Finra's REIT rule to raise transparency on prices takes effect

New reg mandates changes to customer account statements that better reflect true value of nontraded REITs

Apr 11, 2016 @ 3:39 pm

By Bruce Kelly

Independent broker-dealers on Monday began to adjust to a revised industry rule intended to give investors a clearer picture of what they are paying for investments: a change to customer account statements regarding the value of illiquid investments such as nontraded real estate investment trusts.

The Financial Industry Regulatory Authority Inc.'s new account statement rule comes as part of a new regulatory regime for the securities industry. Last week, the Department of Labor rolled out the final version of a regulation that would raise investment advice standards for retirement accounts.

According to a Finra notice from January 2015, the general industry practice in the past was to use the offering price, or par value, of a nontraded REIT as the per share estimated value during the offering period, which can last as long as seven and a half years. The offering price, typically $10 per share for a nontraded REIT, often remains constant on customer account statements during this period even though various costs and fees have reduced investors' principal and underlying assets may have decreased in value.

Under the new rules, broker-dealers will have to reflect the true value of the investment on customer account statements right away. Broker-dealers can use two methods to determine an illiquid investments estimated value: a net investment or appraised value.

Two Cole Capital REITs on Monday announced estimated per share net asset values. Cole Office & Industrial REIT announced an estimated value of $10 per share and Cole Credit Property Trust V Inc. announced an estimated per share value of $24.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

WisdomTree's Maute: Developing elegant tech-enabled solutions

Advisers need unique technology-enabled solutions in order to have more time to expand their practice, according to WisdomTree's Alisa Maute. What can be done today to create a more thriving business of tomorrow.

Latest news & opinion

Raymond James executives call on industry to keep broker protocol

Also ask firms to pay for the administration of the protocol to 'ensure its longevity and relevance.'

Senate committee approves tax plan but full passage not assured

Several Republican senators expressed reservations about the bill, and the GOP cannot afford too many defections.

House passes tax bill, focus turns to Senate

Tax reform legislation expected to have more of a challenge in upper chamber.

SEC enforcement of advisers drops in Trump era

The agency pursued 82 cases against advisers and firms in fiscal year 2017, down from 98 the previous year.

PIABA accuses Finra of conflicts of interest

Public Investors Arbitration Bar Association report slams self-regulator over its picks for board of governors.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print