Securities Lawyers Blog
Currently financial advisor Scott Brannan (Brannan), currently employed by brokerage firm Berthel, Fisher & Company Financial Services, INC. has been subject to at least one disclosable event. These events include one customer complaint. According to a BrokerCheck reports most of the recent customer complaints concern either corporate debt securities or alternative investments such as direct participation products (DPPs) like business development companies (BDCs), non-traded real estate investment trusts (REITs), oil & gas programs, annuities, and private placements. The attorneys at Gana Weinstein LLP have represented hundreds of investors who suffered losses caused by these types of high risk, low reward products.
FINRA BrokerCheck shows a settled customer complaint with a damage request of $100,001.00 on February 15, 2022.
Client is unhappy with purchases of non-traded REITS purchased in 2014 to 2015. The clients have filed for arbitration and allege in 2014 and 2015 the representative improperly recommended the clients invest in a high commission illiquid alternative investment which they allege was misrepresented to them by the representative and was unsuitable for their financial situation, risk tolerance and investment objectives. The clients further allege the firm failed to conduct adequate due diligence and failed to supervise the activities of the representative.
Alternative investments like nontraded REITs, oil and gas offerings, and equipment leasing products are part of DDPs. Investors almost never benefit from these alternative investments, which are typically inappropriate due to their steep fees and costs. The extra commissions paid to brokers for selling these inferior investments create misleading incentives, driving an artificial demand for the products.
Several studies have confirmed that Non-traded REITs underperform publicly traded REITs with some showing that Non-Traded REITs cannot even beat safe benchmarks, like U.S. treasury bonds. Although brokers are required to disclose that non-traded REITs underperform treasuries and come with high risk and illiquidity, they seldom fulfill this obligation. Since investors do not receive extra returns for taking on higher risk and illiquidity, these types of alternative investment products are seldom, if ever, suitable for investors.
Brokers have a responsibility treat investors fairly which includes obligations such as making only suitable investments for the client after conducting due diligence. Due diligence includes an investigation into the investment’s properties including its benefits, risks, tax consequences, issuer, history, and other relevant factors. Appropriate due diligence would identify that an alternative investment’s high costs, illiquidity, and conflicts of interests that would make the investment not suitable for investors. Investors often fail to understand that they have lost money until many years after agreeing to the investment. In sum, for all of their costs and risks, investors in these programs are in no way additionally compensated for the loss of liquidity, risks, or cost.
Unfortunately, these types of alternative investment products continue to popular among brokers due to their high commissions. In order to counter the perverse incentives to sell these flawed product many states now limit investors from investing more than 10% of their liquid assets in Non-Traded REITs and BDCs. Many states impose these limitations because these investments do not benefit investors.
Brannan entered the securities industry in 2003. Brannan has been registered as a Broker with Berthel, Fisher & Company Financial Services, INC. since 2009.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. At Gana Weinstein LLP, our attorneys are experienced representing investors who have suffered securities losses due to the mishandling of their accounts. Claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.