Seth Pearson’s article, “The Next Investment Scandal” (IA Soapbox, June 2006), contains several inaccuracies and overstatements about the TIC (tenants-in-common) industry.
By using the word scandal, he implies that there is something fraudulent or underhanded about the TIC business that will ultimately backfire on investors. The truth is legitimate TIC properties are only offered as SEC Regulation “D” securities. This gives investors a level of comfort that stringent standards of disclosure, oversight, and due diligence have been put in place and that marketing, sales, and communications with investors and the public are constantly monitored by the NASD.
Mr. Pearson diminishes his credibility by stating that fees may reach or exceed “50% of an investor’s contributions”. I have been in the TIC industry for the past six years and have never seen fees (loads) nearly that high. Loads usually range from 10% to 25% of the equity raised. That’s not cheap, but it’s not 50%. And in TIC, the load is not paid up front. It simply reflects the marked-up purchase price for the property. The cash flow is based on 100% of the investor’s equity.
He states that fees are “hidden”–wrong again. A TIC Private Placement Memorandum (PPM) has sections entitled “Sources and Uses” and “Compensation” where every dollar and fee percentage is clearly laid out.
He compares the TIC industry to the limited partnerships of the 1980′s. As someone who lost thousands of dollars in 1980′s LP investments, I can tell you, they are significantly different from TIC. Most importantly, TIC investors are on title and have much more control–granted by IRS revenue procedure 2002-22.
In one area I do agree with Mr. Pearson: “Helping clients understand the risks and alternative strategies is our responsibility.” But let’s have that understanding based on the truth.
OMNI Brokerage, Inc.
In the June 2005 Broker/Dealer directory we omitted Raymond James Financial Services from the ranking of firms by Highest Average Production. Raymond James, with an annual average of $254,000/rep, should have been ranked third. In that same directory we mistakenly listed the number of producing reps for Capital Analysts Incorporated, which had 510 representatives as of April 1, 2006. A corrected directory can be found at www.investmentadvisor.com.
The article “Generations Gap,” page 102 in the June issue, indicated that the number of retirement workshops had increased from approximately 30% in 2004 to almost 50% in 2005, when the years in question were 2005 and 2006.