Finra 'unfairly criticized' on REIT pricing rule change

In Regulatory Notice 2014-006, Finra has proposed improvements to the disclosures on customer statements about share values for unlisted real estate investment trusts and direct participation programs. It includes: 1. A new regimen for disclosure of organization and offering costs. 2. A requirement that valuation methodology be consistent with industry standards. 3. Earlier determination of net asset value. 4. Independent-party assistance and confirmation of net asset value. 5. More frequent determination of valuations. In the coming weeks, we expect the Securities and Exchange Commission to adopt the proposed amendment to the customer statement rule as proposed in the notice. Although Finra has solicited comments three times in the last four years, and made many improvements as a result of this deliberate process, some continue to criticize aspects of the rule change and the timing of its implementation. There is a healthy tension that exists between industry, media and regulators. Each plays a critical role in the process in terms of capital formation, efficiently regulated markets, the weeding out of bad actors and shining a light on the true issues. It enacts a method of checks and balances toward the laudable goal of the democratization of investing. But like all checks and balances, sometimes it gets, well, out of balance. And when it does, it is incumbent on all men and women of good will to speak out. I recently got to visit the Lyndon B. Johnson Presidential Library in Austin, Texas. I was reminded of the many bills he signed or programs he initiated, including the Civil Rights Act, Head Start, Truth in Securities Act and Freedom of Information Act, to name a few. He is often admired and/or admonished for his contributions to domestic policy and for his role in the Vietnam War. But personally I was struck by how much good he did and how much criticism he received. LBJ was famously quotable, and when he described what getting all that criticism was like to then president-elect Richard M. Nixon, he said being president is like “being a jackass caught in a hail storm. You've got to just stand there and take it.” Finra rule making is now being unfairly criticized. This is in evidence in recent media coverage of the proposed changes to the customer account statements rule. In my view, some of the coverage lacks balance and context. It is a disappointment to see a steadfast failure to acknowledge the inherent improvements made by Finra, as cited above, or the complexities it has had to address in order to accomplish it. Critiques about timing of implementation minimize the value of the time required to implement a rule change and the thoughtful approach taken to do so prudently. The business of writing effective regulation to govern complex financial instruments is not easy. It is not for the impatient. It is not for the underinformed. It is not for people with poor listening skills or for those who lack the conviction and fortitude to press onward. It also is not for those who are unable or unwilling to measure the magnitude or implications of rule changes. Neither those who prioritize personal or professional agendas or, on the opposite spectrum, those with idealistic blinders, write effective rules. I will tell you that it is best not driven by those seeking fortune or personal fame. It is thankfully in the hands of Finra and the SEC. They employ skilled professionals who have engaged in their chosen careers to protect investors and protect the markets we depend on. Our regulators are providing a tangible and critical service to our society by promulgating many new regulations, including this recent proposal. There are many different viewpoints as to whether the rule went too far or not far enough, but one thing is certain: All sides were heard and every aspect possible was considered. It was duly adjudicated, and a sure path was chosen in an effort to enhance disclosure and improve the experience of investors. It is simply wrong and irresponsible to isolate a particular aspect of a rule one disagree with, at this time in the process, and beat with thunder the drum of condemnation. In my view, this is a moment when the industry and the press (often reasonable critics of regulators) should instead put pens down and hands together in a round of applause. Nothing is accomplished by a blatant refusal to acknowledge constructive compromise and instead wrap oneself in the glory of self-righteous criticism. Such conduct impedes progress toward a worthy goal. I am prompted to quote Aristotle: "If you want to avoid criticism, say nothing, do nothing, be nothing." Finra got it right. More importantly, they will get it done! I think LBJ would be mighty proud. Mark M. Goldberg is managing director of W.P. Carey Inc., president of Carey Financial, and chairman of the Investment Program Association.