In a case that points up many of the problems that have been plaguing the securities industry for years, a FINRA panel of arbitrators awarded six investors more than $1M in relief after they alleged that a financial advisor and three executives for Berthel Fisher & Co sold them unsuitable complex products.
Investment products that offer alternatives to stocks and bonds tend to be both more complex—and more risky—than traditional investments, and often tempt investors with special features and higher returns than offered by basic investments.
Each month and again on a quarterly basis, the agency that regulates the financial industry, FINRA (Financial Industry Regulatory Authority), produces a detailed report that runs down all disciplinary actions recently taken against brokerage firms and brokers.
This week, we saw yet another large brokerage get hit with an enormous fine for alleged misconduct related to the alternative investments known as non-traded REITS (real estate investment trusts). This time, it was LPL Financial. The firm was ordered by FINRA (the Financial Industry Regulatory Authority) to pay around $950,000 in fines for allegedly failing to adequately supervise sales of non-traded REITs and other alternative investment products.
In the past few years, non-traded REITs have become increasingly popular. Last year, around $20 billion of these complex financial products were sold to investors, up from just over $10 billion in 2012. That’s a huge jump. And more REIT shares than ever before are expected to be sold this year.
The problem is, while the popularity of REITs has obviously grown very rapidly, we have not seen a corresponding increase in the level of knowledge and familiarity with these products on behalf of both brokers and investors. In other words, people are selling and buying more and more of a product they still don’t know much about. That’s a recipe for investing disaster.
Non-traded REITs have more in common with private placements and other more exotic investment products than they do with traditional investments like stocks, bonds, and mutual funds. As the name itself suggests, non-traded REITs are not publicly traded and are, therefore, notoriously illiquid. In many cases, the money you invest in a REIT may not be available for a three-to-five year period. Plus, the value of your investment in a REIT may actually at times be lower than reflected on your account statements. Brokers need to be aware of these features of non-traded REITs, and of course they absolutely must have a candid discussion with their customers about them, too. Too often, as we’ve seen in cases of our own, brokers eager to collect the elevated fees or commissions associated with alternative investments like REITs fail to communicate with customers about clear illiquidity issues, a common form of negligence.
Fortunately, FINRA has caught on to the trend and has issued a number of warnings and guidelines for investors interested in better understanding these REITs. Click here for more info.
If you or anyone you know has been the victim of broker misconduct or investment fraud involving REITS, alternative investments, or traditional financial products, please contact us immediately for a free consultation at 1-877-462-3330 or via email by clicking here.
We've all seen them. Ads and billboards where business claims it's the "world's best" whatever--for some reason we instantly think of pizza or burgers. Generally we take these outlandish claims with a grain or salt (or a shake of oregano). But in the world of private placement offerings, false advertising is no joke. Especially not to FINRA. As usual, the regulatory agency is out to punish private companies who sell or attempt to sell the public any type of securities under false pretenses or based on misinformation.
A recent article on Yahoo finance reminded us to talk about what an important role advertising has to play in the securities industry, and how often advertising is used to manipulate unsophisticated investors into shady deals. For example, from the article:
Now, this is a particularly large and egregious case. But deceitful deals like this are being pitched to unsuspecting investors all the time. As we've mentioned many times before, if you're not an investment professional yourself, before you consider getting involved in a private placement or REIT like the one described above--or frankly any kind of investment offering--consult a trusted financial adviser and get their opinion first. Otherwise you could become another alarming statistic. After all, in 2012 alone, FINRA reported $10.4 million in fines from cases involving alleged advertising violations. And that's not even accounting for the tens of millions of dollars in restitutions FINRA ordered.
If, unfortunately, it's too late, and you've already been the victim of misleading advertising for securities, please contact us immediately to discuss your options.