FINRA Alerts Broker/Dealers Regarding Non-Traded REITs

FINRA, the Financial Industry Regulatory Authority Inc., is alerting broker-dealers to a number of shortcomings in how they communicate with investors about non-traded real estate investment trusts (REITs).

According to FINRA, broker-dealers are falling short in a some areas, including distributing materials that contain misleading and inaccurate statements about the potentials of investing in illiquid real estate programs.

“Recent reviews by FINRA of communications with the public regarding real estate programs have revealed deficiencies,” FINRA said. These broker-dealer communications “have emphasized the distributions paid by a real estate program and failed to adequately explain that some of the distribution constitutes return of principal,” the FINRA notice said.

FINRA's notice to members is the latest effort to improve the sales practices around and increase transparency of illiquid REITs, which are sold almost exclusively through independent broker-dealers such as LPL Financial LLC, and Ameriprise Financial Services Inc.

Some broker-dealers may be downplaying the risks associated with such REITs. “In addition, some communications have not provided sufficient discussions of the risks associated with investing in the products in order to balance the presentation of benefits.”

Disclosure should be more accurate and explain how the REITs operate, FINRA said. Descriptions of the REITs in communications to clients also should be consistent with the REIT's prospectus.

“In order to be fair and balanced, firm communications concerning a real estate program may not include an annualized distribution rate until the program has paid distributions that are, on an annualized basis, at a minimum equal to that rate for at least two consecutive full quarterly periods,” the FINRA notice said.

If you or a family member have sustained investment losses due to your stock broker or financial advisor’s recommendations regarding non-traded REITs, private placements, or other illiquid, complex products, call for a free consultation on how to potentially recover your losses. To speak with an attorney call Soreide Law Group at 888-760-6552.