In 2013, independent broker-dealers returned to double-digit revenue growth on average 2013, according to Investment News. Much of this growth stems from alternative investments, particularly non-traded REITS, whose sales reached almost $20 billion in 2013, according to Investment News.
Investment News reports the top 10 independent broker-dealers with the most growth from alternative investments include:
- Independent Financial Group, whose alternative investment revenues increased 75.4% percent from $15.97 million in 2012 to $28 million in 2013
- Triad Advisors, whose alternative investment revenues increased 116.7% from $13.7 million in 2012 to $29.7 million in 2013
- Royal Alliance Associates, whose alternative investment revenues increased 158.6% from $12 million in 2012 to $31.2 million in 2013
- National Planning Corp., whose alternative investment revenues increased 104.8% from $15.6 million in 2012 to $32 million in 2013
- First Allied Securities, whose alternative investments revenues increased 107.6% from $20.2 million in 2012 to $41.96 million in 2013
- Lincoln Financial Network, whose alternative investment revenues increased 97% from $24.1 million in 2012 to $47.6 million in 2013
- Cambridge Investment Research, whose alternative investment revenues increased 102.9% from $23.9 million in 2012 to $48.6 million in 2013
- Commonwealth Financial Network, whose alternative investment revenues increased 48.8% from $32.8 million in 2012 to $48.8 million in 2013
- Ameriprise Financial Services, whose alternative investment revenues increased 11.2% from $212 million in 2012 to $235.8 million in 2013
- LPL Financial, whose alternative investment revenues increased 75.6% from $143 million in 2012 to $251.1 million in 2013
Alternative investments are those which are not one of the three traditional asset types (stocks, bonds, and cash). Alternative investments include hedge funds, managed futures, REITs, commodities and derivatives contracts. In March 2014, FINRA fined LPL Financial $950,000 for supervisory deficiencies related to the sales of alternative investment products, including non-traded REITs, oil and gas partnerships, business development companies (BDCs), hedge funds, managed futures and other illiquid pass-through investments.
Brokerage firms and financial professionals may aggressively encourage their clients to pursue unsuitable alternative investments, because these investment pay very high commissions, and are extremely profitable to those who sell them. Nontraded REITS are high-commission products, which often pay sales commission of 7%. The drive to make money can compel brokerage firms and financial professionals to ignore fundamental duties to their clients, such as the duty to research and understand an investment, as well as evaluate whether the investment is suitable for a particular client given the client’s investment experience, net worth, risk tolerance, and investment objectives.
Erez Law specializes in representing investors (not brokerage firms) in securities arbitration and investor fraud cases throughout the country. Erez Law has represented numerous investors in FINRA arbitration claims against the brokerage firms who sold illiquid, high-commissioned, non-traded investments, including TICs, REITS, promissory notes, and more, who have filed claims against their brokerage firms. To learn more, including whether you may have a claim for investments losses, please call us at 888-840-1571 or complete our “contact form.”