“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.”