Know Your Rights

What Brokers Are Legally Required to Tell You About DST Investments

Before your broker recommended Inspired Healthcare Capital or any Inspired Senior Living DST, the law imposed specific obligations on them. Many IHC investors were sold these products in violation of those duties — and have viable FINRA arbitration claims as a result.

The Suitability Standard (FINRA Rule 2111)

Before recommending any investment, a broker must have a reasonable basis to believe it is suitable for that specific customer. Suitability is not a generic judgment — it is customer-specific. FINRA Rule 2111 requires brokers to consider:

  • Age and time horizon
  • Liquidity needs — how soon might you need this money?
  • Risk tolerance — can you afford to lose principal?
  • Investment objectives — growth, income, capital preservation?
  • Overall financial situation and net worth
  • Tax status and existing portfolio composition

A DST like those offered by IHC is inherently illiquid — investors typically cannot sell their interests and have no secondary market. Recommending this type of investment to someone who might need the funds within 5–10 years, or who could not afford principal loss, is a suitability violation regardless of how the product performed for other investors.

Regulation Best Interest (Reg BI) — A Higher Standard

Effective June 30, 2020, the SEC's Regulation Best Interest requires broker-dealers to act in the best interest of retail customers — not merely recommend what is "suitable." Reg BI specifically addresses:

Care obligation

The broker must consider the costs, risks, and rewards of a recommendation and have a reasonable basis to believe it is in the customer's best interest.

Conflict of interest obligation

Brokers must identify and disclose conflicts of interest. DSTs often pay high upfront commissions (7–10%). If your broker earned a large commission on your IHC investment without disclosing that conflict, that may violate Reg BI.

Disclosure obligation

Material information about the investment — risks, fees, limitations — must be disclosed before the recommendation.

Reg BI applies to any IHC recommendation made on or after June 30, 2020. Many IHC sales occurred during 2020–2022 — within the Reg BI window.

Common Broker Violations in IHC DST Sales

Based on FINRA arbitration cases involving similar DST products, the most common actionable violations include:

Unsuitability

Recommending an illiquid DST to a retiree who needed access to funds, or to an investor whose risk profile did not support speculative real estate investments.

Failure to disclose illiquidity

DSTs have no secondary market and cannot be redeemed on demand. If your broker did not clearly explain that your money would be locked up indefinitely, that is a material omission.

Excessive concentration

Putting too high a percentage of your investable assets into a single DST sponsor or a single illiquid asset class violates diversification standards, even if each individual recommendation seemed reasonable.

Misrepresentation of risk

Describing an IHC DST as "safe," "like owning real estate," or "guaranteed income" when none of those characterizations were accurate and were not supported by the offering documents.

Failure to conduct due diligence

Broker-dealers are required to investigate DST sponsors before recommending their products. Recommending IHC products without adequate due diligence on the sponsor's financial health is a failure that the broker-dealer is responsible for.

Regulation Best Interest violations

Recommending a high-commission DST when lower-cost alternatives existed, without adequately considering the investor's best interest, violates the Reg BI standard in effect since June 2020.

Who Bears Responsibility?

Your claim is not against IHC — it is against the broker-dealer and registered representative who recommended the investment. Broker-dealers are responsible for:

  • Supervising their registered representatives
  • Conducting adequate due diligence on products before recommending them to customers
  • Training brokers on suitability and disclosure obligations
  • Maintaining a reasonable basis for all recommendations

Even if your individual broker is gone, retired, or unresponsive, the firm that employed them may still be liable. FINRA arbitration claims can name both the individual representative and the broker-dealer.

Frequently Asked Questions

I signed documents saying I understood the risks. Does that waive my claim?

Not necessarily. Signing a customer agreement or acknowledging a prospectus does not automatically release your broker from their duties. If the broker misrepresented the investment verbally, did not explain what you were signing, or the recommendation was unsuitable regardless of what the documents said, claims may still proceed. Courts and FINRA panels routinely hold that signed disclosures do not bar fraud or suitability claims.

My broker said this was a "safe" 1031 exchange vehicle. Is that actionable?

Yes. Describing a DST as "safe" when it carried significant principal risk, operational uncertainty, and illiquidity may constitute material misrepresentation. The fact that it was marketed as a 1031 exchange vehicle does not reduce the broker's disclosure and suitability obligations — it may actually heighten them, since investors using 1031 exchanges often have significant capital they cannot afford to lose.

How do I know if my losses were large enough to pursue a claim?

There is no minimum, but claims under $50,000 involve a simplified process. Claims over $50,000 are handled through the standard FINRA arbitration track. Attorney Bixby handles cases on a contingency basis — the economics are evaluated as part of the free case review, so you do not need to guess whether a claim makes financial sense.

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Related Resources

Time Is a Factor

FINRA's 6-year eligibility window runs from the date of the investment, not when you discovered the loss. IHC investors from 2020 and earlier should act now.