Schorsched Earth


“The Rise of a REIT Empire“

Pop-quiz, hot-shot: what do all the following firms all have in common?:


Denver-based Cetera Financial (formerly Multi-Financial);
Atlanta-based brokerage firm J.P. Turner;
First Allied Securities, based in San Diego;
Investors Capital Services ;
Summit Financial Services;

a) they are all independent broker-dealers;
b) they have all been purchased by a certain Park Avenue financial services firm;
c) each is a distributor of alternative investments products, especially non-traded REITs;
d) all of the above;
e) none of the above.

If you answered ‘e’, you’re wrong. These are all indy broker-dealer firms—pretty large ones, at that, that have recently been acquired by RCS Capital. Remember that name: RCS Capital:  it’s already a big player in the REIT biz, and only going to get bigger.  It’s a publicly trading company (NYSE:RCAP) operating out of offices on Park Avenue.  According to the man behind the name—Nickolas Schorsch—RCS will soon be as much a household name as Raymond James or Merrill Lynch.

According to its website,, RCS provides cradle-to-grave services for alternative investment programs, primarily non-traded REITS. The Financial Industry Regulatory Authority (“Finra”) has been warning investors about non-traded REITs. According to FINRA:

… shares of non-traded REITs do not trade on a national securities exchange. For this reason, non-traded REITs are generally illiquid, often for periods of eight years or more. Early redemption of shares is often very limited, and fees associated with the sale of these products can be high and erode total return. Furthermore, the periodic distributions that help make these products so appealing can, in some cases, be heavily subsidized by borrowed funds and include a return of investor principal. This is in contrast to the dividends investors receive from large corporations that trade on national exchanges, which are typically derived solely from earnings.

RCS is building itself a massive broker-dealer network. How massive, you ask? Consider that for the $1.5 billion its paying for Cetera Financial, RCS gets about 6000 brokers, about 2 million customers and $145 billion in assets under administration. I have no idea whether or not this sort of corporate consolidation of broker-dealers is a good thing for the securities industry. But I have a concern for John Q. Investor who suddenly finds the name ‘RCS Capital’ at the top of his monthly account statement. It’s the same concern that FINRA has voiced: do not go blindly into that non-traded REIT that your broker seems so enthusiastic about. Read about the risks disclosed in the prospectus. If your broker tries to reassure you about the REITs disclosed risks, ask him to put it all in writing. Get a second opinion.

I would add another question to FINRA’s list: why is my broker pushing this non-traded REIT on me? Is it all about making money for me? Or are there other factors influencing his recommendation?

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