This year will bring both vigorous growth and regulatory challenges to the direct investment industry, says the newly named leader of the Investment Program Association.

As Anthony J. Chereso became the president and CEO of the IPA earlier this month, he made improving and expanding direct investments, which include non-traded REITs, business development companies, energy programs and private placement securities, his first priority.

“I’m extremely honored to be taking on this new role,” he says to Financial Advisor. “I think this is a critical time for our industry, and I’m excited to be a part of leading it forward.”

Based in Ellicott City, Md., the IPA advocates for direct investments and participants in the space.

Chereso is currently the director of capital markets at Grapevine, Texas-based United Development Funding, which sponsors non-traded REITs, but it may be his previous experience as president and CEO of third-party due diligence and research firm FactRight that the IPA wishes to draw on.

“I’d like to think that they chose me because I’m a strong leader and I’m very knowledgeable about the industry and all of its participants, but I can see how my background might have also been attractive,” Chereso says. “Credible leadership is going to be important as the industry changes.”

Although some direct investments like non-traded REITs and BDCs have posted strong returns since the financial crisis, industry changes could be a good thing. In recent years, the space has suffered a number of legal and regulatory setbacks, including issues at several firms linked to non-traded REIT maven Nicholas Schorsch.

In October 2014, American Realty Capital Properties, a Schorsch firm, revealed a $23 million accounting error that was intentionally left uncorrected throughout the first half of 2014. Then in October 2015, Massachusetts state regulators accused another Schorsch firm, Realty Capital Securities, of fraudulently rounding up proxy votes.

“There are still plenty of credible sponsors putting together opportunities,” Chereso says. “Investors should know that these are still great investments.”

This year may make or break the direct investment business—given that the market has sagged at the start of the year, investors may look for non-correlated alternatives to stocks and bonds.

But at the same time, the Department of Labor is preparing the final language of its proposed fiduciary rule, which is anticipated to take effect this year. If that happens, it could cause problems for direct investments. As drafted, the rule would forbid the inclusion of non-traded REITs in retirement portfolios.

Currently, products like non-traded REITs and BDCs are offered through advisors, who often make a commission for recommending and marketing the products to suitable investors. If the fiduciary rule takes effect, many of these advisors would have to use a higher standard for their recommendations: investments that are in a client’s best interest.

It could leave Chereso and his industry in a bind when it comes to marketing their products.

“We’re keeping a close eye on the regulatory environment,” he says. “We’re willing to work with regulators to create policy that protects advisors and investors while still allowing them to access direct investment products.

“We’re also working with broker-dealers to find alternatives to marketing through advisors,” he adds. “I think that sponsors and brokerages are prepared for whatever changes 2016 brings.”

Also complicating matters are the high fees often associated with direct investment offerings—many have up-front fees of 12 percent of a client’s investment, or more.

“That’s a serious issue, and something that I would like to see addressed,” Chereso says. “To a certain extent, investors understand that they’re paying a premium to access stable, non-correlated investments. That’s why they like these products and they’re willing to pay more. On the other hand, the investment world is changing to favor lower fees.”

He is also critical of the opaque nature of many direct investment products, calling for the industry to be more transparent and accessible to potential investors.

“During my term as IPA president, I would like to expand our research into direct investments and better tell the stories of our products,” he says. “When we’re not transparent, it allows people to write our narratives based on what they believe or what they hear from others. Investors should know that our products are helping small businesses grow and develop properties, that their investments are creating a larger benefit.”

In certain cases, direct investments could be in a client’s best interest, he says.

“There’s a lot of uncertainty in the markets right now. Advisors should be telling their clients that there are proven alternatives available that can provide income and preserve their capital.”