I received an email from the trade group ADISA this morning that was mostly a reprint of its letter to the Wall Street Journal. The letter responds to the WSJ's May 7, 2018, article on the risks posed by private placements, with a particular focus on bad securities brokers. The article used Woodbridge Group of Companies and the brokers that sold it as its examples. The reporting is detailed, with its prime implication being that brokers that sell private placements are likely to have regulatory issues. The ADISA letter states brokers that sell private placements are not bad. The truth is likely somewhere in the middle.
I wrote about Woodbridge last December, and included points that should serve as warnings to investors and brokers that are considering investing in or offering private placements. I won't repeat them all, but in short, if an investment sounds too good - offering 8% one-year returns (Woodbridge debt investment example cited in the article) in a 1% investment environment - it is too good; or you are taking on so much risk the return should be at least double. Think another way: why is a sponsor is willing to pay investors 8% when it should be able to borrow cheaper? Is that smart? Maybe, but probably not. The answer is that the sponsor likely can't get a loan or other cheaper forms of capital, which is why it is offering such high interest rates. And if the sponsor can't get cheaper financing, maybe the rate it is offering private placement investors is too low. If a bank won't lend to a sponsor, neither should you.
The WSJ article stated as fact that there were $710 billion in broker-sold private placements in 2017. This is just staggering. The private placements I see in the broker dealer world could not have totaled more than $10 billion in 2017, and that includes DST exchange products. What are the other $700 billion in private, broker-sold investments? Unfortunately, the biggest selling sponsor in the apparent tiny private placement world I see is one that offers products that pay investors an unsupported 8% distribution.
In today's or any day's investment environment there is no low risk way to earn 8% income from an investment. This is true no matter what a broker says or a fancy brochure states.
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Woodbridge: You and every other journalists needs to stop using the term "broker" in reference to those that sold Woodbridge. I can only find two brokers that sold these: 2 HD Vest reps in TX. One of the MA reps in 2015 may have been. The rest were with Insurance Agents or former FIRNA reps: the worst example being Barry Kornfeld and First Financial Tax Group in FL. The Woodbridge story is one of regulatory failure by the SEC, state securities and insurance agencies but not FINRA. The WSJ articles are two different issues that should have NOT been linked together. While I appreciate your writings, please further research Woodbridge. The federal BK only has 1,899 dockets and counting.
FINRA does regulate RIAs under 125mm of AUM. There are many state registered RIAs that do not utilize a traditional custodian that placed clients in Woodbridge.
:FINRA does regulate RIAs under 125mm of AUM."
Your source as this not true. http://www.riainabox.com/blog/finra-proposes-new-rule-on-outside-independent-ria-supervision
"Presently, FINRA does not regulate investment adviser firms as all registered investment adviser firms are currently regulated by the SEC or relevant state(s). Over the last few years, FINRA has expressed a desire to become a self regulatory organization for RIA firms. However, earlier this year, FINRA publicly backed off from attempting to regulate investment advisers. While FINRA does not regulate RIAs, it does administer the online application and filing system for the registration of investment advisory firms and individual investment adviser representatives. This system is commonly referred to as the Investment Adviser Registration Depository (IARD) and handles all Form ADV and other related filings. The vast majority of states, excluding New York and Wyoming, also utilize the Form U4 and Form U5 individual adviser filing system which is part of the IARD platform and also administered by FINRA.
While there are a number of notable exceptions, RIA firms with $100 million or greater in assets under management (AUM) will generally register with the SEC. On the other hand, investment adviser firms with less than $100 million in AUM will generally register with the relevant state(s).
There are many state registered RIAs that do not utilize a traditional custodian that placed clients in Woodbridge.
Yes, but as shown above they are NOT FINRA
A few more FINRA reps did sell this. They seem to be more insurance related. Very difficult since no major news source is really covering Woodbridge. Source: http://www.investmentnews.com/article/20180606/FREE/180609932/regulators-gunning-for-brokers-and-advisers-who-sold-1-2-billion
Finra last Friday barred Christopher Wendel, a former broker with SA Stone Wealth Management Inc., who sold $343,500 in Woodbridge promissory notes between April and August 2017, collecting $10,000 in commissions. (Former IDS)
Peter Holler, a rep formerly registered with Securities Service Network. Finra suspended Mr. Holler last month for two years and fined him $10,000, for selling the Woodbridge notes without telling his firm or getting its approval, according to the Finra order. (Former Chubb)
Also last month, the Pennsylvania Department of Banking and Securities fined a state registered investment adviser, John Harris, $100,000 for selling the Woodbridge notes from October 2013 to last November and collecting a commission while not registered as a broker.
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