Alto to buy Forge Trust from Schwab in self-directed IRA push

Alto, a Nashville, Tenn.-based self-directed IRA custodian and broker-dealer, has agreed to buy Forge Trust from Schwab.

The deal would put more than $20 billion in retirement assets under custody and administration on a single platform built for investing in private companies and funds, Alto said in an announcement Tuesday.

The agreement covers Forge Trust Co. and its parent, Forge Services Inc., which are both part of Forge Global, the private-shares marketplace Schwab acquired earlier this year.

Upon completion of the deal – which at this point still requires the blessing of the South Dakota Division of Banking – Alto said the combined business will hold more than 60,000 self-directed IRA accounts with private-market assets. It will also have more than three million accounts in its custody-as-a-service business, which lets other firms plug Alto's custody and compliance tools into their own platforms.

A self-directed IRA gets the same tax treatment as a standard individual retirement account, except a custodian for the former is able to allow holdings beyond publicly traded stocks, bonds and funds, such as private equity, venture capital, real estate and private credit. That opens self-directed IRA investors up to a broader set of opportunities – and, in certain cases, risks.

In a 2023 investor alert, the Securities and Exchange Commission sounded a note of caution for self-directed IRA owners who may consider investing in alternative assets such as real estate, precious metals, crypto, and private placements, among other niche asset classes and vehicles.

"Investments in these kinds of assets have unique risks that investors should consider," the SEC said in the alert issued jointly with NASAA and FINRA. "Those risks can include a lack of information and liquidity – and the risk of fraud."

According to Alto, brokerages have generally avoided self-directed IRAs because of the heavy administrative burden that comes with each private transaction.

How big is the combined self-directed IRA platform?

The acquisition is a large step up in scale for Alto. In an August announcement, the company said it was custodian for roughly $2 billion held by more than 32,000 self-directed IRA investors as of June 30.

Alto's Tuesday statement didn't say how much of the combined $20 billion-plus in assets under custody and administration will come from Forge Trust, though the platform's own disclosure of midyear figures suggest its acquisition target, which has been operating for more than 40 years, would make up the lion's share.

"We see an enormous opportunity to bring alternative assets into the financial mainstream by making retirement capital easier to put to work," said Eric Satz, Alto's founder and chief executive.

Forge Trust's leadership presented the sale as a matter of continuity.

"Our priority throughout this process has been to ensure continuity for our clients and our people while positioning the business to serve them even better over time," said Liz Alexander, Forge Trust's chief operating officer. "By joining Alto, we will combine Forge Trust's deep custodial expertise and commitment to high-quality service with Alto's AI-powered technology and broader investment capabilities to best support all of our clients."

Schwab's early history with Forge

Schwab first announced its agreement to buy private-shares platform Forge Global for $660 million in November last year. That deal, which paid a reported $45 a share in cash, closed in March.

At the time, Schwab Chief Executive Rick Wurster said the firm was "uniquely positioned to deepen liquidity, improve transparency, and further democratize access to this increasingly important source of wealth creation for investors."

Over the summer, Schwab's ownership of Forge has made it a target of legal action by Linqto, a collapsed pre-IPO investing platform that went bankrupt following allegations that its former chief executive, William Sarris, misled customers into believing they were purchasing direct equity stakes in sought-after private companies. 

Read more: Executives of Linqto, bankrupt pre-IPO trading platform, face fraud charges

Forge had been named trustee of a liquidating trust set up to return assets to more than 13,000 customers. But just days before the trust was due to launch, Forge told Linqto it would not take on the role, citing demands from Schwab. That prompted Linqto and its official committee of unsecured creditors to file suit to compel Forge and Schwab in U.S. Bankruptcy Court for the Southern District of Texas.

"It's intolerable and wrong that Linqto is still in bankruptcy because of the unwillingness of Forge and Schwab to fulfill their obligation to serve as trustee of the Liquidating Trust," Linqto Chief Executive Dan Siciliano said in August.

A private market platform for differentiation

For advisors, the more practical question may be how Forge Trust's accounts connect to another platform Alto recently opened to registered investment advisers. The Private Deal Room platform, unveiled in August, lets an advisor take a private deal from onboarding to close inside client IRAs, with Alto handling custody, compliance and execution.

Citing PitchBook, Alto said the operational and administrative work of executing private-market deals is a major obstacle for the nearly 19,000 RIAs in the U.S. A KKR survey found about 74% of RIAs want to increase client allocations to private markets.

Read more: Private markets seen adding $2 trillion to advisor books within five years

"Advisors today are competing in an increasingly crowded market, and with more than $18 trillion of investable retirement assets untapped in IRAs, access to differentiated private markets opportunities can be a meaningful way to distinguish their practices and deliver more for clients," Evan Deussing, Alto's senior vice president of revenue said at the time.