Investment News reports on a study that finds that the non-tradeable REITs that Ray Lucia is so fond of have consistently underperformed the broad market of real estate investing for the past two decades.
Interestingly, the study notes that the industry is seeing more and more independent broker-dealers like the Lucias out there, raising money for these stinkers.
The reason why these non-tradeable REITs are such dogs will be familiar to readers of this blog: the high fees.
The fees on nontraded REITs, which can be as high as 12% to 15%, are particularly egregious, one industry executive said. “An investor gives $100,000 to a program, and he’s immediately at $85,000,” said Wes Tellie, director of operational risk due diligence and independent broker-dealer due diligence with Duff & Phelps Corp. “That’s a hell of a hurdle rate.”
The nontraded REIT industry had some $84 billion in assets under management at the end of 2011.
Remember, that just because everyone else is doing it doesn’t make it a reasonable investment. Valuations of non-tradeable REITs, the article concludes, are “at a point of comedy.”
I’m going to make some popcorn, sit back and enjoy watching the silver-tongued “guru” explain his way out of this one.
I’ll be on Investoradio this Saturday, Aug. 21, talking about Ray Lucia and high fees. You can listen online through this link. Just like Lucia, Investoradio hosts Tom Cock and Don McDonald run their own investment advisory, but their fees are less than 1 percent, compared to as much as 2.9 percent for RJL Wealth Management.
Here’s a link to the show.
Ray “Buckets of Money” Lucia, the host of an investment radio talk show, has been going around the country hosting retirement seminars with actor Ben Stein.
The seminars are free to attend, but they’re not free. Someone is paying for them. If you’re considering investing with Lucia, it’s important to understand that the person who may wind up paying is you.
Money for the “Buckets of Money” seminars comes out of the pockets investors in RJL Wealth Management, according to Lucia’s own client disclosure.
In addition to being the main sponsor of Lucia’s seminars, RJL Wealth Management advertises on his radio show. It pays Lucia a fee for referring potential clients. It also pays him hourly consulting fees. The amount of this compensation is not disclosed.
RJL manages more than $300 million in assets in 4,880 accounts, according to its filing with federal regulators.
As I noted in an earlier post on Lucia’s fees, the RJL Wealth Management Program charges staggeringly high fees of as much as 2.9 percent annually.
Lucia’s SEC disclosure states that for his solicitation and consulting, he receives a portion of the fees collected by RJL Wealth Management that “shall not exceed 1 percent” annually. One percent of $300 million is $3 million a year.
You would be forgiven that Lucia is essentially paying himself. In fact, Lucia is being paid by his son, Ray Junior, who runs RJL Wealth Management. Dad is listed as a consultant and member of the advisory board (along with Ben Stein).
The arrangement between the Lucias leads inexorably to a conflict of interest.
Both Lucia junior and senior are SEC registered investment advisers. Registered investment advisers are considered fiduciaries, which means they have a legal duty to put their clients’ interests first. So whose interests come first clients or Lucia father and son?
I think the answer can be found in a complaint against Lucia Senior that was filed with the Financial Industry Regulatory Authority in December.
An unnamed client accused Lucia of breach of fiduciary duty for failure to execute stop loss orders in between June and December 2008 when markets plummeted in the depths of the financial crisis.
The client claimed $24,631 in damages. Lucia settled for $18,000 for “business considerations in order to avoid the cost of arbitration,” according to FINRA.
According to FINRA’s summary of the case:
Mr. Lucia was listed as a joint representative on the account for administrative purposes, but did not interact with the client and made no recommendations or representations, as those alleged or otherwise.
In other words, Lucia really had nothing to do with the account or the client. His name was on the account only “for administrative purposes.”
For more visit: A Professional’s View of Ray Lucia’s Non-Traded REITs
Investor and local radio talk show host Ray “Buckets of Money” Lucia has threatened to sue me for $300,000 for defamation over a blog post I wrote last month.
Robert K. Butterfield, a San Diego attorney, is outraged that I dared to besmirch the good name of Raymond J. Lucia, who dispenses financial wisdom on a daily radio show in several big media markets. This is after all the same man actor Ben Stein recently described in an opinion piece in The New York Times as a “stock guru.”
Attorney Butterfield insists that I must stop pointing out Lucia’s relationship to San Diego-based First Allied Securities, which recently agreed to pay nearly $2 million to settle U.S. Securities and Exchange Commission charges that it failed to supervise one of its employees.
He also demands that I never again repeat the blasphemy that fees for Lucia account run as high as 2 percent, paid quarterly in advance. (Lucia Defamation Threat Letter)
Your statement that Mr. Lucia’s company has never charged a management fee of 2% is completely false and another intentional malicious act. His company has never charged a management fee of over 1% even though they have the ability to charge up to 2% — but you did not bother to check this — did you?
Even though Lucia’s own SEC disclosure plainly states “The standard annual managed fees for RJL [Raymond J. Lucia] Adviser Directed accounts are 2 percent,” Attorney Butterfield has a point. Fees for one “wealth management” program pushed by Lucia actually run as high as 2.9 percent
That is an eye-popping number. It’s about half of the compound rate of return of the Dow Jones Industrial Average for the past 50 years. That fee is assessed on the entire value of whatever you invest with Lucia, even if he loses money. It makes me wonder whose wealth is really being “managed” here.
*** Update: An attorney for Ray Lucia has threatened to sue me over this blog post. See his letter and my response here. ***
First Allied Securities, a San Diego-based brokerage firm, has agreed to pay nearly $2 million to settle charges that it failed to supervise one of its employees.
The SEC found that between 2005 and 2008, former First Allied broker Harold Jaschke engaged in unauthorized and unsuitable trading on behalf of two Florida municipalities, putting them at risk of losing millions of dollars while he reaped commissions of more than $14 million for himself.
First Allied is owned by FAS Holdings, which is in turn owned by Chicago-based Advanced Equities Financial Corp. A 2008 story in Forbes magazine on Advanced Equities quoted an anonymous broker for the company as saying, “This place is a stereotypical bucket shop.”
Advanced Equities is also the subject of a series of complaints filed with financial industry regulators by San Diego’s Mirch Law Firm that mention Lucia, who hosts a radio and TV show in major media markets.
Lucia offers investment advice, including his trademarked “Buckets of Money” strategy through his show and at seminars, like this one in San Diego March 20 with actor Ben Stein.
According to SEC filings, Lucia solicits business for First Allied, and receives a cut of some of the fees in return. Fees for a Ray Lucia account run as high as 2 percent, paid quarterly in advance.
Buckets of money, indeed.