With mounting pressure from regulators, broker/dealers are making changes to how they sell alternative investments.
VSR Financial Services Inc., Berthel Fisher & Co. Financial Services Inc. and the Cetera Financial Group Inc., which has four independent-contractor broker-dealers under its umbrella, this year have revised policies or added new guidelines and procedures for the sale of certain alternatives, such as nontraded real estate investment trusts (REITs), according to Bruce Kelly in a recent article from InvestmentNews.com.
These changes particularly affect alternative investments that are illiquid. Illiquid securities are not traded on an exchange, leaving investors with little or no ability to sell them immediately. Illiquid products remain enormously popular with clients.
In making these changes, the broker-dealers are following the lead of both state regulators and FINRA, the Financial Industry Regulatory Authority Inc.
In February LPL Financial LLC agreed to pay Massachusetts $500,000 to settle complaints tied to the firm's sale of nontraded REITs, which are illiquid real estate investment trusts. Massachusetts Commonwealth Secretary William Galvin in December had charged LPL with failure to supervise registered representatives who sold the nontraded REITs in an alleged violation of both state limitations and the company's rules.
For clients who are 70 to 75, the maximum percentage of illiquid investments a client can own is 25% of a portfolio; for clients between 75 and 84, the new maximum is 15%. The firm is not accepting orders for illiquid investments — commonly referred to as direct participation programs — for clients who are 85 and above.
If you or a family member have sustained investment losses due to your stock broker or financial advisor’s recommendations, call Soreide Law Group for a free consultation on how to potentially recover your losses at 888-760-6552.
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