Crypto Currency in the IRA Space
How Alto Plans To Set Itself Apart In Alternative, Crypto IRA Space
MARCH 8, 2021 • CHRISTOPHER ROBBINS
Eight years ago, a technology entrepreneur was fed up with his individual retirement account options.
“I had this desire to invest my retirement savings in a private company I was involved with,” said Eric Satz. “It was a complicated, convoluted process that took way too much time, and I did all the work. At the end of the process I wrote a check to the custodian [and] they wanted to charge me a minimum fee, and then an increasing fee based on the performance of my asset, which they had nothing to do with.”
After trying out the process with two more custodians, Satz set out on his own to integrate alternative assets into the roughly $30 trillion held in U.S. retirement accounts. In 2018 he created Alto Solutions Inc., a Nashville-based custodian whose Alto IRA digital platform enables investors to add alternative assets to their IRAs. It currently custodies nearly $500 million in assets.
Alto offers two self-directed IRA products, the Alto Alternative IRA and the Alto CryptoIRA, which are available as traditional qualified, Roth and SEP accounts. Between the two accounts, any type of asset can be held in an IRA, including pre-IPO companies, private fund offerings, real estate, venture capital, private equity, cryptocurrencies, art and other collectibles.
Tara Fung, Alto’s chief revenue officer, said Alto decided to bifurcate its alternative and cryptocurrency IRAs out of an abundance of caution at a time when regulators were just starting to look at whether tokens like Bitcoin should be held in retirement accounts.
“There was certainly a period of time when we didn’t know what the DOL, SEC or IRS would do, and to some extent, I still don’t think we know,” said Satz, Alto’s CEO. “But we’re past the point where Bitcoin at least is going to be here to stay for a long time. We were concerned because if you have a bad asset in an IRA account, you taint the whole account.”
The company also handles the entire process of transferring assets in an IRA or other retirement account from an outbound custodian into an Alto IRA.
Satz said Alto is expanding its tool set to help users value their investments and calculate required minimum distributions.
“Users have the option of looking at a consolidated picture of their retirement accounts; the RMD doesn’t have to come out on a pro-rata basis,” Satz said. “They also have the option of distributing a percentage of an illiquid asset to another person, which fulfills the distribution requirement without the need to liquidate that asset.”
Alto does not yet support inherited IRAs.
Fee Structure
A starter alternative IRA on the Alto platform costs $10 per month or $100 per year and offers access to Alto’s investment partners with a $10 to $50 investment fee each time Alto executes an investment on the account holder’s behalf. An upgrade to a “Pro” IRA costs $25 per month or $250 per year, with a $75 per-investment fee to access non-partner investment firms.
“One of the things plaguing the alternatives and IRA industries is the lack of transparency around fees,” Fung said. “A flat fee is the key to enabling more transparency.”
Alto’s cryptocurrency IRA carries a 1% annual account fee, or 0.083% per month, with a $2 monthly minimum based on the user’s average CryptoRIA balance. The account also has a 1.5% trade fee for all transactions under $250,000. Additional flat fees are charged for account closure ($50) and outbound wire transfers ($25) from each account.
Alto’s purpose, Satz said, is to reduce the time and complexity that often comes with investing in alternative assets.
“I wanted Alto to do for IRA investing what TurboTax did for self-filing,” he said. “So we created an investing platform and we created relationships with investors and issuers that are raising money—deal sponsors, funds, companies and investment platforms.”
Satz and his team have created connections to 30 investment partners, allowing investors to open accounts and transact with its IRAs directly from many of its partners’ platforms.
Both accredited and non-accredited investors on the Alto IRA platform can tap into a host of alternative assets from a variety of platforms including AngelList, Masterworks, Republic, Wefunder, AcreTrader, Bioverge, Carofin, DiversyFund, EquityZen, JamestownInvest, Cadence, InvestX and Royalty Exchange.
In turn, these partners get access to vast sums of wealth residing in retirement accounts.
And Alto says it has become the preferred IRA provider for cryptocurrency firms such as Coinbase, Bitwise, Greyscale, Skybridge and Osprey Funds. An integration with Coinbase offers users direct access to more than 40 cryptocurrency tokens.
Growing Market
Recent moves by market regulators to relax barriers to accessing alternatives have helped buoy the Alto IRA concept.
Currently, only 2% to 5% of retirement assets are invested in alternatives of any kind, which Satz said puts retirement investors at a disadvantage to institutions like pensions and endowments that typically have 25% to 50% of their portfolios in alternatives. He noted that ultra-high-net-worth households typically dedicate 10% to 25% of their assets to alternatives.
Satz said he identified three reasons for the low penetration rate of alternative assets in retirement accounts: People don’t know they can do it; the complexity and time requirements involved; and costs.
Satz noted the scales in the U.S. economy have tipped dramatically toward private markets, as the number of publicly traded companies has declined from nearly 9,000 to fewer than 4,000. And companies are trending toward remaining private for longer time periods, leading to initial public offerings at astronomical valuations by the time retail investors are able to trade them.
It made sense to start with alternatives in IRAs, Fung said, because IRAs have grown to encompass a larger portion of U.S. wealth than workplace retirement accounts. She says there is now around $12 trillion in IRAs versus $8 trillion in 401(k)s. (Annuities and various defined benefit and contribution plans comprise the remaining U.S. retirement account assets.)
Alto believes IRAs will continue to grow at a faster pace than other retirement accounts due to the rise of the gig economy and the tendency for today’s workers to remain in jobs for shorter time periods.
Most of the demand for alternative and crypto IRAs comes from the RIA channel, said Lauren Strasburg, Alto’s head of intermediary sales. The company initially saw high demand among advisors for its Alternative IRA, but in recent months that demand has shifted toward its Crypto IRA.
“Advisors are seeing us a way to maintain or grow AUM,” Fung said. “Many of their clients are already investing in these assets. If they knew their financial advisor could support these assets in a retirement account, they would potentially keep more assets with the advisor or bring more assets into the relationship.”
Alto’s competitors include Murray, Ky.-based Kingdom Trust, which last year introduced its Choice IRA capable of holding any alternative asset. Other crypto-friendly IRAs include BitIRA, a Bitcoin-oriented IRA; Bitcoin IRA, which supports a number of tokens; and IRA Financial Trust, another flat-fee IRA provider.
Satz hopes that Alto’s user-friendly platform that accelerates access to alternatives and digital tokens will help it stand apart.
“I only have one vision with Alto, and that’s Alto and alternatives everywhere providing IRAs as a service, no matter what platform you’re working from,” he said.