On December 7, 2018, the Financial Industry Regulatory Authority (“FINRA”) issued a comprehensive report (“Report on FINRA Examination Findings”) which “focuses on selected observations from recent examinations that FINRA considers worth highlighting because of their potential significance, frequency, and impact on investors and the markets.”
Among the issues discussed in this report were significant concerns about the suitability of investments that are being recommended to retail investors.
In fact, FINRA observed situations where “registered representatives did not adequately consider the customer’s financial situation and needs, investment experience, risk tolerance, time horizon,
investment objectives, liquidity needs and other investment profile factors when making
recommendations.”
In some cases, FINRA noted that “unsuitable recommendations involved complex products (such as leveraged and inverse exchange-traded products (ETPs), including exchange-traded funds (ETFs) and notes (ETNs)). In other cases, they involved overconcentration in illiquid securities, variable annuities, switches between share classes, and sophisticated or risky investment strategies.”
One of the products that was specifically discussed in this report was “volatility-linked” products that are being marketed to retail investors. As stated by FINRA, their examinations of firms indicated that, “despite prospectuses and other materials that included risk disclosures,
including explicit warnings about sales to retail customers, some firms nevertheless marketed volatility-linked products to retail customers who did not understand those products’ unique risks and made recommendations that were inconsistent with the investors’ investment profile, including risk tolerance and investment time horizon (e.g., in many of those instances, customers held the securities far longer than the holding periods – frequently one trading day – that were recommended in the product’s prospectus).”
If you are an individual or institutional investor who has any concerns about your volatility-linked investments with any brokerage firm, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).