Investor Caution: Brokers pushing billions of dollars of illiquid, non-traded REITs that lockup unwitting retirees’ money

Billions of dollars are pouring into the coffers of non-traded REITs thanks to fat commissions and even kick back schemes offered to the brokers and firms hawking them.

At Vernon Healy, we’ve cautioned investors about the dangers of these high-risk and mostly illiquid investments and reported that securities regulators are increasingly alarmed at the tactics used to sell these products to retail investors. Misrepresentations about these REIT products, which aren’t publicly traded on a regular market exchange, continue to proliferate to the detriment of public investors.

Consider this alarming industry-touted data that shows that the non-traded REIT industry’s aggressive marketing campaign appears to be working: Organizers of the 2009 IMN Non-traded REIT Industry Symposium released information saying that $9 billion flowed into non-traded REITs in 2008, with $2 billion of that pouring in during the fourth quarter alone.

The industry also touts an industry-sponsored survey conducted on behalf of the IPA, a trade group for non-traded REITs, that says almost two thirds of financial advisors who regularly recommend non-traded REITs anticipate increasing sales volume to investors.

At Vernon Healy, we are increasingly hearing horror stories from investors who are now shocked to discover that their money is locked-up in an illiquid product because non-traded REIT fund managers have frozen redemptions.

Brokers and brokerage firms have turned to selling high-commission products like non-traded REITs. These high commissions paid by non-traded or unlisted REITs serve as a powerful motivator for brokers and brokerage firms to sell these products – especially in this economy. This creates a significant conflict of interest: Brokers and brokerage firms may shy away from objectively recommending products and strategies that are more appropriate and suitable — and instead push their clients to high-commission investment products.

If you are concerned about your non-traded REIT assets and the circumstances under which they were sold to you, please call Vernon Healy at (239) 649-5390.