INDIANAPOLIS-While the purpose of the financial reform bill wasto inform and protect consumers, the locally-based Real EstateInvestment Securities Association believes there may be significantdelays and questions about how these changes will affect realestate investors. During a recent webinar, members said thatcertain new rules could take a year or more to implement, andstates just don’t have the manpower to take on oversight.

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The association members discussed various changes required forinvestment advisors and broker-dealers due to the approval of theDodd-Frank Wall Street Reform and Consumer Protection Act on July21. While investment advisors deal solely with securities, thereare broker dealers that do as well, including real estatesecurities.

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For example, said association member Deborah Froling with ArentFox LLP, most dealing with real estate funds are exempt frominvestment advisor regulatory rules. However, as of July 21, 2011,hedge funds and private fund equity advisors are no longer exemptfrom SEC registration, she said. “If a component of your fund isthe buying, selling and purchasing of securities, you may have toregister as an investment advisor,” she said during the webinar.“Sponsors may fall within the definition of investment advisorgoing forward.” Also, SEC registration will include substantial newreporting and disclosure requirements.

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Of course, there are still a lot of questions and issues to beworked out with this act, and moderator Bill Winn with Passco Cos.LLC said the association will now be lobbying the SEC as to whatdecisions are finalized. For example, the SEC will study thecreation of a uniform fiduciary standard for both investmentadvisors and broker-dealers, with the taking of public comment overthe next year and a recommendation to Congress in January. “Weoppose a fiduciary standard for broker-dealers. We are going to belobbying, we don’t believe it should be applied across allproducts.”

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Another issue in question is that the SEC is turning itsoversight of small and mid-size investment advisors to the statesby July 2011. The intent is to one day have the states take overregistration of all but the larger firms, and examination andenforcement for all investment advisors. However, this may proveimpossible, given that many states are already strapped for cashand have cut staff to the bone in budget sessions, said REISAExecutive Director Brandon Balkman. “Texas said they can do thejob, but others, like my home state, Utah, they laughed. They haveless than five people, they can’t go out and inspect,” Balkmansaid.

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There are other areas where the SEC is charged with finding asolution, but have been given no timetable, such as restricting orprohibiting mandatory pre-dispute arbitration clauses in contracts,and issuing rules requiring broker-dealers provide point-of-saledisclosures. Winn said the association will continue to monitorthese issues for its members.

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