Recovering from REITs, MLPs, Variable Annuities, and Other Risky Investments
If you have been sold into a non-traded REIT (Real Estate Investment Trust), non-traded MLP (Master Limited Partnership), leveraged or inverse ETFs (exchange traded funds), or variable annuities, there is a good chance you did not have the risks properly explained to you. In addition to being highly speculative and extremely risky, these products are often illiquid, meaning they cannot be sold. If you feel that risks were not properly disclosed and you have been misled as an investor, investment fraud attorney Sean M. Sweeney and his team of attorneys in Milwaukee, WI, will review your case to determine if you are eligible for a suitability claim or other course of legal action. While these types of investments may offer quality returns for the right client, there are instances in which these investment opportunities are not sold in the best interests of the client. To learn more, contact us online or call us at (414) 755-5020.
Why These Investments Are Risky
Certain types of investments offer enormous commissions, or “rips,” to the advisors selling them. As a result, the full risks often remain undisclosed to prospective investors. Investors with a short-term horizon need to keep in mind that any product which cannot be sold is generally problematic and more often than not, is inadvisable
A Real Estate Investment Trust provides investors with the opportunity to own valuable real estate by investing in portfolios of large-scale, income-producing real estate. A stockholder can then earn a share of the income from the investment, without having to purchase, finance, or manage the property. Since a non-traded REIT does not trade openly on the stock exchange, there are some drawbacks, such as an inability to immediately access funds. More generally, non-traded REITs are often sold with promises of returns without an adequate explanation of the substantial risks.
Master Limited Partnerships, which typically operate in the oil and gas industry, are sold as “quality investments” with “high yields” and “non-correlated returns.” However, significant risks surround these non-traded MLPs, including how they are managed and what kind of arrangement is made with the general partners. Investors not only face market risk, but also commodity risk and risk of abuse by the management of the partnership. Because these products are often illiquid as well, investors cannot sell if the investment goes down, making these unsuitable for most investors.
Leveraged or Inverse ETFs
These products are often sold as a hedge against the market (inverse ETFs) or as a way to multiply the gains (leveraged ETFs). However, these products are not designed for regular investors and certainly not for a buy and hold strategy. These investments are for sophisticated hedge funds to be bought and sold on a daily basis. These investments are unsuitable for all regular investors as part of a buy and hold strategy.
Variable annuities, products which combine a security and an insurance contract, are another type of investment which is also generally illiquid. It is important to understand that in some cases, deferred tax status can be a benefit. However, clients often purchase variable annuities in an IRA or 401k, meaning there is no tax benefit. In the end, these illusory benefits are far outweighed by the costs and fees.
A business development company (BDC) is an organization that invests in small- and medium-sized companies as well as distressed companies. A BDC helps small- and medium-sized firms grow in the initial stages of their development. With distressed businesses, the BDC helps the companies regain sound financial footing. Many BDCs are sold as private placements, meaning they are not liquid and there is no readily available market to sell your interest. This adds a significant amount of risk to the average retail investor.
Schedule a Consultation
There are many factors and complexities that go into product cases involving non-traded REITs and MLPs, as well as variable annuities. To learn more, contact attorney Sean M. Sweeney by sending our office a message or by calling us directly at (414) 755-5020. During your consultation, we will explain how we can help protect you, as well as help you recover your money.