Sierra Income Fund
The Sierra Income Fund is a non-traded business development company (BDC) that invests in non-public companies that do not have access to the traditional publicly traded bond markets to finance business operations. Sierra Income Fund is classified as an alternative investment, that is a non-liquid investment with a significantly higher level of fees, expenses, and commissions than traditional fixed-income investments which brings into question: Why Sierra Income Fund was recommended by brokerage firms and financial advisors?
Brokerage firms and financial advisors may fail to disclose that higher fees and expenses require higher returns through investments in riskier assets and the use of greater levels of debt to generate the projected returns. During periods of economic stress, the combination of greater fees, expenses, and risks will result in disproportionate losses relative to overall markets. Did your brokerage firm and financial advisor make this fact completely understood?
Sierra Income Fund Timeline
Sierra Income Fund opened for investments on May 16, 2012 and was closed to new investors on July 13, 2018. On July 29, 2019, Sierra Income Fund announced merger with Medley Capital (NYSE:MCC), along with associated advisory firms. Finally, Sierra Income Corporation announced, the “temporary suspension” of cash and reinvestment plan distributions beginning on April 30, 2020. On May 5, 2020, the merger agreement between Sierra Income Corporation and Medley Capital was terminated citing “the changed circumstances and the unpredictable economic conditions resulting from the global health crisis caused by the coronavirus (COVID-19) pandemic.”
Higher Costs and Leverage Results in Greater Losses
Brokerage firms and financial advisors that recommended investments in Sierra Income Corporation may try to justify the lack of liquidity and higher fees and costs with promises of higher returns. They may fail to disclose that higher fees and expenses require higher returns through investments in riskier assets and the use of greater levels of debt to generate the projected returns. However, during periods of economic stress, this combination of greater fees, expenses, and leverage risks will result in disproportionate losses relative to overall markets. Did your brokerage firm and financial advisor make this fact completely understood?
Did Your Broker Disclose All of the Costs You Paid?
A review of Sierra Income Fund Prospectus, details higher expenses and fees charged to Sierra Income Fund investors are summarized into the following categories below:
- Annual Operating Expense Ratios is 4.34%;
- Annual Advisory Fees is 1.75%;
- Front-End Distribution Costs (Dealer Fees and Commissions) is 10.25%; and
- Percent of Net Capital Gains payable to the Sierra Income Advisors is 20%.
What Factors Are Considered in Order to Recover Investment Losses in Sierra Income Fund Sustained During the Coronavirus Pandemic?
Investors were charged a higher level of expenses and fees by Sierra Income Fund to manage the portfolio along with significant levels of borrowed funds which increase the breakeven point for investment returns. These factors are not easily understood by investors who lack the sophistication to determine the nature of the risks associated with the strategy. As a result, investors, many who are retired, must rely upon brokerage firms and financial advisors for advice. Recommended investments in the Sierra Income Fund are unsuitable investment recommendations for investors with income investment objectives and a conservative or moderate risk tolerance. In most instances, financial advisors who fail to adequately disclose all relevant costs and risks associated with investments in Sierra Income Fund are in violation of sales practice rules and regulations, including misrepresentations and breach of fiduciary duty to their clients. Additionally, a brokerage firm may have violated securities industry rules for failure to supervise, due diligence product reviews, and sales training.
KlaymanToskes Can Help Recover Investment Losses
KlaymanToskes has been dedicated to the protection of investor rights for decades, from the Tech Bubble in 2000 to the Mortgage Crisis in 2008. Now, we can help you recover investment losses during the Coronavirus (COVID-19) pandemic. KlaymanToskes is investigating whether investments in Sierra Income Fund resulted in investment losses suffered during the Coronavirus (COVID-19) pandemic. The following type of case facts can support a claim for damages:
- percentage concentration in non-traded products;
- liquidity needs of client;
- investment objective and risk tolerance;
- tax ramifications; and
- client sophistication.
KlaymanToskes believes in a rigorous review of each investors personal needs to determine whether your investment portfolio should have been invested in Sierra Income Fund based on your personal investment objectives, risk tolerances and investment time horizon.