FINRA Rule 15-02 Explanation
April 12, 2016
Important Message Regarding New FINRA Rule 15-02
You may or may not be aware of the new reporting requirement for alternative investments that went into effect on April 11, 2016. The new rule specifically impacts public, non-traded Real Estate Investment Trusts (REITs) and Business Development Companies (BDCs). REITs and BDCs are securities that provide opportunities for investors to pool capital with other investors in professionally managed real estate and private loan opportunities. The REIT and BDC investment structures have been in place for some time. The new reporting requirement will not affect the investment strategy or portfolio holdings. What the new rule will change is how these investments are reported on client statements before an estimated market, or net asset valuation (NAV), of the actual assets held can be established.
To date, client statements have reflected a price per share paid at the time of purchase and did not reflect deductions associated with initial investment fees. Effective April 11 of 2016, the stated price per share on client statements will reflect deductions of all fees associated with capital raising efforts to reflect an estimated "net" asset value. This valuation will become the official investment value per share until such time that the company performs a valuation on the portfolio holdings to determine an actual per share value.
In practice, this means that share price values reported on client statements will immediately be reduced to reflect investment expenses at the time of purchase. Income from the investment holding declared by the Manager and paid in the form of dividend distributions will not be impacted as a result of the price per share being reduced. As a result, the distribution yield percentage of an investors initial investment will increase.
See below for an example that may help illustrate this change. If you have further questions, please contact our office to speak with an advisor. As always, thank you for your continued business and trust.