Brent Barton, senior vice president of alternative investments at WFG Investments Inc., a broker-dealer subsidiary of Dallas-based Williams Financial Group with about 260 representatives, said clients and broker-dealers are looking at alternative investments "much more closely."
WFG Investments and WFG Advisors have $6 billion in assets under management, and such investments account for less than 10% of its business, Barton said. The broker turns down many private placements either because it has similar products or because it doesn't like them, he said.
"We've had some people pound the table wanting something and we just say no," said Barton. That includes both clients and representatives.
"There's a lot of good product out there from some very qualified providers," he added, but determining the appropriate amount of due diligence is "a little like walking on sand; it's shifting all the time."
The company showed up on some lists with a small amount of Provident Royalties LLC because a broker bought some for his personal account and two clients invested in it before they came to the firm, Barton said. "We never signed a selling agreement with Provident. We didn't like their business model; we didn't have any insight that it wasn't well-run."
On Medical Capital Holdings, "we dodged a bullet," he said. "We didn't have any brokers ask us for it. We weren't even looking at it."
A crackdown by regulators on the private placement business is discouraging some firms from looking at unproven ventures, even if they offer legitimate opportunities. "Unfortunately, with the regulatory climate the way it is, we're going to have to deal with existing sponsors that have a proven track record, that can provide you with reputable product as opposed to going out and maybe taking on a start-up," Barton said.
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