What is a shell account?

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Rosie-G
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Joined: Mon Mar 26, 2018 9:07 am

What is a shell account?

Post by Rosie-G » Thu Jul 12, 2018 1:49 pm

My husbands company has their 401K invested in American Funds through a local financial services company. We got a letter from the company's representative that said -"We have been doing some housekeeping and it was discovered that we do not have a "shell" account for the following account held at American Funds: XXXXX SIMPLE IRA" They then said they need a shell account for all accounts that they are rep on but are held by the fund company.

They sent paperwork wanting ALL our financial information - income, net worth, tax bracket, value of other investments, etc. We have most of our retirement funds in Vanguard and have a financial advisor through Vanguard.

We really don't want them to have our other investment information. We do not need investment advisors through them at all. The only reason we put money in there is because of company match.

What is a Shell Account?
Why do they need this information?

alex_686
Posts: 3752
Joined: Mon Feb 09, 2015 2:39 pm

Re: What is a shell account?

Post by alex_686 » Thu Jul 12, 2018 2:14 pm

Welcome to the forum.

I am making a few guesses here. The typical structure these days is to have a brokerage account (the shell account) holding the various mutual funds. We can debate the fine points about this but it is close to becoming mandatory.

That being said, I think this is a mistake. I am assuming this is being offered though his employer's 401k because this stuff should be handled at the company level, not the individual level. I assume we are not talking about a solo 401k, SEP, etc. I would guess that somebody got confused on what level this should work and sent you out the paperwork by mistake.

I think a quick note to the local investment company and the employer's HR rep should clear this up.

Rosie-G
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Joined: Mon Mar 26, 2018 9:07 am

Re: What is a shell account?

Post by Rosie-G » Thu Jul 12, 2018 2:35 pm

It is a 401K through an employer.

We had my sister in law call the Investment Co., she is a CPA, and they said they needed every account holder to sign the paperwork. The rep said that what the letter means is that you have an account at American Funds, but Investment CO. does not have an account in your name and they claim they need that. She couldn't say why.

alex_686
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Joined: Mon Feb 09, 2015 2:39 pm

Re: What is a shell account?

Post by alex_686 » Thu Jul 12, 2018 2:47 pm

Then I would talk to the employer's HR and see if this is really required. I can't see how it would be required.

As a side bar, I suspect this has something to do with the new fiduciary rules. The rules require that financial adviser (FA) are to act in your best interest. Many here on Bogleheads applaud that idea. I have mixed feelings. It means that FAs just can't sell you stuff anymore, but have to act in your best interest so they need to be interested in you. i.e, they need a complete picture.

Like I implied earlier, this is the way the world is moving.

pkcrafter
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Re: What is a shell account?

Post by pkcrafter » Thu Jul 12, 2018 2:56 pm

Rosie:
My husbands company has their 401K invested in American Funds through a local financial services company. We got a letter from the company's representative that said -"We have been doing some housekeeping and it was discovered that we do not have a "shell" account for the following account held at American Funds: XXXXX SIMPLE IRA"
You mention a 401k, but then you say the company rep is talking about a SIMPLE IRA. These are different types of retirement saving plans and may require different information. Which plan does your husband have available?

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

wolf359
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Re: What is a shell account?

Post by wolf359 » Thu Jul 12, 2018 3:01 pm

When I have a question about something like this, I like to validate the information through a known trusted source.

Ask through your HR department to find out what's going on? Did they not set up accounts for the whole company, and are now correcting it? (If so, then HR should be aware of the action, and it's not unique to you.)

The 401-k plan administrator may also be a financial advisor. You don't have to use them in that role, but if they're who the HR department hired to manage the 401-k, then you have to deal with them. Perhaps HR can explain what is going on with the shell accounts and individual accounts. If HR agrees that the action is kosher, then you can trust them.

401-k money is yours. If the company goes bankrupt, they cannot seize or use your assets. If you leave the company, you get to take the money with you. That's why the money has to be in an account designated in your name.

My guess about why they're asking all this financial information is two recent (2012) FINRA rules: https://www.investopedia.com/terms/k/knowyourclient.asp

I believe the answers are optional. If they insist you answer rather strongly, you can always validate with HR if you HAVE to answer the questions to participate in the 401-k. It's the answers from HR that are company policy, not the answers from the vendor.

Edit: Good point about the Simple IRA. This may have a different feel because it's a SIMPLE IRA instead of a 401-k. The plan administrator may be simply correcting the way the accounts were set up. Again, verify with HR, then take the appropriate action.

alex_686
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Joined: Mon Feb 09, 2015 2:39 pm

Re: What is a shell account?

Post by alex_686 » Thu Jul 12, 2018 3:08 pm

pkcrafter wrote:
Thu Jul 12, 2018 2:56 pm
Rosie:
My husbands company has their 401K invested in American Funds through a local financial services company. We got a letter from the company's representative that said -"We have been doing some housekeeping and it was discovered that we do not have a "shell" account for the following account held at American Funds: XXXXX SIMPLE IRA"
You mention a 401k, but then you say the company rep is talking about a SIMPLE IRA. These are different types of retirement saving plans and may require different information. Which plan does your husband have available?

Paul
Paul, good catch - I missed that.

I am revising my position. If it a IRA of any type I think you have to fill out the paperwork. They more or less have to act as a fiduciary so they need all of the brokerage paperwork filled out.

Rosie-G
Posts: 3
Joined: Mon Mar 26, 2018 9:07 am

Re: What is a shell account?

Post by Rosie-G » Thu Jul 12, 2018 6:12 pm

It says Simple IRA - I always thought you could only do an IRA if it was something you set up yourself and not through pre tax withdrawal with a match from the place you work. Guess I better read up on this more.

Thanks everyone

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