FINRA has issued NTM 13-18 Communications with the Public, providing guidance on communications with the public concerning unlisted REITs and DPPs. (NTM 13-18) Several things are of note:
1. As always, providing a prospectus does not satisfy the required disclosures in written and oral communication.
Providing risk disclosure in a separate document, such as the prospectus, does not substitute for the required disclosure, even if a communication is accompanied or preceded by a prospectus.
2. Firms may not state the distribution rate is a "yield" or "current yield". This is because distributions have historically included a return of principal.
3. Firms may not imply that the values of the fund are stable just because they are offered at the initial offering price.
The fact that a program offers its securities at par value, or at another relatively stable price, does not evidence stability in the value of the underlying assets. A communication also may not state that the price at which the program is offered is stable or that its volatility is limited without disclosing that price stability does not indicate stability in the value of the underlying assets, which will fluctuate and may be worth less than the real estate program initially paid, and that the investor may not be able to sell the investment.
4. Firms may not compare the performance of an unlisted REIT to a listed REIT.
Compliance and supervisory personel would be wise to implement this guidance when conducting their reasonable basis suitability determinations, review of advertising, Registered Representative communications, and customer specific suitability. Especially in light of investor's yield chasing.