High Commission Products are Wall Street Favorites

Nontraded real estate investment trusts are getting a lot of intention from Wall Street lately. One reason for this is that LPL Financial (LPLA), Ameriprise Financial Services (AMP), and other independent brokerage firms are continuing to raise billions of dollars for deals and in sales.

Already, independent broker-dealers are headed toward selling $20 billion in nontraded REITS in 2013, which is nearly twice the amount that were sold in 2012. According to LPL Financial, its commissions for nontraded REITs and other alternative investments has gone soaring, hitting $81.2 million in revenue from July to September. Even the Goldman Sachs Group Inc. (GS) has been going after alternative investments by seeking a partnership with the CAIS Group, which is an exchange for such products, including private equity funds and hedge funds.

Meantime, the Blackstone Group (BX) and KKR & Co., both private equity firms, are handling private-loan portfolios worth billions of dollars in nontraded business development companies involving sellers such as LPL and Ameriprise. And even REITs are getting involved, with Starwood Property Trust Inc. (STWD) investing $250 million into the Griffin Capital Essential Asset REIT Inc., which is a nontraded REIT, and purchasing 24.3 million shares in it.

According to InvestmentNews, the broker-dealers that sell non-traded REITs are sitting on nearly $45 billion in real estate investment trusts getting ready for liquidity events in the years to come. A lot of the funds will go to new non-traded real estate investment trusts.

“It is no surprise that, as small investors test the investment waters again, sales of investment products with high commissions would surge, said Stockbroker Fraud Attorney William Shepherd. Many believe that the fact that Annuities and Non-Traded REIT’s often pay 4% to 8% in sales commissions or “loads” are the reason such products are favorites to be marketed to unsophisticated investors.”

This is also been a good year for investors that have gotten involved in variable annuities. Equity markets have kept going up through the year, with variable annuities grabbing a lot of the gain. The better the performance of the underlying investments of an annuity, the bigger the account becomes and the more carriers stand to make.

InvestmentNews says that MetLife made operated earnings of $422 million just from annuities in its third quarter , while Prudential Financial Financial Inc.’s individual annuities segment also saw an increase–$821 million during the third quarter , which is a $207 million rise compared to the same time in 2012. That said, efforts to generate variable annuity sales have gone down.

Our securities fraud law firm represents investors in variable annuities, REITs, and nontraded REITs that suffered losses due to broker negligence. Please contact our REIT fraud lawyers today to ask for your free case assessment.

Third quarter lifts insurers’ VA businesses, Investment News, November 18, 2013

Mountain of money in nontraded REITs continues to hold Wall Street’s attention, MorningstarAdvisor, November 15, 2013

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