Published in the Journal of Wealth Management, 19(1):83-94, Summer 2016.

We find that returns to 81 non-traded REITs which had listed, been acquired by or merged with a listed REIT or had updated per share values average 6.3% annually compared to 11.6% returns earned over the same period in traded REITs. A significant portion of non-traded REITs’ $45 billion underperformance results from high up?front fees that average 13.2%, and largely compensate brokers. The remainder of the shortfall results from conflicts of interest that permeate the organizational structure of non-traded REITs.

Non-traded REITs that list on a major securities exchange almost always “internalize” their management and administrative functions prior to listing. We observe corresponding reductions in expenses, on average equal to 9.0% of revenues, largely attributable to the elimination of payments to affiliated parties. Institutional ownership of non-traded REITs rarely occurs until after both an exchange listing and the severing of management and advisory functions from the sponsor, consistent with our view that non-traded REIT investors suffer from the lack of monitoring and effective mechanisms for shareholder protection.

Equity-indexed annuities are complex investments sold by insurance companies that pay investors part of the capital appreciation in a stock index and guarantee a minimum return if the contract is held to maturity. Equity-indexed annuities to date have been regulated by state insurance commissions, rather than by the SEC and the NASD. We estimate that between 15% and 20% of the premium paid by investors in equity-indexed annuities is a transfer of wealth from unsophisticated investors to insurance companies and their sales forces and that the claimed benefits for EIAs can be had at a tiny fraction of the cost using stocks and Treasury securities.

Regulatory scrutiny of variable annuity sales practices and private litigation have focused on the investment risk of subaccounts, on annuity ‘switching’ and on the purchase of annuities within IRAs. In this paper, we demonstrate that in most situations, investors being sold annuities will pay more taxes and have less wealth in retirement as a result of the tax treatment of investments within tax-deferred annuities.