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

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.
MAY 17, 2016
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.

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