Custodian

Custodians handle the formation and maintenance paper work for your retirement account as well as handle the money for you. Because all legitimate custodians are regulated by the IRS or banking officail, trusting them with your money is usually safe.

Some custodians are called trust comapanies because some retirement accounts are treated like trust under certain tax codes. To find out whether a company is an actual custodian, ask for their documentation from their regulators.

Administrator

An administrator is a company who handles the formation and maintenance paperwork required for your retirement account. Some administrators actually handle your money and accept deposits as well. In this regard, the administrator acts like a middle man between the retirement account owner and the bank where the deposits are actually held, even keeping records and providing paperwork.

Allowing an administrator to handle your money can be problematic for three reasons:

1.Your assets are pooled together with other peoples' assets which could subject your funds to additional liability; 2.Asset pooling can result in the administrator taking much longer to carry out your instructions than it would take when dealing with a custodian; 3.There is no IRS, banking or other regulators overseeing administrators. Such regulators have the power to take over firms that they feel are not operating safely and soundly from the consumers' perspective. They regularly audit the firms they supervise, and custodians have to regularly respond to to any resulting demands of the regulators or risk being shut down. Administrators are not subject to these same demands. This can lead to open oppurtunity for fraud. If you were to place your funds with an administrator, and the company disappeared, you would have a hard time recovering your funds. That kind of fraud is very unlikely to happen with a company that is strictly overseen by banking of IRS regulators.

Handing your money over to an administrator has no value. Often times administrators will mention that the custodian can't render advice, which is true because they are charted as passive. If you value the advice of an administrator, then keep them on as a third party but keep your money with the custodian.

A clear understanding of self directed service providers enables you to breeze through your structure with more confidence so that you can move on to the fun part-selecting investments.

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