The direct participation program industry appears poised for strong growth as a dynamic environment lies ahead for its products, say Investment Program Association Chairman Tom Sittema, CEO of CNL Financial Group, and Chair-elect Mitchell Sabshon, president and CEO of Inland Real Estate Investment Corp.
Sittema and Sabshon also discuss their commitment to the IPA and the association’s importance to the industry.
What is your commitment and your firm’s commitment to the IPA, and why is that important to you and to the IPA?
Sittema: CNL has been actively involved in the IPA for several years. I am currently serving as the chair, and we have had one other senior leader from CNL previously hold that position. In addition, several of our executives currently hold or have held leadership roles within the IPA or served on committees. As a leader in the industry, we feel it is vital to have our voice represented in the IPA in a variety of ways.
The industry has really come together in the last few years as we have sought to present a clear and consistent message to significant industry issues and concerns, such as the new Department of Labor regulations, Financial Industry Regulatory Authority Regulatory Notice 15-02, and new class share structures. The IPA has played a pivotal role in all of these matters and will need to continue to do so in the coming months and years.
Sabshon: Inland has an unswerving commitment to the IPA. The IPA has truly developed into an important institution within our industry, providing unprecedented advocacy and support for our businesses. The IPA over the past number of years has very much grown from being primarily an industry networking organization to its role today. It continues to be a networking organization, but first and foremost it is an advocacy tool for the industry. And the value that the IPA adds in that regard is almost immeasurable. The credibility it has developed as the industry spokesman every day benefits all participants in the direct participation program industry.
What is the future of the industry, and how will it look in five years?
Sittema: This is a very entrepreneurially resilient industry, and we have made meaningful changes in response to new entrants and competition, as well as economic pressures and regulatory changes. The changes have resulted in much better sponsor-investor alignment, greater transparency and communication with investors, better products, and a greater variety of investment options. Competitive pressures will continue to drive fees lower, further benefiting investors.
All of these changes will likely continue, if not accelerate, in the next several years. I expect that we will see new entrants continue to emerge, and we will likely see some existing players depart. New products will continue to be offered in a variety of alternative areas, and we will continue to see more refining of share class structures. I also think that sponsor track record and product performance will see more scrutiny and become more important to investors. In short, our industry will continue to be very dynamic and exciting.
Sabshon: The future of the direct participation program industry is exciting and robust. Financial products and the industries that sponsor them constantly undergo change. No product is created and thereafter remains unchanged. Rather, financial products and industries change over time in response to market demands, economic cycles, regulatory changes, investor demands and the competitiveness of the marketplace. How many of the direct participation program products will look five years from now may be very different. For example, there may be lower commissions and loads, more private placements, more ’40 Act products, and more use of different structures, such as master limited partnerships, LLCs or trusts. The list of underlying assets may get materially longer.
How is the industry most likely to achieve change, evolution and growth?
Sittema: I do think that there will be more consistency and commonality around product wrappers and a greater focus on investment products and solutions. New products will be introduced that have a greater appeal to a much broader cross-section of financial advisers as alternative investments gain more popularity among retail investors.
Sabshon: Creative financial executives look at the marketplace and they shape products to meet the needs of investors. While the products five years from now may look different, the need for alternative products in the portfolios of investors, rather than contracting, is expected to grow dramatically.