Rule 2310's provisions were written for direct participation programs. An unlisted real estate investment trust registers its shares federally but never lists them on an exchange. How does the rule treat it?

They fall outside the rule altogether and are governed instead by the account statement obligations of FINRA Rule 2231, which reaches every unlisted holding a customer carries

They are treated equivalently to direct participation programs under most of the rule's provisions, sharing the illiquidity and valuation opacity that make the framework appropriate

They are reached only by the per share estimated value provisions, the remaining provisions of the rule applying to pass-through partnerships alone

They are reached only where the trust has elected pass-through tax treatment, the absence of an exchange listing being irrelevant to the rule's scope

Rule 2310(a)(4) defines its subject by reference to tax consequences rather than to entity type. What follows for a limited liability company, a form that has largely replaced the traditional limited partnership in many offerings?

It is excluded, because the definition is confined to entities organised in the limited partnership form

It is included only where its operating agreement denies members any voice in management

It is included where it is treated as a partnership for federal income tax purposes

It is included only where it has elected to be taxed as a corporation on its earnings

In a direct participation program the General Partner makes the investment decisions and directs operations, while limited partners supply the capital and have no voice in day-to-day management. How does liability for the program's obligations fall between them?

The General Partner bears unlimited liability for the program's obligations, while a limited partner's exposure stops at the capital invested

Both bear liability in proportion to the capital each has contributed, the General Partner's share reflecting its own investment

The General Partner's liability is capped at the management fees it has drawn, unlimited exposure resting with the program itself

Limited partners bear unlimited liability for obligations arising after their admission, the General Partner's exposure being capped

Real estate, oil and gas, and equipment leasing programs are the most common direct participation program structures. Which tax items are distinctive to the oil and gas structure?

Exploration credits that are recaptured when the partnership interest is later sold

Depletion allowances and deductions for intangible drilling costs

Deductions for property improvements and any gain realised on disposition of the wells

Depreciation deductions and rental income from equipment leased to operating businesses

Before recommending a direct participation program to a customer, a member firm must have reasonable grounds to believe two separate things. What are they?

That the customer's investment profile has been documented in the account record, and that a principal has approved the account for alternative investments in writing beforehand

That the customer qualifies as an accredited investor under Regulation D, and that the sponsor has completed its own due diligence investigation of the offering before any solicitation

That the customer meets the program's specified financial standards, and that the investment is otherwise suitable given their objectives, other investments, financial situation and needs, and tax status

That the customer has acknowledged the program's illiquidity in writing, and that the recommendation is consistent with the risk tolerance the customer has stated to the firm

The financial suitability standards a direct participation program investor must meet are numerical, setting a minimum net worth and a minimum annual income. Where do those figures come from?

From Rule 2310 itself, which fixes a single pair of figures uniformly across every program it covers

From the member firm's written supervisory procedures, which set the figures and are reviewed annually

From Regulation D, each program adopting the accredited investor thresholds by reference to that rule

From each program's own prospectus or offering memorandum, which may require either threshold or both together

Rule 2310 requires a member firm to keep something in its files for each direct participation program recommendation it makes. What must the file hold?

Documents disclosing the basis upon which the suitability determination was made, available for review by FINRA examiners

The customer's signed acknowledgement that the program is illiquid and speculative, dated before the purchase

A copy of the offering document that was delivered to the customer, marked with the date of delivery

The principal's written approval of the recommendation, obtained before the recommendation was made

Organisation and offering expenses in a direct participation program offering include legal fees, accounting costs, printing and registration fees. What ceiling does Rule 2310 place on them, and what does that ceiling guarantee?

Fifteen percent of the amount remaining once selling compensation has been deducted, calculated at the close of the offering period

Twelve and a half percent of gross offering proceeds, so at least eighty-seven cents of every dollar invested reaches the program's assets

Twenty percent of gross offering proceeds, so at least eighty cents of every dollar invested remains available for the program's assets

Rule 2310 caps total underwriting compensation in a direct participation program offering. At what level is the cap set, and how widely does the capped figure reach?

It captures compensation paid by the issuer, payments made by an affiliate of the sponsor falling outside the computation

It captures the selling concession alone, other payments being tested separately against the organisation and offering expense limit that the rule imposes on the issuer

Ten percent of gross offering proceeds, reaching every item of compensation from whatever source payable to underwriters, broker-dealers and their affiliates

It captures cash compensation only, non-cash arrangements being governed exclusively by the rule's separate gift provisions

Conventional equity and debt offerings have their underwriting terms assessed under FINRA Rule 5110. How does Rule 2310's treatment of underwriting compensation differ from that in technique?

It requires a filing with the Corporate Financing Department, where the other imposes no filing for these products

It measures the compensation at the close of the offering, where the other measures it at the filing date

It reaches only underwriters affiliated with the sponsor, where the other reaches every member taking part

It fixes a numerical ceiling, where the other tests the terms against a facts-and-circumstances fairness standard

Two categories of payment arising in direct participation program distribution fall outside the per-person annual limit on non-cash compensation. Which are they?

Wholesaling salaries paid by sponsors to their own internal marketing staff, and reimbursements for genuine training and education events

Payments a member makes to its own registered representatives, and any single item whose value falls below the annual per-person figure

Expenses of due diligence meetings met by the member itself, and the cost of representatives' travel to inspect the program's properties

Commissions payable under the selling agreement, and any item of value that has been disclosed in the program's offering prospectus

A payment arising in the distribution of a direct participation program falls into one of the categories excluded from the per-person annual non-cash compensation limit. What does Rule 2310 still require of it?

It must be apportioned among the representatives who benefited and counted against the following year

It must still be disclosed transparently in the distribution arrangements section of the offering prospectus

It must be approved in advance by a principal, whose written approval is kept in the member's file

It must be entered in the member's own compensation register and produced to FINRA on examination

Non-cash items in direct participation program distribution are valued at cost, excluding tax and delivery charges. Which items are valued on a different basis, and what is it?

Items given jointly to several recipients, which are valued at the full cost against each of them

Items bought at a staff discount, which are valued at the price a member of the public would pay

Tickets to sporting or entertainment events, which are valued at the higher of cost or face value

Promotional items carrying the giver's name, which are valued at replacement cost at the year end

The issuer of an unlisted REIT has not agreed to disclose a per share estimated value in the periodic reports it files with the SEC. What does Rule 2310 mean for a member invited to take part in the offering?

It may participate, provided it discloses the absence of any estimated value to each customer

It may participate once it has obtained a third-party valuation of the program's assets

It may participate, but may not recommend the securities to any non-institutional customer

It may not participate in the offering at all

Regulatory Notice 15-02 established two methodologies for calculating a per share estimated value that are deemed to be developed in a manner reasonably designed to ensure reliability. What distinguishes one from the other?

One divides the amount available for investment after offering costs by the shares outstanding; the other rests on at least annual third-party valuations of the assets and liabilities

One uses the price investors paid inclusive of commissions; the other uses the sponsor's own projection of the cash flows the program will generate

One is used while the offering remains open and the other once it has closed, the rule fixing the point at which a program must move from the first to the second

One is available to unlisted REITs and the other to partnerships, the product category rather than the program's circumstances deciding which applies

A member relies on the net investment methodology for a program that is paying distributions partly out of the investors' own subscribed capital. What does Rule 2310's framework require in that situation?

Recalculation of the per share estimated value with every distribution already paid deducted from it, and republication of the corrected figure

Enhanced disclosure to investors that a portion of the distributions represents a return of their own capital

Suspension of the distributions until the program's earnings are sufficient to cover them in full

A change to the appraised value methodology for the next reporting period the program publishes

A member solicits votes from limited partners on a proposed rollup transaction. What does Rule 2310 require of the compensation the member receives for that solicitation?

It must be paid only once the transaction has closed, so that the member shares the limited partners' outcome

It must be approved by a majority of the limited partners of each partnership before the solicitation begins

It must be disclosed to each limited partner before any solicitation begins, but is not otherwise restricted

It must be payable in equal amounts whether the limited partner votes for or against the transaction

A sponsor proposes to pay a member a bonus for each rollup transaction that is successfully completed, in addition to its agreed solicitation fee. Does that arrangement satisfy Rule 2310?

No, because compensation contingent on the rollup being completed compromises the objectivity of the member's advice

Yes, because a bonus paid by the sponsor is not compensation received from the limited partners themselves

Yes, provided the completion bonus is disclosed in the solicitation materials sent to limited partners

No, unless the completion bonus is paid to the member firm rather than to the individual representatives

Rule 2310 obliges the issuer of a direct participation program to disclose a per share estimated value in its SEC filings, and FINRA Rule 2231 obliges the member to include per share estimated values on customer account statements. What do the two obligations achieve together?

An election for the customer, who may choose which of the two figures is shown on the account statement and how often that statement is issued

A two-pronged transparency framework, so the investor is never without a reference value however long the period before a liquidity event

A quarterly valuation duty falling on the member, the issuer's disclosure serving only as a check upon it

A reconciliation duty, the member being required to explain any difference between its figure and the issuer's

A sponsor is organising four unlisted vehicles to hold income-producing assets. Which of them is a direct participation program?

A limited partnership that has elected to be taxed as a corporation, so that tax on its earnings is paid at the partnership level

A real estate venture organised as a C corporation, paying tax on its rental income before distributing the remainder to its shareholders

A real estate venture organised as an S corporation, so that its tax items are reported by the shareholders rather than by the venture

A business trust holding equipment leases that pays tax on its lease income itself before distributing the balance to its beneficiaries

Direct participation programs were historically sold with particular success to high-income investors looking for tax shelter. What feature of the structure made them attractive to that group?

Tax items passed straight to each investor's own tax return, where the program's income was taxed at the lower long-term capital gains rate whatever its source

Tax items passed straight to each investor's own tax return, but only once the program was wound up, so all tax on its income was deferred until then

Each investor's share of the program's income passed straight to their own tax return, while its losses stayed inside the program to be carried forward against its future profits

Losses, deductions and credits passed straight to each investor's own tax return, where they could offset income the investor earned from other sources

A customer comfortably clears the minimum net worth and minimum annual income figures that apply to a direct participation program. On the reasoning behind Rule 2310's suitability requirement, what have those figures established?

That the customer could absorb a total loss of the investment without impairing essential financial obligations and living standards

That the program is suitable for the customer, the figures having been set at a level that captures every risk the program carries

That the customer has enough experience with alternative investments to understand how the program's structure actually works

That the customer's investment objectives match the program's particular mix of income, growth and tax characteristics over time

Minimum net worth figures for direct participation program investors are typically calculated on a basis that leaves certain assets out. Which assets?

Retirement account balances and the cash value of any life insurance policies

The investor's home, home furnishings and automobiles

Interests the investor already holds in other illiquid programs or partnerships

Unvested stock options and deferred compensation the investor has not yet received

A direct participation program raises forty million dollars in gross offering proceeds. Its organisation and offering expenses come to 6.4 million dollars and its total underwriting compensation to 3.6 million dollars. How do those figures stand against Rule 2310's limits?

The compensation exceeds its limit of three million dollars, while the expenses are within their limit of eight million dollars

Both are within their limits, which stand at eight million dollars for the expenses and four million dollars for the compensation

The expenses exceed their limit of six million dollars, while the underwriting compensation is within its limit of four million dollars

Both exceed their limits, which stand at five million dollars for the expenses and three million dollars for the compensation

In connection with a member's sales of its direct participation program, a sponsor sends one of the member's associated persons two tickets to a championship game. The sponsor paid two hundred and twenty dollars for them, their face value is three hundred and forty dollars, and no one from the sponsor attends. It is the only gift the person has had from the sponsor this year. May the person accept the tickets?

Yes, because event tickets are business entertainment rather than gifts, and so they fall outside the annual per-person gift limit entirely

Yes, because gifts count at their cost to the giver, and the two hundred and twenty dollars paid is within the annual limit of three hundred dollars per person

No, because a gift relating to the sale of a direct participation program must stay within one hundred dollars for each person in each year

No, because the tickets count at their face value of three hundred and forty dollars, which is above the annual limit of three hundred dollars per person

A non-traded REIT reports its per share estimated value under the appraised value methodology. Besides the valuation of its assets and liabilities, what must accompany the reported figure?

A written opinion or report setting out the review's scope, the methodology applied and the basis on which the values were reached

A certification from the sponsor that each of the REIT's assets could be sold at its appraised value within twelve months of the valuation date

A reconciliation of the appraised figure to the figure the net investment methodology would give, with every difference between the two explained

A confirmation from the REIT's independent auditor that the appraised values agree with the carrying values shown on its latest balance sheet

Investors in a non-traded REIT paid ten dollars a share. Of each share's price, offering costs took ninety cents and organisation expenses thirty cents. What per share estimated value does the net investment methodology produce at the outset?

Ten dollars, the price investors actually paid for each share including the offering costs and commissions

Eight dollars and eighty cents, the price less both the offering costs and the organisation expenses

Nine dollars and ten cents, the price less the offering costs, the organisation expenses remaining in the value

Nine dollars and seventy cents, the price less the organisation expenses, the offering costs remaining in the value

A sponsor engages a member to solicit tenders of limited partnership interests in connection with a proposed limited partnership rollup. The member is to be paid a fee for each interest a limited partner tenders and nothing for a limited partner who declines to tender. May the member take part on those terms?

Yes, provided only that the fee for each tendered interest, and the fact that nothing is paid for a refusal, is disclosed in the materials the limited partners receive before deciding

Yes, since the requirement for equal payment governs the solicitation of votes on a rollup, and a request that limited partners tender their interests is not a vote solicitation

No, since a fee paid only when a limited partner tenders pays for one answer and not the other, which is barred for tenders as it is for votes

No, since a member may not accept any compensation at all for soliciting tenders from limited partners in a rollup, beyond reimbursement of the out-of-pocket costs it incurs

In connection with a registered representative's sales of the sponsor's direct participation program, a sponsor offers to pay for the representative's week at a beach resort. The week includes a single one-hour presentation on the program and is otherwise given over to golf and leisure. Does the sponsor's payment escape the per-person annual limit on non-cash compensation?

Yes, since the sponsor pays the resort directly, and a payment made to a third party rather than to the representative is not a gift at all

Yes, since any event at which the sponsor presents its program to the representatives who sell it counts as a training and education event

Yes, provided only that the full cost of the week is disclosed in the distribution arrangements section of the program's offering prospectus

No, since the exclusion for training and education reaches only genuine programmes that give the representative bona fide professional development value

FINRA Rule 2310: Direct Participation Program Suitability & Compensation Rules

FINRA Rule 2310

FINRA Rule 2310 — Direct Participation Programs — is the comprehensive rule governing the participation of FINRA member firms in the public offering and distribution of direct participation programs and unlisted real estate investment trusts, establishing specific suitability requirements that must be satisfied before any recommendation of these products to customers, imposing limits on organisation and offering expenses and underwriting compensation, restricting non-cash compensation arrangements in DPP and REIT distribution, requiring issuers to disclose per share estimated values in periodic reports, and restricting the compensation arrangements applicable to limited partnership rollup transactions — creating a protective regulatory framework specifically tailored to the unique risks, illiquidity, and complexity of these alternative investment vehicles whose characteristics differ fundamentally from the exchange-listed securities that most retail investors are most familiar with.

Direct participation programs — universally abbreviated DPPs — are investment vehicles structured as limited partnerships, limited liability companies, S-corporations, or other pass-through entities that allow investors to participate directly in the cash flows and tax consequences of the underlying business activities — typically real estate, oil and gas exploration and production, equipment leasing, or other asset-heavy business ventures — without the entity-level taxation that applies to corporations and without the liquidity of publicly traded securities. The flow-through tax treatment — with income, losses, deductions, and credits passing directly to investors' individual tax returns — is the defining economic characteristic that distinguishes DPPs from other investment structures and that historically made them particularly attractive to high-income investors seeking tax shelter benefits.

Non-traded real estate investment trusts — unlisted REITs whose shares are registered under the Securities Act of 1933 but are not listed on a national securities exchange — are treated equivalently to DPPs under most Rule 2310 provisions, sharing the defining characteristics of illiquidity and valuation opacity that make the rule's specific protective framework appropriate for both product categories.

Rule 2310 is tested on the Series 7 examination as the rule governing the most illiquid and complex category of investment product that General Securities Representatives are authorised to recommend — requiring thorough understanding of what DPPs are, why their suitability assessment requirements go beyond the general FINRA Rule 2111 framework, what specific expense and compensation limits apply, and what the non-cash compensation framework requires following the March 2026 amendments under FINRA Forward.

What Is a Direct Participation Program

Rule 2310(a)(4) defines a direct participation program as a program which provides for flow-through tax consequences regardless of the legal form of the entity — encompassing the full range of pass-through investment structures that share the defining characteristic of tax consequences flowing directly to investors rather than being absorbed at the entity level.

The most common DPP structures include real estate limited partnerships — which invest in income-producing real estate or real estate development projects and allow investors to share in rental income, depreciation deductions, and any gains or losses on property dispositions. Oil and gas limited partnerships — which invest in the exploration, development, and production of petroleum resources — provide investors with depletion allowances and intangible drilling cost deductions that can generate significant tax benefits in addition to the economic returns from successful wells. Equipment leasing partnerships — which purchase and lease equipment to businesses — generate rental income and depreciation deductions that can shelter income from other sources.

Rule 2310's DPP definition reaches limited liability companies treated as partnerships for federal income tax purposes, because it applies regardless of the structure of the legal entity — recognising that the LLC structure has largely replaced the traditional limited partnership form for many DPP offerings while preserving the same tax flow-through characteristics that define the category.

The General Partner — the managing entity responsible for making all investment decisions, managing the program's assets, and directing the program's operations — controls the DPP's activities and bears unlimited liability for the program's obligations. Limited partners — the investors who provide the capital — receive their proportionate share of income, losses, deductions, and credits in exchange for their investment but have no voice in day-to-day management decisions and bear liability only up to the amount of their invested capital.

The Suitability Requirements — Beyond Rule 2111

Rule 2310(b)(2) establishes suitability requirements for DPP recommendations that are specifically tailored to the characteristics of these products — going beyond the general investment profile analysis required by FINRA Rule 2111 to address the specific features of DPPs that create distinct suitability considerations.

Before recommending a DPP to any customer a member firm and its associated persons must have reasonable grounds to believe — based on information provided by the customer — that the customer meets the financial suitability standards specified in the DPP's offering documents AND that the investment is otherwise suitable for the customer given their investment objectives, other investments, financial situation and needs, and tax status.

The financial suitability thresholds — specified in each DPP's prospectus or offering memorandum — typically require minimum net worth excluding home, furnishings, and automobiles of seventy-five thousand to one hundred thousand dollars, and minimum annual income of forty-five thousand to seventy-five thousand dollars. Some offerings require investors to meet either threshold — others require both simultaneously.

The dual suitability requirement reflects the two-dimensional nature of DPP suitability analysis. The financial thresholds address the investor's capacity to absorb a total loss — an outcome that is entirely possible given the illiquid and speculative nature of many DPP investments — without impairing their essential financial obligations and living standards. The overall suitability assessment addresses whether the DPP's risk profile, illiquidity, tax characteristics, investment timeline, and complexity are consistent with the specific customer's complete investment profile including their experience with alternative investments and their genuine understanding of the product's structure.

The member firm must maintain in its files documents disclosing the basis upon which the suitability determination was made — creating a documented record that can be reviewed by FINRA examiners and that provides evidence of compliance with the suitability obligation for each DPP recommendation made.

Organisation and Offering Expense Limits

Rule 2310 imposes specific limits on the costs that may be charged to investors in connection with DPP offerings — protecting investors from excessive offering costs that consume an unreasonably large proportion of their investment before any funds are deployed for the stated business purpose.

Organisation and offering expenses — including legal fees, accounting costs, printing, registration fees, and all other costs of organising the program and conducting the offering — may not exceed fifteen percent of gross offering proceeds. This fifteen percent cap ensures that at least eighty-five cents of every dollar invested in a DPP is available for actual investment in the program's underlying assets — rather than being consumed by the administrative costs of bringing the offering to market.

Total underwriting compensation — all items of compensation from whatever source payable to underwriters, broker-dealers, and their affiliates in connection with the offering — may not exceed ten percent of gross offering proceeds. This ten percent cap on underwriting compensation is one of the most directly and most frequently tested Rule 2310 provisions on the Series 7 examination — establishing a specific numerical limit that constrains the selling compensation extractable from DPP investors and distinguishes the DPP underwriting compensation framework from the facts-and-circumstances fairness standard of FINRA Rule 5110 applicable to conventional equity and debt offerings.

The two caps nest rather than add — underwriting compensation, capped at ten percent, is itself part of the organisation and offering expenses capped at fifteen percent — so at least eighty-five cents of every dollar invested remains available for stated investment purposes, with no more than fifteen cents consumed by offering costs and selling compensation combined.

Non-Cash Compensation and Gift Thresholds

Under FINRA Rule 2310 and conforming amendments via Regulatory Notice 26-05, non-cash compensation arrangements — including gifts, sales incentives, and business entertainment items — are heavily restricted to prevent conflicts of interest in the distribution of DPP and unlisted REIT securities.

Associated persons may not accept any non-cash gifts relating to the sale of DPP or unlisted REIT securities exceeding three hundred dollars per person per year. This three hundred dollar limit was codified on March 30, 2026 — increasing the historical one hundred dollar threshold that had been in place since 1992 to reflect structural inflation and to align the DPP non-cash compensation standard with the gift limits simultaneously updated across the broader FINRA non-cash compensation framework.

The March 30, 2026 amendments were adopted as part of the FINRA Forward initiative — FINRA's comprehensive rulebook modernisation programme launched in April 2025 — and were implemented through Regulatory Notice 26-05 issued February 27, 2026 following SEC approval of the underlying rule change on February 12, 2026. The conforming amendments raised the gift limit to three hundred dollars simultaneously across five rules — FINRA Rule 3220 governing general gifts and gratuities, Rule 2310 governing DPPs, Rule 2320 governing variable contracts of an insurance company, Rule 2341 governing investment company securities, and Rule 5110 governing underwriting terms and arrangements — creating a unified and consistent gift limit framework across the entire FINRA non-cash compensation rulebook for the first time.

The three hundred dollar limit accounts for ongoing inflation at current levels for approximately ten years from the date of adoption — FINRA has stated its intention to review the gift limit periodically to determine if further adjustments are needed to reflect changing economic conditions, rather than allowing the limit to become economically unrealistic over another thirty-year period as the prior one hundred dollar limit had.

Wholesaling salaries — the compensation paid by DPP and REIT sponsors to their internal wholesaling staff who market programs to broker-dealer distribution networks — are excluded from the three hundred dollar cap and are not considered non-cash compensation for purposes of this framework. Standard training and education event reimbursements — payments covering a registered representative's attendance at genuine educational programmes that provide bona fide professional development value — are similarly excluded from the cap. Both excluded categories must however be transparently disclosed in the distribution arrangements section of the offering prospectus — ensuring that investors have complete visibility into the compensation flows associated with the program's distribution regardless of whether those flows are subject to the per-person annual cap.

The non-cash compensation restrictions of Rule 2310 work alongside the general Gifts Rule of FINRA Rule 3220 — which was itself amended to three hundred dollars effective March 30, 2026 — creating the unified gift limit framework that eliminates the prior inconsistency between the general gifts framework and the product-specific non-cash compensation rules and simplifies compliance for member firms operating across multiple product categories simultaneously.

Gifts must be valued at cost excluding tax and delivery charges — with one important exception. Tickets to sporting or entertainment events must be valued at the higher of cost or face value — preventing the undervaluation of premium event tickets whose face value may significantly exceed their actual cost to the giver.

One of the most investor-protective provisions of Rule 2310 — and one directly connected to the account statement disclosure requirements of NASD Rule 2340 — is the requirement that member firms may not participate in a DPP or unlisted REIT offering unless the issuer has agreed to disclose a per share estimated value of the program's securities in periodic reports filed with the SEC.

The per share estimated value requirement addresses one of the most fundamental investor protection concerns with DPPs and non-traded REITs — the valuation opacity that leaves investors without a market price reference for their holdings throughout the often extended period before any liquidity event occurs. Unlike exchange-listed securities whose market prices are continuously quoted and accessible through public trading data, investors in non-traded DPPs and REITs have no equivalent price reference — they know what they paid for their investment but have no ongoing indication of what it is currently worth.

The amendments implemented through Regulatory Notice 15-02 established two specific methodologies for calculating per share estimated values that are deemed to be developed in a manner reasonably designed to ensure reliability.

The net investment methodology calculates the per share estimated value based on the total net investment — the amount available for investment after deducting offering costs and organisation expenses from gross proceeds — divided by the total shares outstanding. This methodology produces a straightforward estimate of the per share value of the funds actually invested in the program's assets rather than the per share price paid by investors inclusive of offering costs and commissions.

The appraised value methodology calculates the per share estimated value based on valuations of the assets and liabilities of the DPP or REIT performed at least annually by or with the material assistance or confirmation of a third-party valuation expert or service — derived from a methodology conforming to standard industry practice — and accompanied by a written opinion or report explaining the scope of the review, the methodology used, and the basis for the values reported. The appraised value methodology provides investors with an expert-derived estimate of the program's current asset value that may be more representative of true economic value than the simpler net investment calculation.

Member firms that use the net investment methodology must provide enhanced disclosure to investors if any portion of the distributions paid represents a return of their capital investment — a practice called over-distribution that returns investors' own money disguised as investment income and that can mislead investors about the program's actual investment performance and the sustainability of its distribution rate.

Limited Partnership Rollup Restrictions

Rule 2310 establishes specific restrictions on the compensation arrangements applicable to limited partnership rollup transactions — corporate restructurings in which the interests of limited partners in one or more existing partnerships are exchanged for securities of a new entity such as a corporation, REIT, or new limited partnership — protecting limited partners from compensation arrangements that create conflicts of interest between the financial interests of the member firm soliciting rollup votes and the interests of the limited partners whose votes are being solicited.

No member or associated person may participate in soliciting votes or tenders from limited partners in connection with a rollup transaction unless the compensation received is payable in equal amounts regardless of whether the limited partner votes affirmatively or negatively. This equal compensation requirement prevents the most direct form of compensation-driven conflict — where a broker-dealer receives higher compensation for each affirmative vote than for each negative vote, creating a powerful financial incentive to advocate for the rollup regardless of whether it is in the limited partners' best interests.

Additional rollup compensation restrictions prohibit transaction-based compensation structures that reward member firms for successfully completing rollup transactions through any mechanism that could compromise the objectivity of their advice to limited partners about whether to vote for or against the proposed restructuring.

Connection to the Account Statement Framework

Rule 2310's per share estimated value requirement connects directly to the customer account statement obligations of FINRA Rule 2231 — which requires member firms to include per share estimated values for DPPs and non-traded REITs on customer account statements using reliable methodologies.

A customer who holds DPP interests in their brokerage account will see the per share estimated value on their quarterly account statement — providing ongoing transparency about the estimated current worth of their illiquid investment that supplements the periodic disclosures in the issuer's SEC filings. The account statement valuation and the Rule 2310 issuer disclosure requirement together create a two-pronged transparency framework ensuring that DPP investors are never left entirely without a reference value for their holdings regardless of how extended the period between the initial investment and any eventual liquidity event.

Examination Relevance and Key Takeaways

FINRA Rule 2310 is tested on the Series 7 examination in the context of direct participation programs, suitability requirements, offering expense limits, underwriting compensation caps, non-cash compensation, and per share estimated value disclosure.

The key points to retain are these.

FINRA Rule 2310 — Direct Participation Programs — governs member firm participation in DPP and non-traded REIT offerings. DPPs are investment vehicles providing flow-through tax consequences to investors through limited partnerships, LLCs, or other pass-through structures — including real estate, oil and gas, and equipment leasing programs. Non-traded REITs are treated equivalently to DPPs under most Rule 2310 provisions. The General Partner manages operations — limited partners bear liability only to the extent of invested capital.

Suitability requirements exceed those of FINRA Rule 2111 — members must have reasonable grounds to believe the customer meets the financial thresholds specified in the offering documents AND that the investment is otherwise suitable — with suitability basis documentation maintained in the member's files. Organisation and offering expenses may not exceed fifteen percent of gross proceeds. Total underwriting compensation may not exceed ten percent of gross proceeds — a specific numerical limit directly tested on the Series 7 examination.

Non-cash compensation was amended effective March 30, 2026 via Regulatory Notice 26-05 under the FINRA Forward initiative — raising the per-person annual gift limit from one hundred dollars to three hundred dollars across Rules 2310, 2320, 2341, 5110, and Rule 3220 simultaneously. The three hundred dollar limit accounts for approximately ten years of future inflation. Gifts must be valued at cost — except event tickets which are valued at the higher of cost or face value. Wholesaling salaries and bona fide training and education reimbursements are excluded from the cap but must be disclosed in the prospectus distribution arrangements section.

Member firms may not participate in a DPP or non-traded REIT offering unless the issuer agrees to disclose per share estimated values in periodic SEC reports — using either the net investment methodology or the appraised value methodology — with enhanced disclosure of over-distributions required when the net investment methodology is used. Limited partnership rollup compensation must be equal regardless of vote direction — preventing compensation-driven conflicts in the rollup vote solicitation process.