said. The program, which got its start only two years ago, has raised more than $300 million since its inception.
“It enables investors who already believe in a company or a project to leverage the tax advantages of using retirement capital in the deal and watching their returns grow tax-free or tax-deferred depending on the strategy they choose,” Udumulla said. “Madison Trust calls this a win-win-win situation.”
The company also prioritizes making cutting-edge assets an option for self-directed investors as quickly as possible. For example, cryptocurrency has skyrocketed in popularity as an asset class over the last five years.
“We saw that cryptocurrencies of all types, not just Bitcoin, would be something of interest to investors for quite some time, so we began working to understand how to give our clients the ability to get into those types of alternative investments,” Udumulla said. She noted that many cryptocurrency investors, like those who use their self-directed accounts to invest in real estate, often prefer to use “checkbook IRAs” to give them even more control over their portfolios and acquisitions.
“This is a concept that really changed things for me back in 2009,” Gleich said. “A checkbook IRA, or self-directed IRA with checkbook control allows the account holder to perform their everyday investment transactions in real-time. Once the investor opens a self-directed IRA, an specialized entity, such as an LLC or trust, is created followed by a dedicated checking account. The investor then instructs their custodian to move their funds from their self-directed IRA to their newly created checking account. From there, the investor can simply write a check or send a wire from their checking account to pay any expenses associated with their investment.” Checkbook IRAs enable investors to research acquisitions and transact more quickly and directly when taking on new projects or doing deals.
“The self-directed IRA is so versatile,” Udumulla said. “Any investor can really look at their long-term retirement goals and pick and choose how they mold their self-directed IRA into the account that best fits them. That is what we do at Madison Trust Company, and the beautiful thing about a self-directed IRA is there is so much that an investor can do to successfully build their retirement fund on almost any timeline and any operating budget.”
SIDEBAR 1
Breaking Down Alternative Investments
The following information has been condensed from Madison Trust Company’s “Alternative Investments: A Beginner’s Guide to Diversifying Your Portfolio,” which may be found in full at MadisonTrust.com.
Alternative investments, also known as alternative assets, are assets that do not fall into standard investment categories like stocks, bonds, or mutual funds. Alternative investments may complement “standard” investments in a retirement portfolio, hedge against inflation, and potentially create higher returns.
There are countless alternative investments eligible for acquisition within your self-directed IRA. Some of the most popular alternative assets include:
» Real estate
» Private placements (includes private equity funds & hedge funds)
» Promissory notes
» Precious metals
» Cryptocurrency
» Startups & crowdfunding
» Many, many more
In essence, you can use your self-directed IRA to invest in almost anything, as long as you do not invest in life insurance, collectibles, or S-corporations and do not commit a prohibited transaction. There are three types of prohibited transaction. They are:
1. Per Se Prohibited Transaction
When an SDIRA does a deal or transacts with a disqualified person, such as purchasing property from a lineal relative or renting property from the account for the account owner’s personal use
2. Prohibited Extension of Credit
IRA owners can utilize financing for investment purposes, but loans issued to an IRA may only be guaranteed by the item being purchased. They may not be guaranteed via a personal guarantee from the IRA owner, otherwise that would result in an extension of credit prohibited transaction.
3. Self-Dealing
Self-dealing occurs when a disqualified person (lineal relative or business which the IRA account holder owns 50% or more of) receives personal benefit from an IRA investment.
Daniel Gleich, CEO and president of Madison Trust, recalled his pleasant surprise upon discovering self-directed investing would not be as difficult as many financial advisors and managers had led him to believe.
“It really is a simple model,” Gleich said. “Not only can you self-direct your retirement and invest in alternative assets like real estate, but you can also align your retirement savings and your future with your passions and the things you believe in.”
SIDEBAR 2
The Basics of Self-Directed Investing
Today, there are an estimated 1.5 million self-directed IRAs in use at some level in the United States. 15 years ago, that number was far lower, numbering only in the hundreds of thousands. Although conceptually self-directed retirement accounts have been available since 1974, most investors remain largely unaware of their advantages and unclear about the best strategies for these retirement accounts.
What does “Self-Directed” Really Mean?
Self-directed retirement investing means precisely what you would expect: investing beyond Wall Street in assets you find to be attractive using capital from your self-directed IRA and following all regulations and guidelines (of which there are generally very few) in order to retain your capital’s tax-advantaged status. As long as you do not violate fewer than a dozen simple prohibitions, you can invest in real estate, private equity, mortgage notes, private loans, start-up companies, intellectual properties, dairy herds, and countless other assets. Of course, self-direction comes with a potential caveat: self-directed investors are also responsible for their own due diligence.
A Little SDIRA History
If an investor were to seek out IRS regulations or code surrounding the self-directed IRA investment vehicle, they would find the term “self-directed IRA” does not exist in the U.S. code that created individual retirement accounts back in 1974. However, they would find that there are a few prohibited assets and transactions for IRAs specified by the IRS, including investing in life insurance, collectibles, and S-corporations and “self-dealing,” or doing deals within the account in such a way that the account holder benefits from the deal prior to withdrawing account funds for the purpose of funding their retirement. Workers around the country have been contributing to their IRAs to the tune of billions of cumulative dollars since the advent of this type of account. Self-directed accounts have existed since the inception of the IRA as well but require specialized knowledge in order to set them up, transact deals, and leverage the immense tax advantages that come with an IRA.
Learn more about self-directed retirement investing and self-directed IRAs in Madison Trust Company’s library of educational materials at MadisonTrust.com.
SIDEBAR 3
By The Numbers
20,000 — Madison Trust Company has more than 20,000 clients
$4.8 Billion — Assets under custody at Madison Trust Company
2,000 — Madison Trust Company has more than 2,000 five-star reviews from clients
