Don’t just hope your insurance is sufficient. Know it is!

Securing Precious Metals and Coins

Today, buying gold and other precious metals is easy with the number of on-line dealers and retail facilities competing for business. The difficult part for investors is what to do with the gold they are purchasing. Evaluating the available options can be intimidating. The type of storage selected can dramatically impact the risk and ability to recover if there is a loss.

Home Storage

Statistics don’t lie; investors should not store assets at their home or business. Assets are forty times more likely to be stolen or damaged there, as compared to a commercial vault. Even when investors have the best safe money can buy, a quality, off-premises facility is always the better choice according to the FBI, state law enforcement, FEMA and even the Red Cross.

Financial Institutions

For many investors, a safe deposit box at a bank or credit union represents a convenient storage solution.  For some, the possible risk of asset seizure makes this an untenable option. Many banks are de-emphasizing their box services, not investing in modern technology to authenticate the identities of those accessing the box, and reducing the number of staff and training given to those who oversee the safe deposit box service. With 6,500 banks across the country, investors should assess the situation and their local branch before renting a box. Keep in mind banks do not insure the box contents if they are stolen or destroyed, placing the burden on the customer to obtain coverage.

Private Vaults and Depositories

Increasingly, investors are electing to use private vaults and depositories.

There are two types: depositories, where the main players are Brinks and Delaware Depository, and independently owned retail safe deposit box facilities located sporadically across the country. 

The depositories are designed for larger investors and commercial operations that warehouse gold at these facilities. Bullion dealers that market a storage option, typically utilize one of the depositories to physically hold assets rather than invest in their own vault.

The independent vault facilities are generally owned by local investor(s) or are operated by a family. These facilities are typically not regulated or licensed by any federal or state agency. Several years ago, a highly publicized incident where the owner of the facility looted the boxes and used the facility for criminal activities tarnished the entire industry. Today, the number of independent vault companies is growing with well over 45 such facilities operating across the country. Some companies have been in business for 20-25 years, while others are relatively new. There are standalone facilities located in industrial areas while others are found in strip malls. This makes it very challenging for an investor to evaluate the quality of a facility.

Independently Accredited Private Vaults

In response the lack of recognized standards for private vaults, SDBIC introduced SecurePlus a private vault assessment program. Accredited facilities undergo a rigorous on-site assessment by an independent expert. The accreditation involves analysis and inquiries in over 200 areas including vault design and construction, physical and electronic security, access technology and controls, fire detection and suppression, and institutional policies and procedures. Only those that meet the standards for overall safety and security are accredited. Accredited vaults also offer an insured safe deposit box.

The Importance of Insurance

A facility offering a fully insured safe deposit box is critical for two reasons: First, when a large insurance company trained to evaluate exposure is willing to essentially backstop the facility it provides significant comfort about the facilities ability to secure valuable assets; Second, history tells us no vault is invincible, and no matter how sophisticated and secure the physical facility may be; the risk of human mistakes, malicious acts or the wrath of mother nature are always present.

What if a natural disaster, a terrorist attack, or other catastrophic event destroys the vault? What if fraud or financial problems arise at the facility and assets are compromised? How are those customers  positioned to recover the value of their assets? Insurance places investors in the best position to recover the full value of those assets when a “What if” becomes a reality.

If a private vault is not a SecurePlus accredited facility and does not offer an insured box, proceed with caution. If the vault has long operating history and continuity of ownership, that certainly helps, but the lack of accreditation may also indicate a level of complacency. Investors should always be sure to assess when the vault security, surveillance and access control technology was updated.  The comfort of having the owner or some person servicing you at the vault on your visits, should not be at the cost of strict adherence to operational protocols and procedures at all times. 

Not all Insurance is Equal

Investors can never be sure a depository is maintaining adequate insurance to protect their assets. Depositories typically maintain a single policy covering all the assets it holds. The depositories select the limits of coverage they want to carry and the company that provides the insurance. What if those limits are less than the total value of all the assets being stored in the depository? The insurance company is not obligated to notify the investor if the coverage or limits are changed or the policy is canceled or non-renewed. If there is a catastrophic event involving the depository, investors will be coordinating with their bullion dealer–then the depository and finally the insurance company to file a claim. This is a lengthy and cumbersome process.  

With a SecurePlus vault, investors are issued a policy or certificate directly in their name for the insurance amount they have determined is needed. This leaves them in a much better position to settle a claim when they are the actual named insured on the policy rather than a third party loss payee under the depository policy.  Why take a chance?  Investors want to be compensated in the event the unthinkable happens. A SecurePlus vault gives them the certainty of protection and peace of mind.

Shipping Valuables

SecurePlus vaults will accept insured delivery of investable assets directly to their vault; will video the opening of the package(s), the inventory process (alternatively the package contents can be placed as received) and the placement of the assets in the box or safe. This video, along with a written inventory will be provided to investors validating receipt of the assets and reconciliation to the shipping invoice. If customers are establishing or adding to a precious metal IRA, this receipt can be provided to the IRA custodian. 

SecurePlus vaults will also arrange for the transfer of assets upon investor directive. The process of removing the assets from the box or safe and transferring control to the insured carrier can also videotaped and included in the documentation received.

If assets are delivered directly to investors, they can confidentially place them in their box. SecurePlus vaults can provide an insurance policy that covers those assets from the time the delivery is received and while assets are being transported to the vault. This provides seamless risk protection through the entire transfer process and provides the ultimate privacy and protection, as even the vault does not know what they are storing in their box.

Validating Investor Purchases

When using a depository or a bullion dealer’s storage option, investors never see or touch the purchased assets, making it difficult to confirm the grade and quality. Investors can always visit a SecurePlus vault and access their assets in a private viewing area. If they have a precious metal IRA, a SecurePlus vault will allow them to inspect and see the gold, silver, or other qualified assets. In addition, the video intake and inventory process provide better evidence and peace of mind than the paper confirmation received from a depository, even when there is a periodic audit from an independent firm.

Accessing Assets

Investors do not have a direct contractual relationship with a depository which can compromise timely access to their assets. Depositories typically only contract with precious metal dealers, IRA custodians, and other institutions, who then store their customer’s assets at these facilities. This means most  individual investor cannot directly instruct the depository on the handling of their assets -they must go through the institution where the assets were purchased. Theoretically, that institution can instruct the depository on the transfer or disposition of these assets- without an investors knowledge or consent. At a SecurePlus vault, that control rests exclusively with the investor – except in an IRA where the custodian or trustee must approve the distribution.

Understanding Segregated Storage

Assets at a depository are stored with the assets of other customers of the bullion dealer selected. While technically called segregated storage, the bullion dealer, not the depository is responsible to track and keep records of the ownership, and while assets may be in a vault with the depository, they typically are labeled under the bullion dealer’s name and placed on open metal shelving with the dealer’s other customer’s assets. At a SecurePlus vault, assets are truly segregated and off-balance sheet as they are placed in a dedicated locked box under the investor’s name and control. No one, other than the investor can access the assets or provide direction on transfer or disposition, and if they physically placed the assets at the SecurePlus vault, even the vault and its staff do not know what is in their box.

Don’t be fooled by precious metal dealers who market their own vault services. While a few own and maintain their own vault, many of these companies simply manage the paperwork while outsourcing the actual custodial storage to a third-party depository.

Storage Costs

Investors should not pay more for storage because the spot price of assets increased 10% last month. Depositories using a blanket policy allocate their insurance costs over their entire customer base, leaving the customer to guess whether the pricing is fair. SecurePlus vaults do not index the storage fee to the value of the assets, providing a stable, lower secure storage cost. Investors select the insurance amount desired from a schedule which details the costs. The policy amount can be increased or decreased as they desire. There are no minimum storage fees or overhead insurance cost allocations. It is all transparent and clear. Plus, for the reasons already outlined, having an insurance policy in their name for the exact amount needed provides superior protection.

In Summary

Home storage is simply not a suitable alternative for any rational gold investor.  Banks and credit unions are convenient and more affordable, but investors should evaluate the security and the access /control process at the branch. To address the risk of loss in the event of a natural disaster, burglary, flood or other catastrophes, maintain insurance through a specialty company

Depositories are corporately owned and insured which are positive features but offer secure warehoused storage, not true segregated box protection. True verification of receipt of the gold purchase is problematic and access to these facilities can be difficult for individual investors.

Private vaults are growing as they offer access and a level of service and security not available at depositories or most banks. Look for private vault facilities that have the SecurePlus accreditation and/or offer insured boxes ensuring the facility meets today’s standards for security and protection.

For a list of SecurePlus vaults – Go to www.sdbic.com/securestorage     

The author, Gerald Pluard is co-founder and president of SDBIC, a leader in secure storage solutions.

Please feel free to contact him at  [email protected]  or at 224-227-6181