The SEC “should seriously consider whether … certain compensation practices [should be] either banned or severely limited,” the Consumer Federation of America, Fund Democracy, the AFL-CIO, Americans for Financial Reform, Consumer Action and Public Citizen said in a March letter to SEC chairman Mary Jo White.
Separately, the SEC is reportedly scrutinizing the use of distribution-related fees like 12b-1s and record-keeping fees.
“I think [revenue sharing is] the next black eye for the industry,” said Robert Matthews, chief executive at Fieldpoint Private Bank & Trust, who also supports ending what he derides as a “pay to play” practice.
Greenwich, Conn.-based Fieldpoint, a hybrid firm that caters to high-end wealth managers, does not accept revenue-sharing payments.
“If you claim to put clients first, then do it,” Matthews said. “It’s horrifying that these arrangements persist, given the scrutiny” the industry is under.
Meanwhile, sales of nontraded REITs and BDCs fell 21 percent in the first quarter of this year, to $4.5 billion, compared to a year ago, according to Stanger.
For all of last year, sales of non-traded REITs and business development companies fell 13 percent, to $21.3 billion.
The drop last year was the first sales decline for direct-participation programs since 2008.
Fewer liquidity events crimped activity, and the fallout from the accounting scandal at American Realty Capital Properties caused a number of broker-dealers to suspend sales of programs from sister companies Cole Real Estate Investments and American Realty Capital, both major players in the nontraded REIT space.
Additionally, a new Finra rule set to go into effect next April, which will require per-share estimated values for DPPs to be reported on customer statements, is impacting sales, said Keith Allaire, managing director at Stanger.
The new rule is driving development of new nontraded products with daily NAVs and share classes with level loads, which some observers feel could lower costs to investors and sales incentives to brokers.