Wednesday, June 29, 2011

Remember When I Said...

Remember when I said not to buy Non-Public REIT's? Once again, yours truly has proven without a shadow of a doubt that Non-Publicly Traded REIT's have several issues and deserve being on my Do Not Buy List.

Here is an article link from today's Wall Street Journal proving my point.

What disturbs me is they always seem to find someone who put in a lot of money into these investments. This particular couple, bless their heart, put in $200,000. Unfortunately, according to the article, this represented a substantial portion of their savings. If only they had read my book, Keep Your Assets. Take My Advice., then they would have known not to ever invest in Non-Publicly Traded REIT's in the first place, especially for retired people with no working income opportunities any more. Further, they would have known not to put more than 20% into any one investment. Apparently, they put way more than 20% into this investment.

The problem here is the business model of FINRA broker/dealers. They are in business to:

  1. Generate revenue for the brokerage firm. Did I say this was this first priority? Well, if I did not, it is worth repeating. Their first priority is to generate revenue for the brokerage firm.
  2. Generate revenue for the FINRA registered representative. Notice the first two choices neglect the client or investor.
  3. Last but apparently least is the client or investor.
Why would anyone want to do business with a FINRA brokerage firm, especially if number 1 and number 2 take priority over clients or investors? It blows my mind after the 2008 Wall Street market melt down.

I keep trying to hammer these three points home. Why? The Wall Street Journal article's last paragraph is telling. These are the quotes from the investor:

"I should know better," he said. "I more or less relied on what the investment people were telling me."

These FINRA registered representatives are only giving advice based on their business model and their priorities listed above. This was all perfectly legal, because these FINRA registered representatives have this "suitability" loophole where they can do this all day long.

Why people do a nickel's worth of business with FINRA brokerage firms and their FINRA registered representatives is beyond me. Especially when an independent registered investment adviser firm will do things in a client's best interest, and who has a fiduciary liability to give their advice in a client's best interest.

Are you learning anything yet? I hope so.