An industry group is beginning a certification program for financial advisors who sell nontraded REITs, a move that could help the industry improve its image.

The Investment Program Association, a national trade association representing companies that offer direct investments in real estate, announced today it is launching its first certification course in the IPA Alternative Investment Proficiency Certification Series covering nontraded Real Estate Investment Trusts.

“The planning for the certification program and new course began more than a year ago. The certification series and third course are part of an ongoing education program that the IPA started in 2010 and continues to build out,” says Kevin Hogan, the IPA’s president and chief executive officer. “It’s inaccurate to view today’s announcement as a response to current events, since these courses were under development for some time and part of the IPA’s ongoing education effort. We intend to have future certification programs that cover BDCs [business development companies], oil and gas and equipment leasing programs.”

Nevertheless, the program should help identify advisors who understand how nontraded REITs work and which clients they are right for. Making sure nontraded REITS are sold to appropriate clients and ensuring that clients are not provided misleading information regarding them have been concerns of the Financial Industry Regulatory Authority. Last October, Finra rocked the nontraded REIT industry when it ordered David Lerner Associates of Syosset, N.Y., to pay $12 million in restitution to customers who bought shares in Apple REIT Ten, a nontraded $2 billion nontraded REIT.  Finra said DLA targeted unsophisticated investors and the elderly, selling the illiquid REIT without performing adequate due diligence to determine whether it was suitable for investors.

IPA’s new program is for financial advisors and support staff at broker-dealers and REIT sponsors. Those who complete the program should, among other things, be able to use nontraded REITs in constructing broader portfolios, identify appropriate clients for the products, and explain how nontraded REITs work as well as their tax advantages. Nontraded REITs tend to have higher dividends but are more illiquid than their publicly traded counterparts and work best for investors who can commit to holding their shares for seven to 10 years, the IPA notes, when nontraded REITs generally have plans, such as selling assets or listing on an exchange,  that produce liquidity for investors.