The North American Securities Administrators Association is seeking comment on proposed revisions to its rules regarding real estate investment trusts.
The securities group has proposed four areas for overhaul, starting with the suitability section in offering circulars of registered direct participation programs, including those for non- traded REITs, according to a request for public comment released earlier this month.
Nasaa says that in light of the Securities and Exchange Commission’s Regulation Best Interest — which holds broker-dealers and their associated persons to a higher standard and went into effect in June 2020 — the group’s own guidelines should incorporate the new conduct standard as well.
In addition, Nasaa is seeking to raise the minimum annual gross income, from $70,000 to $95,000, and the minimum net worth, from $250,000 to $340,000, as the combined minimum that investors must have to buy such securities, according to the proposal.
The group also wants to add a concentration limit in regard to REITs, similar to what it said it proposed in 2017 but withdrew “in light of conduct standard proposals pending before the SEC and the U.S. Department of Labor.”
That’s because the DOL’s fiduciary rule was vacated while a recent report by Nasaa concluded that many broker-dealer firms have yet to make any material changes in regard to the sale of “complex, costly, and risky products” such as REITs to retail investors in light of Reg BI.
The group is seeking to put a 10% cap of the investor’s liquid net worth on aggregate investment in such assets, according to the proposal.
Finally, Nasaa wants to introduce “a prohibition to the investment restrictions” in guidelines on the use of what it calls “a controversial product feature” — the marketing of REITs as “income-producing” or “yield-producing” assets, which may result in investors not understanding that “that the “income” or “yield” that they receive may be nothing more than a partial return of their own money.”
The public comment period is open until August 11, according to the group.
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