Commonwealth Financial Network is cracking open its platform of alternative investments to offer its first nontraded real estate investment trust that has a daily net asset value pegged to it rather than a fixed per-share valuation.
The move by Commonwealth Financial, a leading network with 1,846 reps and advisers, comes as the independent broker-dealer industry and nontraded REIT sponsors wait for the Securities and Exchange Commission to sign off on
proposed industry rules that would give greater transparency to the value of nontraded REITs after they are sold.
The rules would give more clarity to the value of nontraded REITs on client account statements and would do away with the practice of broker-dealers' listing the per-share value of nontraded REITs at $10, the common price at which brokers sell them to clients.
The Financial Industry Regulatory Authority Inc.'s potential rule change would instead take into consideration the various fees and commissions paid to brokers and dealer managers, reducing the share price on each customer account.
Various traditional REIT sponsors have begun to offer NAV REIT products, which the industry believes are more in line with the business of advisers who charge fees rather than brokers who receive a commission for selling a product. But Commonwealth picked a relative newcomer to the space, the Jones Lang LaSalle Income Property Trust, instead of a traditional nontraded REIT sponsor, noted Chad LaFauci, director of real assets at Commonwealth.
“This is a new relationship for Commonwealth. It's been on the platform for only a couple of months,” Mr. LaFauci said. “The Jones Lang LaSalle name is hard to argue with, and the management team is very strong.” The Jones Lang LaSalle Income Property Trust is a diversified REIT and invests across real estate sectors, he said.
Mr. LaFauci spoke on Tuesday in Orlando, Fla., where Commonwealth Financial Network was holding its annual national meeting for its advisers. Commonwealth chief executive Wayne Bloom said he expected the firm to reach $1 billion in total revenue by the end of 2015, a highly regarded milestone in the IBD industry. It reported $822 million in total revenues in 2013, according to InvestmentNews data.
Mr. LaFauci said Commonwealth is the first substantial IBD to sell the REIT. The Jones Lang LaSalle Income Property Trust broke new ground at the end of 2012 when Merrill Lynch advisers
were the first wirehouse to sell a nontraded REIT.
The Jones Lang LaSalle REIT has a lower upfront commission than traditional nontraded REITs, which
can be as high as 7% to the sales rep and have drawn criticism.
The independent broker-dealer industry is looking for REIT sponsors to vary their share classes so advisers selling a REIT can receive an annual fee rather than a one-time commission, he said. “We're trying to provide advisers with what we think are good options. That's our goal. And we see, with the new Finra rules coming, we are trying to get ahead of that as much as possible. We expect a lot of change with this new client account rule coming.”
He added: “We want to have multiple programs with different structures.”
Other new additions are “more than likely,” with real estate products with different share classes and structures, he said. Commonwealth typically has had fewer than 10 real estate programs, such as nontraded REITs, for its advisers to sell in the past. Mr. LaFauci said he does not expect that number to increase significantly over time. Commonwealth may offer another daily NAV REIT in the near future, he said.
