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Welcome
Thank you to our Sponsors
Thomas K. SittemaIPA Chairman and CEOCNL Financial Group Inc.
Opening Remarks
Tony CheresoPresident and CEOInvestment Program Association
Opening Remarks
Thomas K. SittemaIPA Chairman and CEOCNL Financial Group Inc.
Outgoing IPA Chairman
Rosemarie ThurstonPartner Alston & Bird LLP
Service Award Winner
Todd LockwoodSVP, Operations and Client ServicesCole Capital
Service Award Winner
Lifetime Achievement Award
Mark M. GoldbergPresidentInvestment Management, W. P. Carey, Inc. & Chairman, Carey Financial, LLC
The IPA is Honored to Present itsLifetime Achievement Award to:
InFocusNon-Listed REIT Committee
Neil Menard, CNL Financial Group
Wednesday, October 19: 8:30 a.m.
Wednesday, October 19: 9:00 a.m. – 9:30 a.m.
Identifying Sources of Growth
Presenter:
Mike HuismanDirector
Data Pool
$66,000,000,0001,300,000
730,00039,000
941487
55
- Invested- Purchases- Investors- Advisors- Firms- Products- Sponsors
2013 PresentTimeLine
75
Industry Pulse
Industry:Sales by Product Type
76
Sales
Industry:Sales by State
2013 2016
Proportionallydownacrossthecountry
Industry:Percent change by State from 2013 to 2015
X>50%
Industry:Sales by Share Class
Sales
Industry:
Qualified vs. Non-Qualified Sales
Percen
tofSales
Industry:Sales by Rep Type
FLAT!!!ChangesSales
82
Investor Growth Areas
0 1-20 20-40 40-60 60-80 80-100
Investor:Investor Groupings
$10,000 $20,000 $35,000 $60,000 $200,000
Quintiles
*Combinedsalesforasingleinvestorfor1year
Investor:Average Number and Size of Ticket
Investor:Total Sales by Quintile
Investor:2013-14 Investors in 2015-16
% of Investor Population % of Industry Sales2013-14 2015-16 2013-14 2015-16
Exiting Returning Returning New Exiting Returning Returning New
1-20 16% 3% 7% 11% 2% 1% 2% 2%
20-40 18% 4% 7% 10% 5% 1% 4% 3%
40-60 16% 4% 8% 10% 9% 2% 6% 5%
60-80 13% 4% 9% 13% 11% 4% 7% 12%
80-100 15% 7% 14% 11% 41% 24% 27% 32%
Industry Total 78% 22% 45% 55% 68% 32% 46% 54%
Investor:Impact of Investors who Left
% of Investor Population % of Industry Sales2013-14 2015-16 2013-14 2015-16
Exiting Returning Returning New Exiting Returning Returning New
1-20 16% 3% 7% 11% 2% 1% 2% 2%
20-40 18% 4% 7% 10% 5% 1% 4% 3%
40-60 16% 4% 8% 10% 9% 2% 6% 5%
60-80 13% 4% 9% 13% 11% 4% 7% 12%
80-100 15% 7% 14% 11% 41% 24% 27% 32%
Industry Total 78% 22% 45% 55% 68% 32% 46% 54%
Investor:2013-14 Impact Investors who Returned
% of Investor Population % of Industry Sales2013-14 2015-16 2013-14 2015-16
Exiting Returning Returning New Exiting Returning Returning New
1-20 16% 3% 7% 11% 2% 1% 2% 2%
20-40 18% 4% 7% 10% 5% 1% 4% 3%
40-60 16% 4% 8% 10% 9% 2% 6% 5%
60-80 13% 4% 9% 13% 11% 4% 7% 12%
80-100 15% 7% 14% 11% 41% 24% 27% 32%
Industry Total 78% 22% 45% 55% 68% 32% 46% 54%
2015-16 Impact Investors who Returned
% of Investor Population % of Industry Sales2013-14 2015-16 2013-14 2015-16
Exiting Returning Returning New Exiting Returning Returning New
1-20 16% 3% 7% 11% 2% 1% 2% 2%
20-40 18% 4% 7% 10% 5% 1% 4% 3%
40-60 16% 4% 8% 10% 9% 2% 6% 5%
60-80 13% 4% 9% 13% 11% 4% 7% 12%
80-100 15% 7% 14% 11% 41% 24% 27% 32%
Industry Total 78% 22% 45% 55% 68% 32% 46% 54%
Existing Investors movement between 2013–14 to 2015-16
2015- 2016
2013
-20
14
2015-16 Impact New Investors% of Investor Population % of Industry Sales2013-14 2015-16 2013-14 2015-16
Exiting Returning Returning New Exiting Returning Returning New
1-20 16% 3% 7% 11% 2% 1% 2% 2%
20-40 18% 4% 7% 10% 5% 1% 4% 3%
40-60 16% 4% 8% 10% 9% 2% 6% 5%
60-80 13% 4% 9% 13% 11% 4% 7% 12%
80-100 15% 7% 14% 11% 41% 24% 27% 32%
Industry Total 78% 22% 45% 55% 68% 32% 46% 54%
Investor Representation by Advisor StatusNewInvestors ReturningInvestors
Investorsin80– 100Quintile
21%78% 94%6%
73%
27%
NEWADVISORS
ReturningAdvisorsReturningAdvisors
ReturningAdvisors
93
Advisor Growth Areas
0 1-20 20-40 40-60 60-80 80-100
Investor:Advisor Groupings
$30,000 $120,000 $325,000 $850,000 $4,200,000
Quintiles
*Combinedsalesforasingleadvisorfor1year
2013-14 Advisors in 2015-16
95
% of Advisor Population % of Industry Sales2013-14 2015-16 2013-14 2015-16
Exiting Returning Returning New Exiting Returning Returning New
1-20 14% 7% 12% 9% 1% 1% 2% 1%
20-40 10% 9% 13% 7% 1% 1% 4% 1%
40-60 7% 13% 14% 6% 2% 3% 8% 2%
60-80 5% 16% 16% 4% 3% 12% 15% 3%
80-100 2% 17% 16% 3% 7% 69% 56% 8%
Industry Total 38% 62% 71% 29% 14% 86% 85% 15%
Impact of Advisors who Left
96
% of Advisor Population % of Industry Sales2013-14 2015-16 2013-14 2015-16
Exiting Returning Returning New Exiting Returning Returning New
1-20 14% 7% 12% 9% 1% 1% 2% 1%
20-40 10% 9% 13% 7% 1% 1% 4% 1%
40-60 7% 13% 14% 6% 2% 3% 8% 2%
60-80 5% 16% 16% 4% 3% 12% 15% 3%
80-100 2% 17% 16% 3% 7% 69% 56% 8%
Industry Total 38% 62% 71% 29% 14% 86% 85% 15%
2013-14 ImpactAdvisors who Returned
% of Advisor Population % of Industry Sales2013-14 2015-16 2013-14 2015-16
Exiting Returning Returning New Exiting Returning Returning New
1-20 14% 7% 12% 9% 1% 1% 2% 1%
20-40 10% 9% 13% 7% 1% 1% 4% 1%
40-60 7% 13% 14% 6% 2% 3% 8% 2%
60-80 5% 16% 16% 4% 3% 12% 15% 3%
80-100 2% 17% 16% 3% 7% 69% 56% 8%
Industry Total 38% 62% 71% 29% 14% 86% 85% 15%
2015-16 ImpactAdvisors who Returned
% of Advisor Population % of Industry Sales2013-14 2015-16 2013-14 2015-16
Exiting Returning Returning New Exiting Returning Returning New
1-20 14% 7% 12% 9% 1% 1% 2% 1%
20-40 10% 9% 13% 7% 1% 1% 4% 1%
40-60 7% 13% 14% 6% 2% 3% 8% 2%
60-80 5% 16% 16% 4% 3% 12% 15% 3%
80-100 2% 17% 16% 3% 7% 69% 56% 8%
Industry Total 38% 62% 71% 29% 14% 86% 85% 15%
Returning Advisors Movementfrom 2013-14 to 2015-16
2013
-14
Ran
ge2015-16: New Range
Impact of New Advisors% of Advisor Population % of Industry Sales
2013-14 2015-16 2013-14 2015-16Exiting Returning Returning New Exiting Returning Returning New
1-20 14% 7% 12% 9% 1% 1% 2% 1%
20-40 10% 9% 13% 7% 1% 1% 4% 1%
40-60 7% 13% 14% 6% 2% 3% 8% 2%
60-80 5% 16% 16% 4% 3% 12% 15% 3%
80-100 2% 17% 16% 3% 7% 69% 56% 8%
Industry Total 38% 62% 71% 29% 14% 86% 85% 15%
Investor vs Advisor
% of Population % of Industry Sales
2013-14 2015-16 2013-14 2015-16
Exiting Returning Returning New Exiting Returning Returning New
Advisor 38% 62% 71% 29% 14% 86% 85% 15%
Investor 78% 22% 45% 55% 68% 32% 46% 54%
InFocusPolicy Advocacy CommitteeDan Wagner, The Inland Real Estate GroupKamal Jafarnia, W. P. Carey, Inc.
Wednesday, October 19: 9:30 a.m.
Due Diligence Symposium & Washington Hill Day• Opportunity to engage with key policy makers in Washington
and in the States to build on our successful public policy agenda.
• Engaged a broader and more diverse group of voices on public policy issues by having these IPA members be front line advocates for the non-traded REIT and BDC community.
• The challenge is continue to engage the broader members and to make them feel compelled to get involved with public policy and political support when they return home.
• 2017 Due Diligence Symposium & Washington Hill Day scheduled for May 1-4, 2017.
Eris Group
Key Issues
• DOL Fiduciary Rule
• FINRA RN 15-02 Implementation
• NASAA Concentration Limit Guideline
• Accredited Investor Definition
• 1031 Like-Kind Exchange
May 3, 2017 | Washington Hill Day
Wednesday, October 19: 9:30 a.m. – 10:15 a.m.
The IPA’s Coalition Partners: Working Together,
One Issue at a TimeModerator:
Tony Chereso, President and CEO, IPA
Panel:David Bellaire, EVP & General Counsel, Financial Services Institute
John Grady, President-Elect, ADISATony Edwards, EVP & General Counsel, NAREIT
Jennifer Flitton, Managing Director, Federal Government Relations, Public Policy & Advocacy, SIFMA
IPA Advocacy• NASAA Proposed Amendments to Statement of Policy Regarding REIT Guidelines• IPA Supports 1031 Exchanges - A Letter to the Trump Campaign• IPA Supports 1031 Exchanges - A Letter to the Clinton Campaign• SEC Review on Accredited Investor Definition• Modernization of SEC Regulation S-K• NASAA Electronic Documents and Electronic Signatures• Simplification of Disclosure Requirements for Emerging Growth Companies• DOL Fiduciary Rule (2nd Letter)• DOL Fiduciary Effect - RE Private Equity• DOL Fiduciary Effect - Public Products• FINRA Proposed Rules on Communications with the Public• SEC Amendments to SEC 12g of Jobs Act• NASAA REIT Guideline Revisions
IPA PAC Issues – On our Radar• DOL Definition of Fiduciary• SEC Fiduciary Standard and Suitability• Definition of Accredited Investor• Private Placement Improvement Act• Affordable Retirement Advice Protection Act• SEC Small Business Advocate Act of 2015• Financial CHOICE Act• SAVERS Act• HALOS Act• Supporting America’s Innovators Act• Hedge Fund Sunshine Act
• Retail Investor Protection Act• Promoting Job Creation and Reducing Small
Business Burdens Act• Small Business Mergers, Acquisitions, Sales
and Brokerage Simplification Act• Reforming Access for Investments in Startup
Enterprises Act• Due Process Restoration Act• JOBS Act Regulation A+ Exemption• SBIC Advisors Relief Act• Small Business Credit Availability Act
Wednesday, October 19: 9:30 a.m. – 10:15 a.m.
The IPA’s Coalition Partners: Working Together,
One Issue at a TimeModerator:
Tony Chereso, President and CEO, IPA
Panel:David Bellaire, EVP & General Counsel, Financial Services Institute
John Grady, President-Elect, ADISATony Edwards, EVP & General Counsel, NAREIT
Jennifer Flitton, Managing Director, Federal Government Relations, Public Policy & Advocacy, SIFMA
111
Break 10:25 a.m. – 10:40 a.m.
InFocusWomen’s Initiatives Network (WIN)Lora Sekosky Smith, Cetera Financial Group
Wednesday, October 19: 10:30 a.m.
Women’s Initiatives Network
Committee Goals
• Empower Women Across our Industry• Provide a forum for Networking• Mentoring• Advocacy• Training and Education
Women’s Initiatives Network
Committee Initiatives
• Mentoring• Messaging• Social Media; LinkedIn Subgroup• Women’s Forum
Women’s Initiatives Network
Launched IPA WIN LinkedIn Site
Bi-monthly Articles
LeadershipMentoringNegotiating TacticsFinding BalanceChallenging Situations
Women’s Initiatives Network
Annual Women’s Forum
Collaboration w/ Investment NewsHalf day event in NYCIncorporates:
• Advocacy• Networking• Philanthropy• Training and Education
Women’s Initiatives Network
Women’s Initiatives Network
IPA Women’s Forum
2016 2015 2014 2013
Total Attendees
IPAAttendees
133
61
166
79
115
47
151
55
Location March 16th
HiltonJune 23rd
University Club
June 25th
Marriott June 19th
Essex House
Women’s Initiatives Network
2017 WIN Initiatives§ 5th Annual Women’s Forum w Investment New, June 2017§ Expanded networking opportunities§ LinkedIn outreach and education§ New educational webinars specific to women in financial
services
Make a Difference and Join IPA WIN Committee!Sign up at the registration desk
Wednesday, October 19: 10:30 a.m. – 11:15 a.m.
Fireside Chat with theIPA Chairmen
Presenters:
Tom Sittema, CEO, CNL Financial GroupMitchell Sabshon, President and CEO, Inland Real Estate Investment Corporation
Thayer Gallison, Assistant Vice President, Director of Alternative Investments, Advisor Group
InFocusBDC/CEF CommitteeZachery Klehr, FS Investment Corporation
Wednesday, October 19: 11:15 a.m.
Stuart RothenbergFounding Editor and Publisher, Rothenberg & GonzalesPolitical Report, Columnist, Roll Call
Keynote Speaker
Stuart RothenbergFounding Editor and Publisher, Rothenberg & GonzalesPolitical Report, Columnist, Roll Call
Thank you to Cole Capital for Sponsoring our Keynote
Afternoon Workshops1:15 p.m. – 2:15 p.m. • The Investing Multi-Verse: How Unique Asset Classes &
Strategies Balance Portfolios – Grand Ballroom 1• The Expanding Reach of Private Equity – Grand Ballroom 2• In-depth Look at Interval Funds - Grand Ballroom 5• The Multi-Layered Challenge of DOL Fiduciary Rule
Implementation - Grand Ballroom 6
2:25 p.m. – 3:25 p.m.• Built to Last: Product Structure for Advisory Platforms –
Grand Ballroom 1• The Expanding 1031 Exchange Market - Grand Ballroom 2• Fast and Furious: The Due Diligence Challenge on Private
Placements – Grand Ballroom 5• The Power of Partnership: Driving Results Through
Sponsor Relationships - Grand Ballroom 6• Leveraging the Power of Real Estate for Client Portfolios -
Discover
3:35 p.m. – 4:30 p.m.• Market Intelligence: Communicating the Value of
Advisory Products – Grand Ballroom 1
• Expanded Compliance Needs of Multiply Share Class Products - Grand Ballroom 2
• Resources for Efficient Due Diligence – Grand Ballroom 5
• Government Regulation: An In-depth Look at Product Structures – Grand Ballroom 6
• Policy Advocacy – How to Amplify Your Voice -Discover
128
October 19 – Wednesday Schedule
1:15 p.m. – 4:30 p.m. 14 Workshops
5:00 p.m. – 6:00 p.m. New Member & 1st Time Attendee Reception
5:30 p.m. – 7:00 p.m. Great Wines of the World Reception
October 20 – Thursday Schedule
7:00 a.m. – 8:00 a.m. WIN Breakfast & Main Breakfast
8:00 a.m. – 12:30 p.m. Day 2 - IPAVision 2016
1:00 p.m. – 4:30 p.m. Broker-Dealer Roundtable
Thank you to our Outgoing Board of Directors
• Keith Allaire, Managing Director, Robert A. Stanger & Co., Inc. • Martel Day, Principal, NLR Advisory Services, LLC • Wally Kunzman, President, Shareholder, Kunzman & Bollinger, Inc. • Frank McCarthy, Senior Vice President and General Manager External Products Group,
Ameriprise Financial• Frank Muller, Chief Executive Officer, Provasi Capital Partners • Charles Murray, President, Dividend Capital • Ella Neyland, President, Steadfast Apartment REIT • Rosemarie Thurston, Partner, Alston & Bird LLP
Thank you to our Board of Directors• Karen Bean, Vice President, Investment Products, NFP Advisor Group, LLC• John Carter, Co-Chief Executive Officer, Carter Validus• Alan Feldman, Chief Executive Officer, Resource Real Estate, Inc. • Matt Fries, Head of Product, Cetera Financial Group
• Daniel Gilbert, Chief Investment & Operating Officer, NorthStar Asset Management Group Ltd • John Guthery, Senior Vice President, Product Management, W. P. Carey, Inc.• Nathan Headrick, President, Triloma
• Jeff Rosenthal, Executive Vice President, Chief Marketing Officer, Triad Advisors• Mitchell Sabshon, Chief Executive Officer, Inland Real Estate Investment Corporation Chair Elect (2017) Term • Sherri Schugart, President & Chief Executive Officer, Hines • Gerald Stahlecker, Executive Vice President, Legal and Finance, FS Investment Corporation
• Wayne Souza, General Counsel and Executive Vice President, Law, Walton Group • Kevin Shields, Chairman & Chief Executive Officer, Griffin Capital Corporation, Chair Emeritus
Thank you to New Board of Directors
• James Carbone, Chief Executive Officer, President & Director, RREEF Property Trust, Inc.
• Michael Choate, Partner, Proskauer Rose LLP
• Daniel Cullen, Partner, Baker & McKenzie LLP
• Thayer Gallison, Assistant Vice President, Director of Alternatives, AIG Advisor Group
• Neil Menard, Group President, CNL Capital Markets Corp. & President, CNL Securities Corp.
• Paul Mumma, Vice President, Alternative Investments, Ameriprise Financial
• Nicole Petrosino, Vice President, Head of Federal Government Relations, LPL Financial
• Scott Smith, Principal, President & Chief Executive Officer, FactRight
• Kevin Shields, Chairman & Chief Executive Officer, Griffin Capital Corporation
• Allan Swaringen, President and Chief Executive Officer, Jones Lang LaSalle Income Property Trust, Inc.
• Todd Van Pelt, Assistant Vice President, Due Diligence Product Services, Cambridge
• Daniel Wildermuth, Co-Founder & Chief Executive Officer, Kalos Financial
Thank you to our 2016 Program TeamProgram Chair: Jay Steigerwald, Executive Director, W. P. Carey Inc. Co-President, Carey Financial, LLC
Annual Program Chair: Denise Faber, Senior Vice President, Inland Securities Corp.
Broker-Dealer Roundtable Chair: Randy Agnew, Vice President, Partner Strategy Alternative Investments, Cetera Financial Group
Due Diligence Symposium Chair: Brackston Helms, Senior Vice President - Key Accounts, CNL Securities Corp.
Program Committee: • Aaron Rosen, Director of Due Diligence, Lucia Capital Group
• Amanda Teeple, Vice President, Due Diligence Officer, Triad Advisors, Inc.
• Brad Cornell, Executive Vice President – Head of Sponsor Relations, LPL Financial LLC
• Carla Martin, Managing Director, Bluerock Capital Markets, LLC
• Catherine Bowman, Partner, The Bowman Lawfirm, LLC
• Chad LaFauci, Director, Real Assets, Commonwealth Financial Network
• Joanna Venetch, Director of Capital Markets – West, Ascendant Capital
• John Dickens, Managing Director – National Accounts, FS Investment Corp,
• Lora Sekoksy-Smith, Senior Partner, Strategic Relationships, Cetera Financial Group
• Megan Gavin, Vice President – National Accounts, Carey Financial, LLC
• Megan Smith, Executive Vice President, Director of National Accounts, KBS Capital Markets Group
• Melanie Fox, Vice President, National Accounts, Cole Capital
• Phil Graham, Executive Vice President, Strategic Relations, Inland Securities Corp.
InFocusBroker-Dealer Advocacy Committee
Randy Agnew, Cetera Financial Group
Thursday, October 20: 8:00 a.m.
Thursday, October 20: 8:00 a.m. – 9:00 a.m.
New Product Structures –An Industry Opportunity
Moderator:Joe Byrne, VP - Research, LPL Financial
Panel: Allan Swaringen, President and CEO, JLL Income Property Trust
Deryck Harmer, President & CEO, Triloma Energy AdvisorsJerry Stahlecker, EVP, FS Investment Corporation
John Guthery, SVP Product Management, W .P. Carey, Inc.
InFocusLegal & Regulatory CommitteeWally Kunzman, Kunzman Bollinger, Inc.
Thursday, October 20: 9:00 a.m.
Thursday, October 20: 9:00 a.m. – 10:00 a.m.
The Broker-Dealer Wish List
Moderator:Ryan Sims, Senior Managing Director, Hines Securities, Inc.
Panel: Matt Fries, Head of Products, Cetera Financial Group
Pete Zimmerman, Director, Wealth Management, Product Management, Securities AmericaCraig Covington, Senior Vice President, Investment Products, Triad Advisors Inc.
InFocusOperations Committee
Shawn White, LPL Financial
Thursday, October 20: 10:00 a.m.
Operations Committee
The mission of the Operations Committee is to develop and promote the useof industry standards that benefit sponsors of alternative investmentprograms, broker dealer firms and companies that provide services to theindustry. The Committee also serves as a venue for leaders across theindustry to discuss best practices and network with peers.
2016 Committee Initiatives:1. Industry Standardized Automation2. Industry Standardized Valuation Implementation3. Industry adjustments to proposed DOL rule changes
Operations Committee
Chair:Shawn White, LPL Financial 704-733-3344 [email protected]
Chair Elect:Michael Stricker, FS Investment [email protected]
143
144
Break
10:00 a.m. – 10:15 a.m.
Thank you to our Sponsors
InFocusPrivate Placement Committee
Ryan Kretschmer, Walton International Group (USA), Inc.
Thursday, October 20: 10:15 a.m.
Thursday, October 20: 10:15 a.m. – 11:00 a.m.
The SEC and FINRA: Regulating Markets, Protecting Investors
Moderator:Wayne Souza, General Counsel and EVP, Walton Global Holdings, LTD
Panel: Joe Price, SVP, Corporate Financing/Advertising Regulation, FINRA
Sonia Barros, Assistance Director, SEC
InFocusDue Diligence CommitteeJohn Kearney, Snyder Kearney, LLCChari Graham, FactRight, LLC
Thursday, October 20: 11:00 a.m.
Thursday, October 20: 11:00 a.m. – 11:45 a.m.
NASAA
Moderator:Wally Kunzman, President and Shareholder, Kunzman & Bollinger, Inc.
Panel: Mark Heuerman, Registration Chief Counsel, Division of Securities, NASAA
Anya Coverman, Deputy Director of Policy and Associate General Counsel, NASAAMartin Dozier, Counsel, Alston & Bird, LLC
ThefollowingisasummaryofcertainpolicyproposalsoftheNorthAmericanSecuritiesAdministratorsAssociation(NASAA),andtheresponsepreparedbymembersoftheInvestmentProgramAssociation(IPA)anditsstaff. Asaresult,itdoesnotcontainthecompletereasoningbehindtheproposalnortheIPA’sresponsesthereto,andshouldnotbeviewedasacompleterepresentation,findings,acknowledgment,approval,acceptance,recommendation,orconclusionofeitheroftheIPAorNASAAonanymattersdiscussedherein.
Major Points of IPA Letter
§ Adequacy of Existing Rules§ FINRA Rule 2111
§ Existing NASAA REIT Suitability Guidelines
§ DOL and Expected SEC Fiduciary Proposals
§ Rule Proposal Inconsistent with Proper Portfolio Formation Theory
§ Current Text of Rule Proposal Presents Additional Problems§ Liquid net worth
§ Inclusion of affiliates
FINRA Rule 2111§ Three primary suitability obligations:
§ Reasonable-basis (perform reasonable diligence on a security or investment strategy)
§ Customer-specific (have reasonable basis to believe investment is suitable based customer’s investment profile)
§ Quantitative (prohibition against excessive churning)
§ Customer investment profile includes (but is not limited to):§ Age
§ Other investments
§ Financial situation and needs
§ Tax status
§ Investment objectives and experience
§ Time horizon
§ Liquidity needs
§ Risk tolerance
§ Any other information disclosed to FINRA member
FINRA Rule 2111 (cont’d)§ FINRA specifically instructs members to consider “whether a recommended securities liquidation
causes an over-concentration in particular securities or types of securities remaining in the account” (Notice to Members 12-55)
§ In conducting a compliance examination, FINRA will examine “the way the firm identifies and supervises accounts using strategies, or accounts with concentrations of particular types of securities” (Notice to Members 13-31)
§ Concentration in one type of security is one factor—among many—that FINRA members should examine for suitability
§ Compliance with FINRA Rule 2111 is subject to significant FINRA oversight—suitability determinations were among the top five enforcement actions taken by FINRA in 2015:
NASAA REIT Suitability Guidelines§ Mirrors FINRA Rule 2111 in requiring (1) reasonableness standard and (2) customer-specific
standard
§ NASAA REIT Guidelines: “make every reasonable effort to determine that the purchase of shares is a suitable and appropriate investment”
§ Relevant information for determination includes:
§ Age
§ Investment objectives
§ Investment experience
§ Income
§ Net worth
§ Financial situation
§ Other investments of the prospective investor
§ Any other pertinent factors
Department of Labor Fiduciary Standard
§ Anyone who provides investment advice for compensation for pension plans or IRAs is deemed an ERISA fiduciary
§ ERISA fiduciary is prohibited from engaging in transactions involving conflicts of interest and receipt of commissions
§ Rule allows for receipt of commissions under BIC exemption
§ Rule requires that an ERISA fiduciary make recommendations that are in the best interests of investors (not just suitability analysis) and that any commission received be reasonable
§ 43% of investments in DPPs and REITS came from IRA accounts in 2014
Proposed Concentration Limit and Existing Rules
§ Suitability is a dynamic and complex process and is not amenable to a one-variable test
§ Establishing a separate concentration limit apart from suitability focuses undue attention on one component among many of a proper suitability determination
§ Existing FINRA and NASAA rules already require a consideration of investor security concentration in the overall suitability determination
§ DOL Fiduciary Rule provides significant investor protections for retirement accounts that go beyond NASAA concentration limit
§ SEC expected to propose a fiduciary rule to extend additional protections to all accounts (not just retirement accounts)
Portfolio Construction
§ Modern portfolio theory emphasizes the selection of assets based on their correlation with each other—the measure of the direction and the strength of the relationship between two securities
§ The lower the correlation among assets, the greater the reduction in risk that can be achieved
§ Diversification among non-correlated assets reduces the non-systematic (or idiosyncratic) risk of the portfolio
§ Each investment’s risk and return characteristics should be evaluated on how the investment affects the overall portfolio’s risk and return
Proposed Concentration Limitand Portfolio Construction
§ Non-traded REITs are not correlated directly with the performance of the S&P 500 and exchange-traded, providing the type of diversification among non-correlated assets recommended by portfolio theory
§ No suitable replacement to non-traded REITs exist for retail investors to provide diversification, low correlation with exchange-traded equities and fixed income investments, and stable income
§ Lack of availability of endowment-like direct real estate investments will encourage retail investors to take unnecessary market risks or invest in higher risk substitutes (crowdfunding, private placements)
§ An investor’s ability, in consultation with his or her financial advisor, to select assets should only prohibited based on demonstrable research or evidence of over-concentration by investors
Current Draft of Concentration Limit
§ A PERSON’s aggregate investment in the REIT, its AFFILIATES, and other non-traded REITs shall not exceed 10% of the PERSON’s liquid net worth. This standard shall not be applied to Accredited Investors under income or net worth standards according to Regulation D, Rule 501.
§ “Liquid net worth” shall be defined as that portion of net worth consisting of cash, cash equivalents, and readily marketable securities.
Next Steps
§ Comment period expired on September 12, 2016
§ NASAA reviewing all comments received carefully
§ Possible outcomes:§ Proposal adopted as written
§ Proposed revised and resubmitted for review
§ Proposal abandoned
InFocusCompliance Committee
Mark Powers, W. P. Carey, Inc.
Thursday, October 20: 11:45 a.m.
Thursday, October 20: 11:45 a.m. – 12:30 p.m.
The DOL Fiduciary Rule –A No Spin Zone
Moderator:Mark Goldberg, President Investment Management, W. P. Carey, Inc. and Chairman, Carey Financial, LLC
Panel: Catherin Bonneau, President and CEO, Cetera Financial Institutions
David Knoch, President, 1st Global Capital Corporation Eric Edwards, Senior Vice President, Head of Government Affairs, FS Investment Corporation
Department of Labor
Retirement Savings – Changes in the Way People Save
27M
11M
15M
77M
201392 Million Savers
197538 Million Savers
Defined Benefit
Defined Contribution
700% Increase in Defined Contribution participants
Anyone who engages in investment advice with respect to pension plans or IRAs is now an ERISA fiduciary
What is the new rule?
Fiduciary – Persons who provide investment advice for a fee (direct or indirect)
Investment advice – Includes recommendations regarding acquiring, holding, disposing of or exchanging securities or other investment property; recommendations regarding management of securities or investment property; and recommendations regarding rollovers, distributions or transfers from an ERISA-covered plan to an IRA
Key Definitions
Allows for certain activities that would otherwise be prohibited under ERISA
The Best Interest Contract Exemption (BICE)
• Anyone who provides investment advice to a retirement investor for a fee• The BICE provides relief for compensation received that is a result of the
provision of investment advice – applies to both Fee-based and Commission-based
• If the fee is level, and already is in an IRA you don’t need to use the BIC. If it’s a rollover, you do have additional requirements for documentation and have the same responsibilities as under the BIC
• Fee or commission, you must act as a fiduciary in all regards, including impartial conduct standards
Conclusion: don’t be fooled by coverage in the press – the fiduciary standard applies to both fee and commission accounts
Duties of a Fiduciary
• Duty of loyalty: known as the “exclusive benefit rule”– You must perform your duties solely in the interest of the
participants & beneficiaries and help keep expenses reasonable
• Duty to act prudently– Not simply “intend well”– Be well-informed and act accordingly– Make decisions as an expert & be experienced
• Duty to diversify investments– Minimize the risk of large losses
“Additionally, commenters asked the Department to expand the proposed exemption to apply to products not listed in the exemption (such as listed options and non-traded REITs), and to permit recommendations to sponsors of participant-directed plans like 401(k)s. In response, the final rule and exemptions reflect the following change”
WhiteHousepressreleaseonbehalfofPresidentBarackObama,April6,2016
White House
In 2015, there were an estimated 43.1 million active 401(k) accounts and 13 million retired or “separated” accounts
“Report: DOL Rule Could Freeze IRA Rollovers,” InsuranceNews.net – October 23, 2016
Within a year, 51% of affluent investors are expected to transfer as much as $382 billion from employer-sponsored plans into IRAs
Investor Rollover Assets in Motion Report, Cogent Reports, February 2015
Under the new rule, rollovers are subject to fiduciary rules IRRESPECTIVE of whether it is contemplated to be a fee-based or commission account
In a recent survey by Fidelity, 18% of Advisors are contemplating a career change
“Number of Financial Advisors Who See Opportunity in the DOL Investment Advice Rule More than Doubles, According to Fidelity,” September 26, 2016, https://www.fidelity.com/about-fidelity/institutional-investment-management/financial-advisors-see-opportunity
Most investors in employer-sponsored plan participants don’t know how much they pay in fees
- 20% believe they pay no fees at all- 18% believe they pay only administrative fees- 16% believe that their employer pays the fees
Sclfani, Jessica. “U.S. Evolution of the Retirement Investor 2016: Regulation and Investor Addressability. Cerulli Associates.
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12:30 p.m. – 1:15 p.m. Lunch | Great Street
1:00 p.m. – 4:30 p.m. Broker-Dealer Roundtable Urban Blue (3rd Floor)
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