Many advisors experience compliance anxiety at the mere mention of private placements or the increasingly popular Delaware statutory trusts (DSTs). Introduce the idea that they can reach prospects interested in these investments by expanding their marketing and social outreach, and many advisors find the concept laughable.
Why? Advisors who recommend or sell DSTs must meet additional regulatory requirements to comply with FINRA and SEC rules and likely already feel burdened by the weight of existing regulations. And the concept of marketing using social media? A good percentage of advisors simply choose to not participate, citing the compliance hurdles their firms already require them navigate.
The truth is, however, advisors can prospect for clients with private placement investments, like DSTs, using social media in a manner that doesn’t require mountains of additional work. In fact, many advisors who are currently using this prospecting model are experiencing notable success - all while staying on the right side of compliance and the regulators.
5 Basic Requirements
There are five basic requirements that must be met when advising on or advertising a private placement such as a DST.
- Assure your Form ADV is current and includes all the areas of practice you engage with, including 1031 exchanges in securitized real estate, particularly DSTs.
- Assure your Part II brochure is consistent with the information in your ADV and accurately describes your expertise in advising clients on real estate assets.
- Document your conversations and meetings with clients because regulators expect you to invest the time required to know their needs and to verify the products suitable to meet those needs.
- Assure that your clients meet accredited investor standards, such as the requirement to have one million of net worth, not including the value of their primary residence, or the requirement to meet certain income standards (further identified at sec.gov.)
- Assure that you are working only with credible distributors and product sponsors by conducting your own due diligence. It’s your responsibility to “kick the tires.”
While there are always other considerations to factor in when advising investors, advisors who consistently meet these five requirements are well positioned to satisfy the most essential areas of regulatory oversight.
With many of the rent control measures and laws recently enacted in states like California and New York, there is increasing interest in DSTs among property owners looking to invest outside their current states of residence. Advisors who are knowledgeable about DSTs and understand how to reach interested prospects by marketing on social media platforms, are well-positioned to capture their share of this growing sector of the investment industry.