IPAVision MainPresentation All-FINAL...Industry Pulse Industry: Sales by Product Type 76 s Industry:...

Welcome

Thank you to our Sponsors

Thomas K. SittemaIPA Chairman and CEOCNL Financial Group Inc.

Opening Remarks

Tony CheresoPresident and CEOInvestment Program Association

Opening Remarks

Thomas K. SittemaIPA Chairman and CEOCNL Financial Group Inc.

Outgoing IPA Chairman

Rosemarie ThurstonPartner Alston & Bird LLP

Service Award Winner

Todd LockwoodSVP, Operations and Client ServicesCole Capital

Service Award Winner

Lifetime Achievement Award

Mark M. GoldbergPresidentInvestment Management, W. P. Carey, Inc. & Chairman, Carey Financial, LLC

The IPA is Honored to Present itsLifetime Achievement Award to:

InFocusNon-Listed REIT Committee

Neil Menard, CNL Financial Group

Wednesday, October 19: 8:30 a.m.

Wednesday, October 19: 9:00 a.m. – 9:30 a.m.

Identifying Sources of Growth

Presenter:

Mike HuismanDirector

Data Pool

$66,000,000,0001,300,000

730,00039,000

941487

55

- Invested- Purchases- Investors- Advisors- Firms- Products- Sponsors

2013 PresentTimeLine

75

Industry Pulse

Industry:Sales by Product Type

76

Sales

Industry:Sales by State

2013 2016

Proportionallydownacrossthecountry

Industry:Percent change by State from 2013 to 2015

X>50%

Industry:Sales by Share Class

Sales

Industry:

Qualified vs. Non-Qualified Sales

Percen

tofSales

Industry:Sales by Rep Type

FLAT!!!ChangesSales

82

Investor Growth Areas

0 1-20 20-40 40-60 60-80 80-100

Investor:Investor Groupings

$10,000 $20,000 $35,000 $60,000 $200,000

Quintiles

*Combinedsalesforasingleinvestorfor1year

Investor:Average Number and Size of Ticket

Investor:Total Sales by Quintile

Investor:2013-14 Investors in 2015-16

% of Investor Population % of Industry Sales2013-14 2015-16 2013-14 2015-16

Exiting Returning Returning New Exiting Returning Returning New

1-20 16% 3% 7% 11% 2% 1% 2% 2%

20-40 18% 4% 7% 10% 5% 1% 4% 3%

40-60 16% 4% 8% 10% 9% 2% 6% 5%

60-80 13% 4% 9% 13% 11% 4% 7% 12%

80-100 15% 7% 14% 11% 41% 24% 27% 32%

Industry Total 78% 22% 45% 55% 68% 32% 46% 54%

Investor:Impact of Investors who Left



1-20 16% 3% 7% 11% 2% 1% 2% 2%

20-40 18% 4% 7% 10% 5% 1% 4% 3%

40-60 16% 4% 8% 10% 9% 2% 6% 5%

60-80 13% 4% 9% 13% 11% 4% 7% 12%

80-100 15% 7% 14% 11% 41% 24% 27% 32%

Industry Total 78% 22% 45% 55% 68% 32% 46% 54%

Investor:2013-14 Impact Investors who Returned



1-20 16% 3% 7% 11% 2% 1% 2% 2%

20-40 18% 4% 7% 10% 5% 1% 4% 3%

40-60 16% 4% 8% 10% 9% 2% 6% 5%

60-80 13% 4% 9% 13% 11% 4% 7% 12%

80-100 15% 7% 14% 11% 41% 24% 27% 32%

Industry Total 78% 22% 45% 55% 68% 32% 46% 54%

2015-16 Impact Investors who Returned



1-20 16% 3% 7% 11% 2% 1% 2% 2%

20-40 18% 4% 7% 10% 5% 1% 4% 3%

40-60 16% 4% 8% 10% 9% 2% 6% 5%

60-80 13% 4% 9% 13% 11% 4% 7% 12%

80-100 15% 7% 14% 11% 41% 24% 27% 32%

Industry Total 78% 22% 45% 55% 68% 32% 46% 54%

Existing Investors movement between 2013–14 to 2015-16

2015- 2016

2013

-20

14

2015-16 Impact New Investors% of Investor Population % of Industry Sales2013-14 2015-16 2013-14 2015-16


1-20 16% 3% 7% 11% 2% 1% 2% 2%

20-40 18% 4% 7% 10% 5% 1% 4% 3%

40-60 16% 4% 8% 10% 9% 2% 6% 5%

60-80 13% 4% 9% 13% 11% 4% 7% 12%

80-100 15% 7% 14% 11% 41% 24% 27% 32%

Industry Total 78% 22% 45% 55% 68% 32% 46% 54%

Investor Representation by Advisor StatusNewInvestors ReturningInvestors

Investorsin80– 100Quintile

21%78% 94%6%

73%

27%

NEWADVISORS

ReturningAdvisorsReturningAdvisors

ReturningAdvisors

93

Advisor Growth Areas

0 1-20 20-40 40-60 60-80 80-100

Investor:Advisor Groupings

$30,000 $120,000 $325,000 $850,000 $4,200,000

Quintiles

*Combinedsalesforasingleadvisorfor1year

2013-14 Advisors in 2015-16

95

% of Advisor Population % of Industry Sales2013-14 2015-16 2013-14 2015-16


1-20 14% 7% 12% 9% 1% 1% 2% 1%

20-40 10% 9% 13% 7% 1% 1% 4% 1%

40-60 7% 13% 14% 6% 2% 3% 8% 2%

60-80 5% 16% 16% 4% 3% 12% 15% 3%

80-100 2% 17% 16% 3% 7% 69% 56% 8%

Industry Total 38% 62% 71% 29% 14% 86% 85% 15%

Impact of Advisors who Left

96



1-20 14% 7% 12% 9% 1% 1% 2% 1%

20-40 10% 9% 13% 7% 1% 1% 4% 1%

40-60 7% 13% 14% 6% 2% 3% 8% 2%

60-80 5% 16% 16% 4% 3% 12% 15% 3%

80-100 2% 17% 16% 3% 7% 69% 56% 8%

Industry Total 38% 62% 71% 29% 14% 86% 85% 15%

2013-14 ImpactAdvisors who Returned



1-20 14% 7% 12% 9% 1% 1% 2% 1%

20-40 10% 9% 13% 7% 1% 1% 4% 1%

40-60 7% 13% 14% 6% 2% 3% 8% 2%

60-80 5% 16% 16% 4% 3% 12% 15% 3%

80-100 2% 17% 16% 3% 7% 69% 56% 8%

Industry Total 38% 62% 71% 29% 14% 86% 85% 15%

2015-16 ImpactAdvisors who Returned



1-20 14% 7% 12% 9% 1% 1% 2% 1%

20-40 10% 9% 13% 7% 1% 1% 4% 1%

40-60 7% 13% 14% 6% 2% 3% 8% 2%

60-80 5% 16% 16% 4% 3% 12% 15% 3%

80-100 2% 17% 16% 3% 7% 69% 56% 8%

Industry Total 38% 62% 71% 29% 14% 86% 85% 15%

Returning Advisors Movementfrom 2013-14 to 2015-16

2013

-14

Ran

ge2015-16: New Range

Impact of New Advisors% of Advisor Population % of Industry Sales

2013-14 2015-16 2013-14 2015-16Exiting Returning Returning New Exiting Returning Returning New

1-20 14% 7% 12% 9% 1% 1% 2% 1%

20-40 10% 9% 13% 7% 1% 1% 4% 1%

40-60 7% 13% 14% 6% 2% 3% 8% 2%

60-80 5% 16% 16% 4% 3% 12% 15% 3%

80-100 2% 17% 16% 3% 7% 69% 56% 8%

Industry Total 38% 62% 71% 29% 14% 86% 85% 15%

Investor vs Advisor

% of Population % of Industry Sales

2013-14 2015-16 2013-14 2015-16


Advisor 38% 62% 71% 29% 14% 86% 85% 15%

Investor 78% 22% 45% 55% 68% 32% 46% 54%

InFocusPolicy Advocacy CommitteeDan Wagner, The Inland Real Estate GroupKamal Jafarnia, W. P. Carey, Inc.


Due Diligence Symposium & Washington Hill Day• Opportunity to engage with key policy makers in Washington

and in the States to build on our successful public policy agenda.

• Engaged a broader and more diverse group of voices on public policy issues by having these IPA members be front line advocates for the non-traded REIT and BDC community.

• The challenge is continue to engage the broader members and to make them feel compelled to get involved with public policy and political support when they return home.

• 2017 Due Diligence Symposium & Washington Hill Day scheduled for May 1-4, 2017.

Eris Group

Key Issues

• DOL Fiduciary Rule

• FINRA RN 15-02 Implementation

• NASAA Concentration Limit Guideline

• Accredited Investor Definition

• 1031 Like-Kind Exchange

May 3, 2017 | Washington Hill Day


The IPA’s Coalition Partners: Working Together,

One Issue at a TimeModerator:

Tony Chereso, President and CEO, IPA

Panel:David Bellaire, EVP & General Counsel, Financial Services Institute

John Grady, President-Elect, ADISATony Edwards, EVP & General Counsel, NAREIT

Jennifer Flitton, Managing Director, Federal Government Relations, Public Policy & Advocacy, SIFMA

IPA Advocacy• NASAA Proposed Amendments to Statement of Policy Regarding REIT Guidelines• IPA Supports 1031 Exchanges - A Letter to the Trump Campaign• IPA Supports 1031 Exchanges - A Letter to the Clinton Campaign• SEC Review on Accredited Investor Definition• Modernization of SEC Regulation S-K• NASAA Electronic Documents and Electronic Signatures• Simplification of Disclosure Requirements for Emerging Growth Companies• DOL Fiduciary Rule (2nd Letter)• DOL Fiduciary Effect - RE Private Equity• DOL Fiduciary Effect - Public Products• FINRA Proposed Rules on Communications with the Public• SEC Amendments to SEC 12g of Jobs Act• NASAA REIT Guideline Revisions

IPA PAC Issues – On our Radar• DOL Definition of Fiduciary• SEC Fiduciary Standard and Suitability• Definition of Accredited Investor• Private Placement Improvement Act• Affordable Retirement Advice Protection Act• SEC Small Business Advocate Act of 2015• Financial CHOICE Act• SAVERS Act• HALOS Act• Supporting America’s Innovators Act• Hedge Fund Sunshine Act

• Retail Investor Protection Act• Promoting Job Creation and Reducing Small

Business Burdens Act• Small Business Mergers, Acquisitions, Sales

and Brokerage Simplification Act• Reforming Access for Investments in Startup

Enterprises Act• Due Process Restoration Act• JOBS Act Regulation A+ Exemption• SBIC Advisors Relief Act• Small Business Credit Availability Act


The IPA’s Coalition Partners: Working Together,

One Issue at a TimeModerator:

Tony Chereso, President and CEO, IPA

Panel:David Bellaire, EVP & General Counsel, Financial Services Institute

John Grady, President-Elect, ADISATony Edwards, EVP & General Counsel, NAREIT

Jennifer Flitton, Managing Director, Federal Government Relations, Public Policy & Advocacy, SIFMA

111

Break 10:25 a.m. – 10:40 a.m.

InFocusWomen’s Initiatives Network (WIN)Lora Sekosky Smith, Cetera Financial Group


Women’s Initiatives Network

Committee Goals

• Empower Women Across our Industry• Provide a forum for Networking• Mentoring• Advocacy• Training and Education


Committee Initiatives

• Mentoring• Messaging• Social Media; LinkedIn Subgroup• Women’s Forum


Launched IPA WIN LinkedIn Site

Bi-monthly Articles

LeadershipMentoringNegotiating TacticsFinding BalanceChallenging Situations


Annual Women’s Forum

Collaboration w/ Investment NewsHalf day event in NYCIncorporates:

• Advocacy• Networking• Philanthropy• Training and Education



IPA Women’s Forum

2016 2015 2014 2013

Total Attendees

IPAAttendees

133

61

166

79

115

47

151

55

Location March 16th

HiltonJune 23rd

University Club

June 25th

Marriott June 19th

Essex House


2017 WIN Initiatives§ 5th Annual Women’s Forum w Investment New, June 2017§ Expanded networking opportunities§ LinkedIn outreach and education§ New educational webinars specific to women in financial

services

Make a Difference and Join IPA WIN Committee!Sign up at the registration desk


Fireside Chat with theIPA Chairmen

Presenters:

Tom Sittema, CEO, CNL Financial GroupMitchell Sabshon, President and CEO, Inland Real Estate Investment Corporation

Thayer Gallison, Assistant Vice President, Director of Alternative Investments, Advisor Group

InFocusBDC/CEF CommitteeZachery Klehr, FS Investment Corporation


Stuart RothenbergFounding Editor and Publisher, Rothenberg & GonzalesPolitical Report, Columnist, Roll Call

Keynote Speaker

Stuart RothenbergFounding Editor and Publisher, Rothenberg & GonzalesPolitical Report, Columnist, Roll Call

Thank you to Cole Capital for Sponsoring our Keynote

Afternoon Workshops1:15 p.m. – 2:15 p.m. • The Investing Multi-Verse: How Unique Asset Classes &

Strategies Balance Portfolios – Grand Ballroom 1• The Expanding Reach of Private Equity – Grand Ballroom 2• In-depth Look at Interval Funds - Grand Ballroom 5• The Multi-Layered Challenge of DOL Fiduciary Rule

Implementation - Grand Ballroom 6

2:25 p.m. – 3:25 p.m.• Built to Last: Product Structure for Advisory Platforms –

Grand Ballroom 1• The Expanding 1031 Exchange Market - Grand Ballroom 2• Fast and Furious: The Due Diligence Challenge on Private

Placements – Grand Ballroom 5• The Power of Partnership: Driving Results Through

Sponsor Relationships - Grand Ballroom 6• Leveraging the Power of Real Estate for Client Portfolios -

Discover

3:35 p.m. – 4:30 p.m.• Market Intelligence: Communicating the Value of

Advisory Products – Grand Ballroom 1

• Expanded Compliance Needs of Multiply Share Class Products - Grand Ballroom 2

• Resources for Efficient Due Diligence – Grand Ballroom 5

• Government Regulation: An In-depth Look at Product Structures – Grand Ballroom 6

• Policy Advocacy – How to Amplify Your Voice -Discover

128

October 19 – Wednesday Schedule

1:15 p.m. – 4:30 p.m. 14 Workshops

5:00 p.m. – 6:00 p.m. New Member & 1st Time Attendee Reception

5:30 p.m. – 7:00 p.m. Great Wines of the World Reception

October 20 – Thursday Schedule

7:00 a.m. – 8:00 a.m. WIN Breakfast & Main Breakfast

8:00 a.m. – 12:30 p.m. Day 2 - IPAVision 2016

1:00 p.m. – 4:30 p.m. Broker-Dealer Roundtable

Thank you to our Outgoing Board of Directors

• Keith Allaire, Managing Director, Robert A. Stanger & Co., Inc. • Martel Day, Principal, NLR Advisory Services, LLC • Wally Kunzman, President, Shareholder, Kunzman & Bollinger, Inc. • Frank McCarthy, Senior Vice President and General Manager External Products Group,

Ameriprise Financial• Frank Muller, Chief Executive Officer, Provasi Capital Partners • Charles Murray, President, Dividend Capital • Ella Neyland, President, Steadfast Apartment REIT • Rosemarie Thurston, Partner, Alston & Bird LLP

Thank you to our Board of Directors• Karen Bean, Vice President, Investment Products, NFP Advisor Group, LLC• John Carter, Co-Chief Executive Officer, Carter Validus• Alan Feldman, Chief Executive Officer, Resource Real Estate, Inc. • Matt Fries, Head of Product, Cetera Financial Group

• Daniel Gilbert, Chief Investment & Operating Officer, NorthStar Asset Management Group Ltd • John Guthery, Senior Vice President, Product Management, W. P. Carey, Inc.• Nathan Headrick, President, Triloma

• Jeff Rosenthal, Executive Vice President, Chief Marketing Officer, Triad Advisors• Mitchell Sabshon, Chief Executive Officer, Inland Real Estate Investment Corporation Chair Elect (2017) Term • Sherri Schugart, President & Chief Executive Officer, Hines • Gerald Stahlecker, Executive Vice President, Legal and Finance, FS Investment Corporation

• Wayne Souza, General Counsel and Executive Vice President, Law, Walton Group • Kevin Shields, Chairman & Chief Executive Officer, Griffin Capital Corporation, Chair Emeritus

Thank you to New Board of Directors

• James Carbone, Chief Executive Officer, President & Director, RREEF Property Trust, Inc.

• Michael Choate, Partner, Proskauer Rose LLP

• Daniel Cullen, Partner, Baker & McKenzie LLP

• Thayer Gallison, Assistant Vice President, Director of Alternatives, AIG Advisor Group

• Neil Menard, Group President, CNL Capital Markets Corp. & President, CNL Securities Corp.

• Paul Mumma, Vice President, Alternative Investments, Ameriprise Financial

• Nicole Petrosino, Vice President, Head of Federal Government Relations, LPL Financial

• Scott Smith, Principal, President & Chief Executive Officer, FactRight

• Kevin Shields, Chairman & Chief Executive Officer, Griffin Capital Corporation

• Allan Swaringen, President and Chief Executive Officer, Jones Lang LaSalle Income Property Trust, Inc.

• Todd Van Pelt, Assistant Vice President, Due Diligence Product Services, Cambridge

• Daniel Wildermuth, Co-Founder & Chief Executive Officer, Kalos Financial

Thank you to our 2016 Program TeamProgram Chair: Jay Steigerwald, Executive Director, W. P. Carey Inc. Co-President, Carey Financial, LLC

Annual Program Chair: Denise Faber, Senior Vice President, Inland Securities Corp.

Broker-Dealer Roundtable Chair: Randy Agnew, Vice President, Partner Strategy Alternative Investments, Cetera Financial Group

Due Diligence Symposium Chair: Brackston Helms, Senior Vice President - Key Accounts, CNL Securities Corp.

Program Committee: • Aaron Rosen, Director of Due Diligence, Lucia Capital Group

• Amanda Teeple, Vice President, Due Diligence Officer, Triad Advisors, Inc.

• Brad Cornell, Executive Vice President – Head of Sponsor Relations, LPL Financial LLC

• Carla Martin, Managing Director, Bluerock Capital Markets, LLC

• Catherine Bowman, Partner, The Bowman Lawfirm, LLC

• Chad LaFauci, Director, Real Assets, Commonwealth Financial Network

• Joanna Venetch, Director of Capital Markets – West, Ascendant Capital

• John Dickens, Managing Director – National Accounts, FS Investment Corp,

• Lora Sekoksy-Smith, Senior Partner, Strategic Relationships, Cetera Financial Group

• Megan Gavin, Vice President – National Accounts, Carey Financial, LLC

• Megan Smith, Executive Vice President, Director of National Accounts, KBS Capital Markets Group

• Melanie Fox, Vice President, National Accounts, Cole Capital

• Phil Graham, Executive Vice President, Strategic Relations, Inland Securities Corp.

InFocusBroker-Dealer Advocacy Committee

Randy Agnew, Cetera Financial Group

Thursday, October 20: 8:00 a.m.

Thursday, October 20: 8:00 a.m. – 9:00 a.m.

New Product Structures –An Industry Opportunity

Moderator:Joe Byrne, VP - Research, LPL Financial

Panel: Allan Swaringen, President and CEO, JLL Income Property Trust

Deryck Harmer, President & CEO, Triloma Energy AdvisorsJerry Stahlecker, EVP, FS Investment Corporation

John Guthery, SVP Product Management, W .P. Carey, Inc.

InFocusLegal & Regulatory CommitteeWally Kunzman, Kunzman Bollinger, Inc.



The Broker-Dealer Wish List

Moderator:Ryan Sims, Senior Managing Director, Hines Securities, Inc.

Panel: Matt Fries, Head of Products, Cetera Financial Group

Pete Zimmerman, Director, Wealth Management, Product Management, Securities AmericaCraig Covington, Senior Vice President, Investment Products, Triad Advisors Inc.

InFocusOperations Committee

Shawn White, LPL Financial


Operations Committee

The mission of the Operations Committee is to develop and promote the useof industry standards that benefit sponsors of alternative investmentprograms, broker dealer firms and companies that provide services to theindustry. The Committee also serves as a venue for leaders across theindustry to discuss best practices and network with peers.

2016 Committee Initiatives:1. Industry Standardized Automation2. Industry Standardized Valuation Implementation3. Industry adjustments to proposed DOL rule changes

Operations Committee

Chair:Shawn White, LPL Financial 704-733-3344 [email protected]

Chair Elect:Michael Stricker, FS Investment [email protected]

143

144

Break

10:00 a.m. – 10:15 a.m.


InFocusPrivate Placement Committee

Ryan Kretschmer, Walton International Group (USA), Inc.



The SEC and FINRA: Regulating Markets, Protecting Investors

Moderator:Wayne Souza, General Counsel and EVP, Walton Global Holdings, LTD

Panel: Joe Price, SVP, Corporate Financing/Advertising Regulation, FINRA

Sonia Barros, Assistance Director, SEC

InFocusDue Diligence CommitteeJohn Kearney, Snyder Kearney, LLCChari Graham, FactRight, LLC



NASAA

Moderator:Wally Kunzman, President and Shareholder, Kunzman & Bollinger, Inc.

Panel: Mark Heuerman, Registration Chief Counsel, Division of Securities, NASAA

Anya Coverman, Deputy Director of Policy and Associate General Counsel, NASAAMartin Dozier, Counsel, Alston & Bird, LLC

ThefollowingisasummaryofcertainpolicyproposalsoftheNorthAmericanSecuritiesAdministratorsAssociation(NASAA),andtheresponsepreparedbymembersoftheInvestmentProgramAssociation(IPA)anditsstaff. Asaresult,itdoesnotcontainthecompletereasoningbehindtheproposalnortheIPA’sresponsesthereto,andshouldnotbeviewedasacompleterepresentation,findings,acknowledgment,approval,acceptance,recommendation,orconclusionofeitheroftheIPAorNASAAonanymattersdiscussedherein.

Major Points of IPA Letter

§ Adequacy of Existing Rules§ FINRA Rule 2111

§ Existing NASAA REIT Suitability Guidelines

§ DOL and Expected SEC Fiduciary Proposals

§ Rule Proposal Inconsistent with Proper Portfolio Formation Theory

§ Current Text of Rule Proposal Presents Additional Problems§ Liquid net worth

§ Inclusion of affiliates

FINRA Rule 2111§ Three primary suitability obligations:

§ Reasonable-basis (perform reasonable diligence on a security or investment strategy)

§ Customer-specific (have reasonable basis to believe investment is suitable based customer’s investment profile)

§ Quantitative (prohibition against excessive churning)

§ Customer investment profile includes (but is not limited to):§ Age

§ Other investments

§ Financial situation and needs

§ Tax status

§ Investment objectives and experience

§ Time horizon

§ Liquidity needs

§ Risk tolerance

§ Any other information disclosed to FINRA member

FINRA Rule 2111 (cont’d)§ FINRA specifically instructs members to consider “whether a recommended securities liquidation

causes an over-concentration in particular securities or types of securities remaining in the account” (Notice to Members 12-55)

§ In conducting a compliance examination, FINRA will examine “the way the firm identifies and supervises accounts using strategies, or accounts with concentrations of particular types of securities” (Notice to Members 13-31)

§ Concentration in one type of security is one factor—among many—that FINRA members should examine for suitability

§ Compliance with FINRA Rule 2111 is subject to significant FINRA oversight—suitability determinations were among the top five enforcement actions taken by FINRA in 2015:

NASAA REIT Suitability Guidelines§ Mirrors FINRA Rule 2111 in requiring (1) reasonableness standard and (2) customer-specific

standard

§ NASAA REIT Guidelines: “make every reasonable effort to determine that the purchase of shares is a suitable and appropriate investment”

§ Relevant information for determination includes:

§ Age

§ Investment objectives

§ Investment experience

§ Income

§ Net worth

§ Financial situation

§ Other investments of the prospective investor

§ Any other pertinent factors

Department of Labor Fiduciary Standard

§ Anyone who provides investment advice for compensation for pension plans or IRAs is deemed an ERISA fiduciary

§ ERISA fiduciary is prohibited from engaging in transactions involving conflicts of interest and receipt of commissions

§ Rule allows for receipt of commissions under BIC exemption

§ Rule requires that an ERISA fiduciary make recommendations that are in the best interests of investors (not just suitability analysis) and that any commission received be reasonable

§ 43% of investments in DPPs and REITS came from IRA accounts in 2014

Proposed Concentration Limit and Existing Rules

§ Suitability is a dynamic and complex process and is not amenable to a one-variable test

§ Establishing a separate concentration limit apart from suitability focuses undue attention on one component among many of a proper suitability determination

§ Existing FINRA and NASAA rules already require a consideration of investor security concentration in the overall suitability determination

§ DOL Fiduciary Rule provides significant investor protections for retirement accounts that go beyond NASAA concentration limit

§ SEC expected to propose a fiduciary rule to extend additional protections to all accounts (not just retirement accounts)

Portfolio Construction

§ Modern portfolio theory emphasizes the selection of assets based on their correlation with each other—the measure of the direction and the strength of the relationship between two securities

§ The lower the correlation among assets, the greater the reduction in risk that can be achieved

§ Diversification among non-correlated assets reduces the non-systematic (or idiosyncratic) risk of the portfolio

§ Each investment’s risk and return characteristics should be evaluated on how the investment affects the overall portfolio’s risk and return

Proposed Concentration Limitand Portfolio Construction

§ Non-traded REITs are not correlated directly with the performance of the S&P 500 and exchange-traded, providing the type of diversification among non-correlated assets recommended by portfolio theory

§ No suitable replacement to non-traded REITs exist for retail investors to provide diversification, low correlation with exchange-traded equities and fixed income investments, and stable income

§ Lack of availability of endowment-like direct real estate investments will encourage retail investors to take unnecessary market risks or invest in higher risk substitutes (crowdfunding, private placements)

§ An investor’s ability, in consultation with his or her financial advisor, to select assets should only prohibited based on demonstrable research or evidence of over-concentration by investors

Current Draft of Concentration Limit

§ A PERSON’s aggregate investment in the REIT, its AFFILIATES, and other non-traded REITs shall not exceed 10% of the PERSON’s liquid net worth. This standard shall not be applied to Accredited Investors under income or net worth standards according to Regulation D, Rule 501.

§ “Liquid net worth” shall be defined as that portion of net worth consisting of cash, cash equivalents, and readily marketable securities.

Next Steps

§ Comment period expired on September 12, 2016

§ NASAA reviewing all comments received carefully

§ Possible outcomes:§ Proposal adopted as written

§ Proposed revised and resubmitted for review

§ Proposal abandoned

InFocusCompliance Committee

Mark Powers, W. P. Carey, Inc.


Thursday, October 20: 11:45 a.m. – 12:30 p.m.

The DOL Fiduciary Rule –A No Spin Zone

Moderator:Mark Goldberg, President Investment Management, W. P. Carey, Inc. and Chairman, Carey Financial, LLC

Panel: Catherin Bonneau, President and CEO, Cetera Financial Institutions

David Knoch, President, 1st Global Capital Corporation Eric Edwards, Senior Vice President, Head of Government Affairs, FS Investment Corporation

Department of Labor

Retirement Savings – Changes in the Way People Save

27M

11M

15M

77M

201392 Million Savers

197538 Million Savers

Defined Benefit

Defined Contribution

700% Increase in Defined Contribution participants

Anyone who engages in investment advice with respect to pension plans or IRAs is now an ERISA fiduciary

What is the new rule?

Fiduciary – Persons who provide investment advice for a fee (direct or indirect)

Investment advice – Includes recommendations regarding acquiring, holding, disposing of or exchanging securities or other investment property; recommendations regarding management of securities or investment property; and recommendations regarding rollovers, distributions or transfers from an ERISA-covered plan to an IRA

Key Definitions

Allows for certain activities that would otherwise be prohibited under ERISA

The Best Interest Contract Exemption (BICE)

• Anyone who provides investment advice to a retirement investor for a fee• The BICE provides relief for compensation received that is a result of the

provision of investment advice – applies to both Fee-based and Commission-based

• If the fee is level, and already is in an IRA you don’t need to use the BIC. If it’s a rollover, you do have additional requirements for documentation and have the same responsibilities as under the BIC

• Fee or commission, you must act as a fiduciary in all regards, including impartial conduct standards

Conclusion: don’t be fooled by coverage in the press – the fiduciary standard applies to both fee and commission accounts

Duties of a Fiduciary

• Duty of loyalty: known as the “exclusive benefit rule”– You must perform your duties solely in the interest of the

participants & beneficiaries and help keep expenses reasonable

• Duty to act prudently– Not simply “intend well”– Be well-informed and act accordingly– Make decisions as an expert & be experienced

• Duty to diversify investments– Minimize the risk of large losses

“Additionally, commenters asked the Department to expand the proposed exemption to apply to products not listed in the exemption (such as listed options and non-traded REITs), and to permit recommendations to sponsors of participant-directed plans like 401(k)s. In response, the final rule and exemptions reflect the following change”

WhiteHousepressreleaseonbehalfofPresidentBarackObama,April6,2016

White House

In 2015, there were an estimated 43.1 million active 401(k) accounts and 13 million retired or “separated” accounts

“Report: DOL Rule Could Freeze IRA Rollovers,” InsuranceNews.net – October 23, 2016

Within a year, 51% of affluent investors are expected to transfer as much as $382 billion from employer-sponsored plans into IRAs

Investor Rollover Assets in Motion Report, Cogent Reports, February 2015

Under the new rule, rollovers are subject to fiduciary rules IRRESPECTIVE of whether it is contemplated to be a fee-based or commission account

In a recent survey by Fidelity, 18% of Advisors are contemplating a career change

“Number of Financial Advisors Who See Opportunity in the DOL Investment Advice Rule More than Doubles, According to Fidelity,” September 26, 2016, https://www.fidelity.com/about-fidelity/institutional-investment-management/financial-advisors-see-opportunity

Most investors in employer-sponsored plan participants don’t know how much they pay in fees

- 20% believe they pay no fees at all- 18% believe they pay only administrative fees- 16% believe that their employer pays the fees

Sclfani, Jessica. “U.S. Evolution of the Retirement Investor 2016: Regulation and Investor Addressability. Cerulli Associates.

174

12:30 p.m. – 1:15 p.m. Lunch | Great Street

1:00 p.m. – 4:30 p.m. Broker-Dealer Roundtable Urban Blue (3rd Floor)

176

Thank you! Safe Travels


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