In late January of last year, FINRA filed a proposed rule change to update items related to per-share estimated valuations for public unlisted direct participation program (DPP) and public unlisted real estate investment trust (REIT) securities.
The proposal would change requirements relating to the inclusion of a per-share estimated value for unlisted DPP and REIT securities on a customer account statement. The changes would require the reporting of share values based on net investment, write-downs for REITs and DPPs, and other changes.
Edits to the rule such as including the estimated per-share valuations in customer account statements, as well as the deduction of sales charges make sense, however, there are other aspects of the proposed rule that are less clear cut.
There is a distinct possibility that the inclusion of organizational and offering expenses and the method for calculating “over-distributions” may produce unreliable and confusing valuations that will confuse investors without providing useful additional transparency; therefore, to ensure that the rule is clear to both advisors and clients, there should be a longer implementation period, more effective disclosure documents and more frequent appraisals.
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