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The Ray Lucia Project

Posted: Fri Jul 08, 2011 9:05 am
by bobsmith
Now that David Lerner is being taken down, I would like to suggest to the ReitWrecks crowd that we turn our attention to what is potentially an even bigger fish, Raymond J. Lucia.

I had never heard of Ray Lucia until recently, but he is a popular host of a nationally syndicated radio program and author of the "Buckets of Money" books (sadly Ray's latest book appears to be co-authored by Ben Stein - you would think he would be smarter than to be affiliated with this huckster). He is also a cheerleader for the non-traded REIT industry and recommends that his listeners/readers put 15% of their assets into these very poor investments. He also appears to be a front-end marketer for "financial advisers" that are only too happy to sell these products to unsuspecting late boomers and retirees (his target audience). His firm is RJL Wealth Management, which is a broker-dealer firm.

Ray is, laudably, more up-front than most about the 10% commission charged by non-traded REITs. But he still thinks they are great for the following reasons (full disclosure, this is from a summary of the book that I found here" onclick=";return false; I have not read the books yet but intend to and will post further details

• Nontraded REITs do not have the volatility that public REITs have.
• Nontraded REITs can bring in capital for purchasing properties. Public REITs cannot raise funds as easily (they can borrow or issue new shares). According to Lucia, this could put nontraded REITs in a better position to get the best deal and the most diversification.
• Nontraded REITs are usually bigger than public REITs and are therefore more diversified.
• Part of the sales load on nontraded REITs goes to pay for due diligence. Lucia says that public REITs aren’t in the acquisition phase like nontraded REITs are. Acquiring properties requires due diligence.

So, as we have noted time and again on this forum, all of above reasons to like non-traded REITs are at best naive (the price doesn't move) to downright foolhardy (the sales commissions pay for due diligence!!).

I would like to know how much of this junk Ray Lucia and his firm has sold or helped to sell and how he can write books and get on the radio or in front of hundreds of people and say with a straight face that non-traded REITs are great investments. Has he or his firm done any due diligence on the investments they flog? Do they check for suitability? Clearly not if he is recommended 15% of assets in an investment that, if you are lucky, will just about get you your principal back over 10 years. How have his investors done with these investments in their "Bucket 3"?

FINRA and the Feds who are monitoring this site - please take note as this guy may just be one of the biggest paid shills for this industry around. Shame on you Ray!

Others on this forum who have read Ray's books, listened to his radio program, know his "advisers" or listened to his seminars please weigh in. Do I have bad information or is this guy just running around trying to rip people off?

Re: The Ray Lucia Project

Posted: Tue Jul 12, 2011 5:37 pm
by beltoforion
Hmmm, some of what you have is correct and some is wrong, or misunderstood at least.

First, I'm no fan of the investment firm RJLWM, his son runs...but we'll revisit that.

Let's start on the REITS. No investment is right for everyone, and likewise, no investment is wrong for everyone. I happen to own a few of these vehicles and over the past decade have done well....heck of a lot better than my no load, low expense funds. Be very wary of anyone that says "XYZ is No Good." Also, be wary of anyone that says "XYZ is right for everyone." You are right when you say beware because the aforementioned firm tries to put 25-30% in these. That number was lower when Ray was in the business, but under the new regime, they have shifted to high up front commission vehicles. They also push another 30-50% in annuities. Too much up front commission vehicles if you ask me. More importantly, the pitchman Lucia on radio isn't even licensed and the advertisements say he isn't affiliated with RJLWM or the broker dealer. (Fun to listen to though) He steers folks there to his family where they are sold mostly high commission products. Many of these products though are good, and the issuer pays the commission, but it leads to a "low relationship" because the advisor got 6 percent up front and zero to maintain the relationship. I left a similar practice when my advisor went out on her own because her practice was always marketing for new webinars, workshops etc...when would it end and why can't I get a return call etc. I rescued 2 friends from RJLWM for a more advisor driven relationship. They are very happy with the new advisor and do own REITS with her. There was a lot of turnover at RJL and many good advisors left along with many clients over the past few years. Noone even called my friends when their advisor left! They are busy chasing new money.

The REITS themselves
10% load is wrong, they have about 10-11% in acquisition costs internally, because they need to raise the money and get the properties inspected and purchased. We own several commercial buildings as well in a partnership and that is what it costs to do it right. These non-traded REITS give the little guy with 50 to 100 thousand to invest the same access that the institutions have....except they have a piece of 30 or more properties and tenants. If you don't want that buy a condo and be the landlord.

If someone is unsuspecting as you call them, then they will get hurt no matter what. They will buy tech stocks in 1999, and gold today. I have never liked annuities, but recently saw proof of how an annuity helped save a couple that had little wiggle we must accept that there are things that work in every situation. The solution as I see it is to have an advisor that has your needs at heart, not the firms needs. That is tough...because the banks, wire houses, and Lucia's of the world are all concerned with growing, quarterly numbers to beat the street, beat expectations etc.

Ask your advisor who he works for...the answer should be YOU!

Salaries for advisor don't protect you, because if they pay him/her a salary, then they TELL her what to sell!

Ask the firm how often they plan to contact you after the engagement starts. It should be 2-4 year. Ask them how many new clients they want to add per very wary of a firm that uses unlicensed radio celebrities to put hundreds of people in a room every week. That sort of explosive growth requires a "ponzi-esque" level of continued growth, to keep the whole ball rolling.

The good news is as long as the broker dealer oversees everything, there is an extra layer of insulation that they must answer to from both regulators, and supervision. That means you should have assets that can be moved to your new firm or even to a self directed account.

I didn't cover everything because I couldn't speak confidently on RJLWM returns of their buckets the last 10 years per se. And I imagine there were different returns for different advisors as they used to give customized they call it customized but it is truly homogenized from everything I see and hear at the sight, and on the radio.

This was a healthy topic of discussion and I'm glad you brought it up!

Re: The Ray Lucia Project

Posted: Sun Jul 17, 2011 1:04 pm
by bobsmith
The Bucket Shop

I find it ironic that Ray Lucia has trademarked the term "Bucketeer", which is also a reference to someone who runs a "bucket shop". A bucket shop is not technically what Lucia runs (you can read the various definitions here:" onclick=";return false;) as I will not go so far as to allege it is fraudulent. However, his business practices raise a lot of questions in my mind and I think should interest others as well. Ray's website is" onclick=";return false;.

I came upon Lucia only in the past couple of weeks when looking for others like David Lerner who are big sellers of non-traded REITs. Lucia is a big proponent and his affiliated firms look like they sell a reasonable amount (though it is impossible to tell from public filings how much). RJL Wealth Management ("RJLWM"), which is a Registered Investment Adviser, or RIA, run by Ray's son, Raymond J. Lucia, Jr. RJLWM has about $400m in discretionary assets under management and another $1.2bn held in accounts with First Allied Securities, Inc. They have another $122m in annuity products. Ray Lucia, Sr. solicits prospective clients through his seminars, TV show and radio show for RJLWM under the auspices of his own RIA, Raymond J. Lucia Companies, Inc. ("RJLC").

Here are the things I find troubling about Ray Lucia, his relationships and how he advises his listeners:

1) Ray Lucia was a licensed stockbroker and registered representative of First Allied Securities, Inc. (an SEC-registered Broker-Dealer) until June 2010. He is still a licensed insurance agent and part owner (with his son) of LLK Insurance Brokerage Services, LLC.

2) Ray receives referral fees from RJLWM (via RJLC) and is compensated to serve on the Macro Investment Committee along with Ben Stein and several principals from Advanced Equities Asset Management, Inc., which is owned by First Allied Securities. It is not disclosed how much his referral fees are or how much he is compensated in total by RJLWM. It is disclosed on Ray's website that: "Raymond J. Lucia Companies, Inc. is not affiliated with RJL Wealth Management, LLC", which may be technically true as I am sure the word "affiliated" has a very specific legal meaning in this case. However, it is very clear (and disclosed) that the financial ties between Lucia and RJLWM run very deep. It is entirely possible, given the ways that money can flow back to Lucia (referral fees, advisory fees, insurance product commissions, advertising, sponsorship of shows, etc.) that he takes home a very healthy share of the economics of RJLWM. He is not a control person of RJLWM and is not affiliated with it under the SEC-definition, but this sure seems like a technicality to me.

3) RJLWM (as well as RJLC) is an RIA and is, therefore, supposed to adhere to a fiduciary standard where the adviser has "a duty of utmost good faith to act solely in the best interest of each of its clients. RJL Wealth Management and its associated persons have a fiduciary duty to all clients." (quoted from the RJLWM ADV Part 2 page 20 attached below). However, and I didn't even know that this was possible, RJLWM employees are also registered representatives, or brokers, for First Allied Securities and receive commissions on products sold to their clients. They "wear two hats" so to speak. On the one hand they are supposed to be providing the best possible fiduciary advice and on the other, they are putting their clients into lots of high fee, high commission managed accounts and illiquid investments. The "potential investments" for the longer term "buckets" of their clients as outlined in the ADV Part 2 should make investors and regulators hair stand on end:

fee-based managed accounts, mutual funds, exchange traded funds, unit investment trusts, closed-end funds, equity annuities, variable annuities with principal protection riders, variable annuities with death benefit riders, structured products, non-traded real estate investment trusts, alternative investments, and commodities.(Page 16).
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While these investments need not be ones with high fees and higher commissions, experience tells me that these are likely not of the "squeaky clean" variety. I do not know how you can be a true fiduciary and capably manage the inherent (and, to RJLWM's credit, fully disclosed) conflicts of interest of also selling commission products like these.

4) The "Buckets of Money" managed accounts that are marketed by RJLWM are sub-advised by a firm called Advanced Equities Asset Management, Inc. ("AEAM"), which is in turn owned by Advanced Equities Financial Corp. ("AEFC"). AEFC is also the owner of First Allied Securities, Inc. Clients have the pleasure of paying up to 1.45 -1.9% per year (for <$250k accounts, and down to 0.-75 - 1.1% per year for $5-10m accounts depending on the strategy) for the management of these various accounts designed to fit into a clients various buckets. This is on top of the underlying ETF and mutual fund fees and 12b-1 fees that will also be levied (RJLWM and AEAM will get the ~25bp 12b-1 fees unless it is ERISA money). It looks like much of RJLWM client assets invested in liquid securities are invested in these "wrap" accounts. AEAM manages about $750m in total.
RLJWM Wrap Fee ADV 2.pdf
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So, the fees above seem a little heavy, but let's ignore that for a moment. The real story is that RJLWM, as a fiduciary, is pushing its clients into proprietary wrap accounts managed by a small asset manager (the run about $750m in total - I speculate that a large % is from RJLWM clients) that is owned by the broker for which most of RJLWM's advisers also act as registered representatives. But there is more. AEFC received some very unwanted attention from Forbes in 2008 with this article:" onclick=";return false;. The article describes in detail the activities of AEAM's sister firm, Advanced Equities Financial (AEF), and its business model in the venture capital space. Close readers of this article will not help to see the similarities between this business model and that of many non-traded REITs - provide "little guy" investors access to a "sexy" asset class, charge them high fees and have them buy all the junk that the pros don't want. The leaders of AEFC printed a rebuttal of the article, but it rings a little hollow to me. Here are a couple of other trade people commenting on Advanced Equities:" onclick=";return false;" onclick=";return false;" onclick=";return false;

These comments seem reasonably credible to me, but obviously one or more may have an axe to grind so beware.

The relationship between AEF, AEFC, AEAM and First Allied is tight - all common control/owners. This firm just doesn't pass the smell test to me if I am working with a client as a fiduciary. How do I decide that these guys are great and that I should have them manage a huge chunk of my client's assets? I would be very surprised indeed if their net of fees performance in these wrap accounts is all that good. If it was I think they would have a lot more assets under management.

5) First Allied Securities, Inc. has been subject of many NASD/FINRA fines and arbitration settlements just like the firm, Securities America, Inc. (owned by Ameriprise, formerly American Express Financial Advisors) with which Ray was registered from 2002-07. You can look up both using FINRA's Broker Check (" onclick=";return false;) Both have paid out multi-million dollar fines for mis-selling, failing to supervise properly, etc. I know that all reasonably sized broker-dealers will have had issues like this (though these guys seem to have had bigger issues than most "independent" B-Ds), but it just goes to show how misleading it is for the representatives of these firms to market themselves as "financial advisers", implying a standard of care that is well above what they actually have.

I am not saying that Ray Lucia has had anything to do with what First Allied and Securities America's registered reps were up to while he was registered at those firms (he was after all only one of hundreds). I am also not saying that Lucia or RJLWM have advised clients to put money with AEF or that they are connected in some way (although this would not surprise me).

But what I am saying is that it is very troubling that someone is able to run around and solicit lots of small clients (RJLWM has about 3000 with average accounts of about $590k as at Dec 2010) by touting "financial advice" in the way that Lucia does and then to place client money in a bunch of high-fee wrap accounts managed by a firm that at least as some question marks above it as well as a bunch of high-fee, illiquid securities like non-traded REITs and structured notes (don't get me started on these...). I'm sure that all of Ray's marketing material has been appropriately disclaimed and that all his disclosures are perfectly legal. But legality does not make it right to let people believe that you have their interests at heart when in reality you and your associates are horribly conflicted and, ultimately, appear to be far more interested in generating high commissions than in doing the right thing.

Ray piqued my interest due to him being a big fan of non-traded REITs. I wondered how anyone who is a legitimate financial adviser recommend these to people? I got my answer - it is all and always about the fees - follow the money.

An article that highlights some of the positive things Ray (and others, mostly people in the NT REIT industry) say about Non-Traded REITs is here:
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Be forewarned, you need a strong stomach to wade through some of this - the journalist who wrote this seems otherwise ok so I am surprised she gave such a pass to so many of the misstatements of fact and misleading statistics highlighted. Clearly a "friendly" piece on the industry.

Re: The Ray Lucia Project

Posted: Sun Jul 17, 2011 1:08 pm
by bobsmith
Beltoforion, thanks for the comments in your post.

I agree that no investment is either right or wrong for everyone, but I have yet to see a non-traded REIT that I would recommend to anyone. People who made decent money in these earlier this decade or in the 1990s were, in my view, very lucky that cap rates fell over this time period and that this feat is unlikely to be repeated in the future. I agree that it is difficult to find great ways for small investors to access the commercial real estate market - publicly-traded REITs and REIT mutual funds are not without their flaws - however, I believe that investors are better off not being in the asset class at all rather than to be sold this kind of "investment".

The 10% in up-front commissions that I cited is not wrong. This is magnitude of the up-front distribution fee paid to the broker and the sponsor-affiliated dealer-manager. It comes out of the pockets of investors. These fees are fully disclosed in every non-traded REIT prospectus or 10-K (annual report) out there (" onclick=";return false;). There are also a myriad of other acquisition and asset management fees that push the effective front-end load on these deals to 15% or higher. These up-front fees are the primary reason why the net asset value of these REITs drops so significantly once they are forced to put down a value 18 months after the offering is closed. The NAVs have often been 15-25% off of what investors purchased the shares at for most of the NT REITs I have looked at - and these are the values put on the REITs by the sponsors, so they are hardly independent.

I agree very much with this comment you made:

"Ask your advisor who he works for...the answer should be YOU!"

Unfortunately, this does not seem to be the norm out there (see RJLWM).

To head off the inevitable questions about who I am and what my motives might be, here are some facts:

I work in the financial industry as a fiduciary adviser to institutions. I have zero economic interest in this blog, in the firms that are trying to buy non-traded REIT shares from investors (or, obviously, sell them to investors) or in any other financial product other than my own advice. I speak as only an individual and not for my firm and have no interest in generating personal publicity from these posts (hence anonymity). I have no particular axe to grind with any firm, including Ray Lucia, RJLWM, Advanced Equities or First Allied or the non-traded REIT industry. I simply have a strong sense of indignation at the practices of many people in the financial industry who are seemingly only interested making a buck for themselves. I recognize that some will view this as a naive position and believe that if people buy something where all the risks, fees, etc. are fully disclosed, then so be it. They were warned. But I feel that those of us in finance (and in particular those who advise "retail" investors) have a similar duty of care as medical professionals and that we should not be allowed to hide behind technical disclosure to more easily separate people from their money. I think it is a shame that Congress did not move forward with the proposals to hold all financial advisers to a fiduciary standard (which is what I think most buyers of financial advice already, incorrectly, think they are getting from their "advisers" who are brokers). So this is a hobby of mine - shedding light on industry practices that I believe are badly out-of-line with the fiduciary ideal. If I state something incorrectly, I am happy to correct it - I am not interested in disseminating false information.

Re: The Ray Lucia Project

Posted: Mon Jul 18, 2011 6:18 pm
by GeorgiaGulf
@ BobSmith

You raise a good point about the earlier successes of some non-traded REITs as the cap rates supported them and gave them the Alpha to overcome their high internal costs and fees.

But this touches on a point that has long bothered me about these programs. Timing counts for a lot in the investment business. I've duked it out with so-called "wealth managers" who simply invest money in the market based simply on the day the client showed up with their money. So even on a day to day basis, some level of judgment is needed by the investment professional.

What is troubling about these programs is that the firms have no choice BUT to keep syndicating no matter what the market is like for real estate. Whether its 1997 or 2007, they will continue to turn out products to invest in, print the pitch books and get the wheels of distribution running. And they are not going to stop syndicating because that is what they do to stay in business. To them, there is never a bad day to invest in these things, just as the "wealth manager's" only sense of timing is the physical arrival of funds.

This is especially confining when one invests with a firm like David Lerner, who presents few alternatives. The investor thinks, no matter what how many times he is told "past performance is no guarantee of future results" that he will duplicate the success of the earlier programs. I know folks who have money in all "live" Apple REITs, Six through Ten. And that is because of being lulled into thinking these things are lay-ups to produce monthly dividends and perhaps come out with a profit on the share price at the end, just like the earlier ones did.

But that was then. And not only is this now, its one big "now." A"now" that makes 1988 look like a walk in the park.

Re: The Ray Lucia Project

Posted: Wed Sep 12, 2012 12:38 pm
by bobsmith
An update to this thread: Ray Lucia has been given a "Cease and Desist" order from the SEC for allegedly providing false information in his seminars and Buckets of Money books. The SEC filing is quite detailed and damning for the Buckets of Money strategy. There is no real mention of non-traded REITS and Ray's special affinity for them, but they do state that the assumed magical, steady 7% returns from REITs used in his "backtests" (which don't appear to have ever been done, or at least not done properly) matrialyl improved the returns that he states his strategy has delivered.

It looks like Lucia is going to fight the allegations.

It will be very interesting to see if he can win (the SEC's evidence looks pretty solid to me), and if he loses what the penalties will be. I think this is not going to be just a FINRA slap on the wrist.

Re: The Ray Lucia Project

Posted: Fri Jan 31, 2014 12:22 pm
by HonestFeeOnlyAdviser
Ray Lucia is the equivalent of the scum at the bottom of a sturgeon pond with chemical spill exposure.
He is the Robert Brennan of the 21st century.

He gets kickbacks from every NPTR that his army of losers sell.

He should be holed up with Bernie Madoff.

Re: The Ray Lucia Project

Posted: Fri Jan 31, 2014 12:22 pm
by HonestFeeOnlyAdviser
Ray Lucia is the equivalent of the scum at the bottom of a sturgeon pond with chemical spill exposure.
He is the Robert Brennan of the 21st century.

He gets kickbacks from every NPTR that his army of losers sell.

He should be holed up with Bernie Madoff.