April 2016 Will Bring Clarity to REIT Investors

Written by Maksim. Posted in Economic, Financial Planning, Industry

View from the Baltimore Marriott Waterfront

View from the Baltimore Marriott Waterfront

I am currently in Baltimore attending the SK Research Due Diligence Conference. Today we participated in a panel regarding Finra Rule 15-02, set to take effect April 2016.

This rule will bring both clarity and perhaps pain to some investors in REITS, or Real Estate Investment Trusts sold by commission based brokers. Rule 15-02 will require investment sponsors and broker dealers to accurately reflect the investment value of the non traded reit, either through the net investment proceeds, or the appraised value, and not the original $10 a share.

The general nature of the debate is centered around the true investment value vs what the client invested. When the products are sold, they are typically sold and show up on the statement for $10 a share for a number of years. What is seldom clearly communicated is that out of the $10.00 per share that the client invest, only $8.50 to $9.00 a share is actually invested in the underlying investments, the rest is eaten up by fees to the stock broker/financial advisor, his firm, the distributing company, etc. So… if only $8.80 or so is invested, why does it show up on the statements for $10.00 per share?

Rule 15-02 will require new investments to show up on the statement at the net investment proceeds value, meaning the value going into the investments, or the net appraised value of the underlying investments.

The rule is also retroactive, meaning any investments that were purchased recently, even at $10.00 per share, will be revalued to either of the two values we discussed above. This may be a potential “statement shock” for those investments. Companies such as David Lerner, Ameriprise and many other smaller broker dealers have traditionally supported these products, in part due to the above average commissions compared to other investment options.

While these products are not inherently bad, they are loaded with fees that are typically poorly explained to the investors. As an Registered Investment Advisor who believes in alternative assets, we do recommend these types of products to some of our clients, however we purchase either load waived, or institutional share classes that strip out and waive many of the fees discussed above.

Update on Commodities

Written by Maksim. Posted in Economic, Uncategorized

A few weeks ago we started discussing the fall in commodity prices, including oil and precious metals and the drivers for those moves. Since then we are continuing the downtrend in prices in an orderly sell off. There have been a number of key drivers for the move down, including a stronger dollar, a slow down in emerging markets primarily Chinese industrial demand, expectations of a forthcoming interest rate hike, global deflationary pressures and a rising US bond market.

UBS has recently put out two commodity reports that may be of interest and I have included a link to them below.

The first report focuses on the fundamentals of Platinum and the link to Gold. The second is a more holistic review of all commodities.

You can download the reports through the following link.

Subscribe to our Email updates to download the reports.

Latest UBS Reports on Gold & Palladium.

Written by Maksim. Posted in Economic

UBS just released reports with their outlook for Gold and Palladium. They expect further downsides over the next three months, in large part due to weakening economy in China as well as likelihood of Fed Rate Hikes. Initial targets are $1,100 for Gold and $600 for Palladium per oz.

UBS Gold Report

UBS Palladium Report

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