In just this past year we have seen the futures industry make headline news from the unforeseen downfall of MF Global and the failing of PFGBest shortly thereafter. Media frenzy surrounding the collapse of these high-profile firms exposed shortcomings with market oversight and left us asking the evident question - “What is the future of the futures market?” Although the severity of these cases proved a reevaluation of the futures industry is necessary, a conclusive answer has yet to be determined.
An Interim Solution
Between the lack of protection and these two substantial cases, confidence in investing in the futures market was shaken, clients are still fighting to retrieve their lost funds and are seeking safer ways to hold their cash. While regulatory agencies are in the process of determining the best approach for the protection of customer’s funds, there are some custodians that provide an interim solution for the non-invested funds in specific types of accounts. For clients who hold Individual Retirement Accounts (IRAs), certain custodians offer FDIC-insured protection for cash balances that hold futures brokerage accounts.
Not only do these custody firms provide a level of security for your client’s idle cash, they also make it easy through daily liquidity for them to access those funds when they want to re-invest in the market through their future/forex brokerage account. Typically, cash held in an IRA at a bank can only offer up to $250,000 in FDIC-insured protection, however, certain custodians can provide increased coverage up to four times that amount using FDIC-insured, interest-bearing bank demand accounts at unaffiliated banks.
Why should I let another firm hold the cash?
There are various reasons why you may want to retain as much of your client’s cash on hand. Nonetheless, as an increasing amount of investors are seeking out further protection for their non-invested funds this could be viable option you can present to them. In addition, daily liquidity provides investors flexibility and allows custody firms to move the available funds from an IRA to the futures/forex account at the client’s request. By offering your IRA clients this solution, they will have a place to keep their cash protected through FDIC-insurance until they decide to re-invest in the market through their future/forex brokerage account held in the IRA. While this solution may not be for everyone, it does provide a way for you to offer those particular clients an alternative safeguard for their cash as regulators look for a long-term solution.
CONTACT
Reggie Karas
SVP, Managing Director of the Alternative Solutions Group | Millennium Trust Company
rkaras@mtrustcompany.com | ph: 630.368.5674 | www.mtrustcompany.com
Millennium Trust performs the duties of a custodian and, as such, does not provide investment advice or sell investments, nor offer any tax or legal advice.
