In the column for Nov. 12 I quoted a letter from a reader who wanted to establish a self-directed IRA but was turned off by custodial and management fees spelled out by the brokers he had contacted.
In my answer I pointed out that a broker managing an IRA had some record-keeping and reporting responsibilities, which led to the imposition of the custodial fees the reader was unhappy about. I said, "If you want to avoid the various charges, you'll have to give up the idea of a self-directed account."
It turns out that statement isn't true. Shortly after the column appeared, I got a letter from M. Scott Fraser, a vice president of Charles Schwab & Co. and manager of their I Street branch. Fraser informed me that Schwab -- a major discount broker -- has been offering a no-fee self-directed IRA for the past two years.
I reviewed the descriptive material from Schwab, and can find nothing contrary to what Fraser said in his letter. There are no set-up, maintenance or termination fees, and no minimum deposit amount required. In addition, you also receive the benefit of the lower broker fees common to the discount brokerage houses.
With this self-directed IRA, you may invest in stocks, corporate bonds, government securities, mutual funds, money market funds and even covered-call-option writing. Uninvested funds are held in a Kemper money market fund -- either a normal money market portfolio or a government securities portfolio; you specify your choice when you open the IRA.
You will not get investment recommendations or research from Schwab in connection with your account; if you're looking for extensive hand-holding, you'll have to go to a full-service broker and pay the fees. But an investor who has enough confidence in his or her own ability to opt for a self-directed IRA might not consider this a disadvantage.
A call to Fraser confirmed my guess that Schwab has a similar self-directed account for Keogh plans. So I take back my words of Nov. 12; you can walk into Schwab's office and open a self-directed IRA or Keogh without fees or charges of any kind, other than the normal discounted broker fees on buy and sell transactions.
* IRA Update. As of June 30, 1984, banks and savings and loans held the lion's share of all Individual Retirement Accounts in the country. According to the Credit Union National Association, banks held 33.4 percent of all IRAs and S&Ls had 26.4 percent of the market.
Mutual funds came in third with 16 percent of the total, followed by insurance companies (10 percent) and mutual savings banks (7.8 percent). Credit unions were in last place, with 6.7 percent of all IRAs.
Why was the Credit Union National Association heralding this dismal news? Turns out that IRAs at credit unions grew faster, during the first half of 1984, than at any other financial institutions. Credit union IRAs jumped from $5 billion at the start of the year to around $7.7 billion by June 30, 1984.
That 53.8 percent increase compared with increases of 33.9 percent at banks, 15 percent for mutual funds, 11.6 percent for S&Ls, and 8 percent for mutual savings banks; insurance companies stayed even during the period.
To round out the picture, I should tell you that there are other IRAs around town, not counted in the CUNA tally -- presumably because in dollar value these other investment media are not statistically significant.
I refer to the various limited partnerships available and authorized for IRAs: partnerships dealing in real estate, oil and gas and equipment leasing. For example, about 45 percent of the investors in Wellesley Lease Income Limited Partnership are using the partnership for IRAs.
Wellesley is a Massachusetts public partnership that invests partners' funds in a portfolio of equipment leases, primarily IBM computer and peripheral equipment. Wellesley and similar limited partnerships take a very small slice of the total IRA pie -- but even a small piece of a $120 billion pie can make a pretty good chunk of pastry.