When COVID-19 crashed the market, it exposed a series of risky securities products hiding in plain sight, many of which were unsuitably sold to risk-averse clients, elderly customers, and those looking for minimal exposure in retirement accounts.
In the wake of the widespread devastation exacerbated by excessively risky investment strategies, firms like Cetera Financial Group, LPL Financial, and Advisor Group have put a stop to one such perilous product: non-traded real estate investment trusts (REITs).
According to InvestmentNews, COVID-19 bred uncertainty in real estate valuations—or in other words, the risky REITs took on even more risk and uncertainty due to coronavirus.
LPL's move to shut down REIT sales, specifically, drew analysis that the firm is,"throwing up the caution flag and trying to avoid any future lawsuits by investors who might be overpaying" for complex products such as REITs that are difficult to accurately price.
This naturally is of little comfort to investors who own REITs previously sold to them based on unsuitable recommendations, and who have suffered financial harm as a result of the complex products' severe downfall.
Analysis described some of the complex products as "funds of funds," which just adds another layer to the uncertainty. In our article Exchange-Traded Notes At Heightened Risk Due to COVID-19's Market Volatility, we illustrated how economic uncertainty can disproportionately harm structured notes and similar securities, which depend on multiple pieces to support an overall product: the more "funds" a core "fund" relies upon, the greater risk for calamity it poses.
Now add the risk posed by not knowing the true value of a product which you are purchasing: the valuation issue serving as a primary impetus behind Cetera and LPL's REIT shutdown. REITs comprise a significant number of products at the heart of FINRA enforcement actions.
For instance, FINRA in December charged former Southeast Investments broker Toby Mercer Hicks with unsuitably recommending speculative REITs and non-traded business development companies (BDCs) to five customers, all of whom were senior citizens and three of whom were widows.
FINRA also routinely and repeatedly includes the hazards of elder abuse and suitability in its annual examination priorities list.
If you have invested with Cetera Financial Group, LPL Financial, or with any firm, broker, or financial adviser who sold you a complex product such as a non-traded real-estate investment trust (REIT) that was unsuitable for your specific risk-averse investment objectives or long-term investment horizon, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.