In the last decade, Finra targeted broker / dealers who recommended private placements such as medical capital, provident and other alternative investment products to their clients. To date the securities industry is still feeling the impact ranging from the shut down of several broker / dealers, thousands of Finra arbitrations commenced by investors against financial advisors and broker / dealers, and financial advisors with black marks on their U4s due to customer complaints. Most of these problems followed Finra investigations of financial advisors and broker / dealers who sold the products to their clients.
In the decade to come, financial advises and broker / dealers will experience similar problems stemming from the recommendation of non-traded REITs to their clients. Non-traded REITs have come under great scrutiny because they are generally illiquid investments in which principal is paid back at the REIT’s option. With Finra recently announcing its investigation into broker / dealers who recommended these non-traded REITs to their clients, the likelihood of more broker / dealer shut downs occurring and Finra arbitrations increasing is great.
However, the securities industry is not required to act as an insurance policy for failed investment decisions – and many REIT investors knew exactly what they were doing, but were willing to ignore the risks for hopes of higher returns. Therefore, all broker / dealers involved in the sale of non-traded REIT should begin now to prepare for the storm about to result from finra’s investigation into the sale of non-trades REITs.