But nonequity luxury private-resident clubs may have strings.

Don't be surprised if one of your clients is courted by a unique private nonequity luxury residence club in which America Online cofounder Steve Case owns a 50% stake.

But before you swallow the club's concept, akin to a private nonequity country club, it's critical to weigh all possible pros and cons for your clients.

The pros are enticing. Members can stay at a selection of residences worldwide, with an average value of $2.5 million, each with an on-site concierge to handle such details as grocery shopping and advance reservations for transportation, restaurants or golf tee-times. There's probably even a plasma TV, and perhaps an infinity pool. The ratio of members to homes is kept low, so members can book the times they want.

Possible cons: The company, Exclusive Resorts LLC of Denver, is private, so public information about it and companies like it is hard to come by. Members are not actually buying an investment that can appreciate, and state regulation may prove thin.

Under Exclusive Resorts' program, "members" pay a one-time $375,000 deposit for a 30-year term, and annual "dues" ranging from $15,000 to $19,000, based on the occupancy time-30 to 60 days-the member selects. Up to 80% of the deposit may be refundable if the member quits.

The company owns or leases more than 200 residences, with at least 109 available at this writing for members to choose, and more were being added weekly.

It partners with other developers, including Trump International in New York and Timbers Company of Carbondale, Colo. Exclusive Resorts earns greater profits from the sale of its properties than through club memberships, according to cofounder, chairman and CEO Brad Handler, formerly legal counsel to eBay Inc.

Club members largely are travelers, with family net asset values of at least $10 million, who prefer a changing array of destinations. Because properties may change hands, Handler stresses that the club is not a good fit, for people who prefer returning to the same place.

A member who buys into Exclusive Resorts' program owns no real estate or any other investment that can be sold.

The big risk: There is no guarantee a member who quits will get 80% of his or her deposit back. The refund is available-as with many private nonequity country clubs-on a "three in, one out" policy. The member who resigns obtains the 80% deposit refund only after a third new member joins. No new members at the end of 24 months? Then the entire membership may vote on whether they want to dissolve the club and divide up its assets. If 75% decide to dissolve the club, they can turn assets over to a third-party trustee and proceeds may be distributed to all members on a pro rata basis, Handler says. The club, at this writing, was claiming 700 members and a 100-person waiting list, so a quitting member probably would get an immediate 80% refund, he notes.

The club, nearly two years old, has been marketing its program largely through traditional media such as print ads and event sponsorship. However, it also is forging marketing relationships with professional groups, including Virtuoso, a $3 billion luxury travel network. Now, eight people are on board "to educate" financial advisors.

Here's the deal: If your advisory business is commission-based, you can earn a 0.5% to 1% commission for a referral, based on volume, says Erik Mitisek, Exclusive Resorts' business development director. Are you a fee-only advisor? If so, there's still a major benefit, the club's purveyors say. Besides avoiding the hassle and expense of a historically poor investment vehicle-the vacation home-your well-heeled client can stay liquid and diversified. By keeping more assets under your management, you get to retain that all-important fee income. Some advisors, however, will probably opt not to take compensation to avoid any perception of a conflict of interest.

Robert Regnery, a CPA and partner and managing director for RPR Partners LLP in San Diego, says he personally joined Exclusive Resorts in November 2003, when membership rates were lower. "I don't like hotel rooms," he explained. It would cost him substantially more to own a vacation home outright. He estimates that booking a suite at the Four Seasons would likely run upward of $1,000 nightly. He has calculated the difference in what he would have spent staying at the Four Seasons and the significantly lower pro-rated cost of his ultraluxurious stay at Exclusive Resorts properties. He invests the difference in joint venture partnerships. "I'll continue to do that for years to come." He says he also has referred a number of clients and friends as members to Exclusive Resorts and rebated to them the $10,000 "credit" he would have been due.

One-quarter of the $513.3 million in fractional interest sales by developers during 2003 was generated by private membership clubs, says Ragatz Associates, the Oregon-based research arm of Cendant Corp., the New York-based timeshare developer and exchange player.

The rapid growth of private nonequity clubs worries the national timeshare trade association, American Resort Development Association (ARDA), based in Washington, D.C., says President Howard C. Nusbaum. He fears that one of these private clubs may fail, tainting the entire timeshare industry.

ARDA calls a club like Exclusive Resorts a "prepaid nonequity club accommodations model." This business model, it says, has fewer consumer protections than traditional timeshares.

With a timeshare, developers must register a product and there must be a public offering statement, Nusbaum says. They must prove construction funding is available and that it is not coming from sales revenues. The underlying real estate can't be encumbered with debt, and a timeshare contract typically has a right of rescission.

Much of this, he says, is to ensure that if a developer goes out of business, the timeshare still will operate. "The guarantee of getting your money back in some of these (prepaid nonequity) clubs is not backed by insurance," Nusbaum says. "It's backed by supply and demand."

It's not necessarily the high-end, well-capitalized clubs that concern ARDA. Rob Webb, ARDA's treasurer and chairman of its legislative council, says he recently was alarmed by an ad for a private residence club with an offering purchase price of only $75,000. "That means they're appealing to more and more people," says Webb, who is a partner with the law firm of Baker & Hostetler in Orlando, Fla.,. "I hope we don't have a major failure before regulators can get their arms around how they feel about this product."

If your client buys a private nonequity vacation club to use and enjoy, that's great, particularly if there's no concern about getting money back, Webb says. "That's the smartest way to approach any prepaid leisure programs, including timeshares and fractionals. These are products to be used and consumed. They are not products that appreciate or give reasonable expectation of behaving like real estate in general. A financial advisor who is focused on investment risk and potential would do very well to keep that in mind."

However, a financial advisor reviewing a private vacation club with a client, he suggests, ought to consider these other factors.

Are the developer's economic assumptions underlying the appreciation of real estate too aggressive? Independently determine whether those assumptions make sense. Real estate may not necessarily appreciate at the rate it has been appreciating lately.

If there is a bond supporting the refund promise, determine whether the bond is worth the paper it's printed on. It's possible that a bond may not be backed by anything other than marketing hype.

Understand the assumptions underlying the tax liability of the operator. A client who buys into a private nonequity club program could risk federal and state tax liabilities.

Lydia Cruz, subdivision licensing director for the Colorado Division of Real Estate, says her division has been checking out private nonequity country clubs, including Exclusive Resorts, as it sees ads. However, it has no legal basis to make them register. Cruz says that besides Exclusive Resorts, her department questioned "Club Mirabella" and "Portofino Club."

"Most of the offerings that I have seen tend to cost in the area of $400,000 and there is no real estate transferred," Cruz says. "It's nothing more than really a club. There's no guarantee that they (members) are going to have the right to stay at any of these places."

So far, she says she knows of no problems. "They're pretty high-end projects so usually, when you're dealing with that kind of money, individuals would consult with an attorney before they go forward with something like this anyhow."

Don't expect much state regulation until consumer complaints pour in, Webb warns. "Unfortunately, that leaves us in the position of leaving one of these deals with an undercapitalized developer to blow up," he says. "Then we're in damage control."

At Exclusive Resorts, a member's refundable deposit is used to purchase real estate or is placed in a cash account, according to its website. The 20% "transfer fee"-the nonrefundable portion of the deposit-funds the company's general operating expenses. Annual dues maintain and service residences. The company's debt to equity ratio averages 30% and never exceeds 50%.

Handler cites key advantages to his club over traditional timeshares. For one thing, most timeshares sell out 50 weeks, he says. If you want to exchange weeks, "you have to hope somebody else wants to exchange. With our model, we only promise half the time. ... So there's always 50% availability." It keeps a ratio of just six members to every property. Unlike many timeshares, it doesn't rent out vacant units to nonmembers, ensuring availability. Plus, it highly protects its upscale members' confidentiality.

Potential members enter into a nondisclosure agreement to both protect the confidentiality of members and the confidentiality of the company's financial information. They are provided access to audited limited financial statements if they ask for it. "Very few ask for it," Handler says.