Non-traded REITs have certainly seen their share of hard times recently. First, there was industry leader American Realty Capital going down in flames after getting investigated by the FBI and SEC for accounting fraud. Then in February the FBI raided United Development Funding after hedge fund manager Kyle Bass accused it of running a Ponzi scheme and shorted one of its listed REITs (other UDF REITs are non-listed). Now new SEC and DOL (Dept. of Labor) rules designed to protect investors are coming into effect, and they will make the distribution of non-traded REITs through traditional broker channels much more difficult.

The most remarkable thing about the SEC and DOL rules is that sponsors have been able to sell non-traded REITs to the public for the last 15 years without these basic protections in place. Starting April 11, brokerage account statements for non-traded REITs will show the value of the investor’s account net of broker commissions and expenses that were paid by the investor. Typically 15 cents of every dollar invested in a non-traded REIT goes out the door to pay fees and expenses at purchase, so a $10,000 investment is worth only $8,500 on the day after the shares are purchased. Most investors would agree that this net amount available for investment should be reported. Not so in non-traded REIT land. Brokers and sponsors have been allowed to tell their clients that the value of their account is still $10,000. Starting this week, a lot of investors are going to be very surprised to see that $1,500 has disappeared from their accounts. Of course the money was never there, it’s just that nobody bothered to tell them.

The controversy over the final DOL fiduciary rules that were released last Wednesday would be humorous if it didn’t involve people’s retirement savings. These new rules require brokers and financial advisors handling individual retirement and 401(k) accounts to act in the best interest of their clients. Pity the silly and naïve investors who assumed that their broker was already obligated to give her retirement advice that is in their best interest, just as a doctor or lawyer would be. Many commission-based brokers who sell these products have been in an uproar, arguing that if they have to give advice that is in their clients’ best interest, they just won’t give any advice at all. According to their logic, investors will now be deprived of bad advice, and they will suffer terribly as a result.

One of the consequences of this requirement for advisers to put their clients’ best interest first is that it will be extremely difficult to sell a non-traded REIT to a retirement account. Until the final rules were released on Wednesday, the DOL had proposed a list of specific investments that could be sold to a retirement account. Anything not on the list, including non-traded REITs, was off limits. The non-traded REIT industry was reportedly doing cartwheels over its victory in getting the list removed from the proposal. But while non-traded REITs are not specifically banned under the final rules, it will certainly be a challenge to argue that they are in the client’s best interest – at least under the prevalent fee structure of 15% up front loads and multiple hidden ongoing fees.

Of course, many advisers have already been putting their clients’ interests first and have advised them against investing in non-traded REITs and other high fee products. Non-traded REIT sales have dropped from $20 billion in 2013 to $10 billion in 2015, and they are bound to go lower from here. The previous success of non-traded REITs demonstrates that investors want to diversify their portfolios with real estate. Many investors and advisers now realize that they need a more transparent and less expensive way to do it.