Pictured L-R: Fred Baerenz, Mat Dellorso, Alice Connaughton, Rebecca Richardson, and Rep. Don McEachin (D-4-VA)

The Institute for Portfolio alternatives met in Washington DC on April 17 ^th and 18 ^th .  Two of the organization’s primary goals from 2017, of preserving the IRC 1031 Exchange Provision for real estate transactions, and passing the Business Development Company Modernization Act had been accomplished earlier in the year.   Quite a bit of work was expended to preserve tax benefits for our clients who wish to transact investment real estate with tax deferral. The same provision is very helpful for investors in Real Estate Investment Trusts.  Although other beneficiaries of the 1031 exchange rules such as aircraft and car companies and cattle dealers elected to take the benefit of immediate depreciation in lieu of tax deferral for capital gains and depreciation, most real estate investors believe that the continued use of the 1031 exchange will be more beneficial to their bottom line.  The BDCA modernization act will bring more efficiency, and hopefully, more profitability, to investments that are important to our clients.

Two of the issues that have not yet been addressed are both SEC action items, but we expect Congress to weigh in on both of them.  The first issue is the SEC Standard of Care for Financial Advisors.  Although the Department of Labor had instituted a policy that would have governed only retirement accounts, I support the IPA position that a uniform standard is needed for all investment accounts.  This is especially important now that the DOL Rule appears to have been overturned by the 5 ^th Circuit. The issue is important for investors for two reasons:  1.  Are Advisors/Brokers generally recommending merely “suitable” investments, or do they meet the higher “fiduciary standard” of being the best investment for that particular objective? 2.  Are Consumers being charged a reasonable “fee” for advice and investment recommendations, as opposed to a “commission”, which might be recommended by some less ethical brokers, purely for their own enrichment?

Although the second issue is not always clear cut (sometimes a commission is better for the consumer than a fee…let me know if you would like to see my comments and analysis that were cited by the SEC in the promulgation of FINRA Rule 15-02), AOG Wealth Management supports the fiduciary (higher) standard for investment recommendations.  The goal of the SEC and all reputable investment professionals is to get a clear definition within the professional community that can be clearly understood by investors and allow consumers to have a clearer better choice of what standard their advisor/broker operates under, and how they are compensated.

The second issue has to do with updating the definition of an “Accredited Investor”.  Many of you utilize investments that require investors to have an investible net worth of at least $1 Million, or to meet certain income requirements.  These investments are primarily higher risk/higher return options in the Private Equity and Real Estate asset classes.  The SEC is seeking public comment now, and the IPA supports indexing the $1 Million minimum to CPI in the future.  The IPA also supports creating other pathways for individuals who have advanced education in Finance, or Professional Designations such as JD, CPA or CFP to utilize these investments. Currently, many professionals are excluded from utilizing these investment options just because they have not yet achieved sufficient income or net worth, despite their professional training and clear ability to understand the potential risks and benefits of these investment options.

As an active member of the Policy Committee, I enjoy working with industry professionals to shape our industry influence and insight with both Congress, the Administration and Regulatory Leaders, to benefit investors generally and our clients in particular.  IPA Members engaged in several hundred meetings with members of Congress and their staffs.  My group met with Legislative Directors and Staff from the offices of Senators Warner and Kaine, as well as Congressmen Connolly and McEachin.  A second group met with the other Virginia Congressmen.  Pictured with Congressman McEachin are myself, Mat Dellofso and Rebecca Richardson, who are executives with WealthForge, which is a Richmond based firm that assists financial advisors with back office support, and Alice Connaughton, a shareholder with Greenberg Traurig, a major law firm that advises on several real estate and private equity investments that we utilize. Although time away from the office is precious, I think it is important to represent your interests, and to learn from all the other parties to the investment process.

The article and opinions in this publication are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you consult your accountant, tax, or legal advisor with regard to your individual situation.