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Will New FINRA Rules Negatively Effect the Raising of Capital?


Why is it that the price that you paid for your shares in an investment, as reflected in your customer account statement, does not accurately reflect the effective value of the share at the time that you purchased the shares?

Let me step back a second. To be clear, I am not a finance expert. My guest, Robert S. Aisner, President of Behringer, is. So If I am not using the appropriate “words of art” in this post, please forgive me. But as a lawyer, I feel compelled to ad a few more words and try to be more precise in my meaning.

When I refer to the “effective value” I mean, “what did you get for what you paid.” By way of example,

  • Assume you invested $10,000 into a real estate investment at $10.00 a share. There may have, or most likely was an upfront cost to make that investment, which we will assume was 15%, for this example.
  • Your cost was $1.50 per share making the effective value of your investment, at the time that you made it, $8.50 per share. This is just common sense.

So, why does you periodic customer account statement often reflect your share price at $10.00 per share, even, perhaps, 5 years after your initial investment.

My guest, Mr. Aisner a speaker at the upcoming IMN Non-Traded REIT & Retail Alternative Investment Symposium in Dana Point in December 2014, explains that FINRA, the Financial Industry Regulatory Authority has determined that, effective 2016, those customer account statements will reflect the costs associated with making the investment.

Mr. Aisner makes it clear that this change does not affect the math but simply presents it in a way that FINRA believes will make it more transparent to the investor.

The question also raised by Mr. Aisner is whether this additional information on the customer account statement will cause a “chilling” environment for investments and the raising of capital. As he indicates in this video, “that remains to be seen”.

I also inquire if the actual implementation of this new rule may cause more confusion among some of the investors.

Something to Add?

  • Really great job on the topic and the production of this video! I had no idea this organization existed. Thanks for making me aware of FINRA.