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Home > Investor News > FINRA ‘Watch List’ Targets Certain Financial Products

FINRA ‘Watch List’ Targets Certain Financial Products

Besides their higher-than-average risks and inherent complexity, non-traded REITs, leveraged and inverse exchange-traded funds, variable annuities, structured notes and private placements have something else in common: big fees and commissions for the broker/dealers responsible for getting the products in the hands of investors.

Now the Financial Industry Regulatory Authority (FINRA) is zeroing in on these very investments, putting them and others on a “watch list” of financial products with potential suitability issues for retail investors.

FINRA issued a 16-page letter on Jan. 31 detailing the investments that it deemed a top regulatory and examination priority in 2012, as well as why the products were on its radar.

“We remain concerned about firms’ charging retail investors hidden, mislabeled or excessive fees. In 2011, FINRA brought cases against several broker/dealers that charged such excessive fees in the form of postage and handling charges that were unrelated to actual costs, and we will continue to investigate firms that appear to be taking advantage of investors through fee schemes,” FINRA stated in the letter.

FINRA went on to express concern regarding the additional risks associated with certain financial products, including increased leverage and liquidity risks. “We will continue to monitor firms that employ a high degree of leverage, both on-balance-sheet and off-balance-sheet during the upcoming year,” FINRA said.

FINRA also is taking issue with excessive broker fees.

“We remain concerned about firms’ charging retail investors hidden, mislabeled or excessive fees,” FINRA says in its letter. “In 2011, FINRA brought cases against several broker/dealers that charged such excessive fees in the form of postage and handling charges that were unrelated to actual costs, and we will continue to investigate firms that appear to be taking advantage of investors through fee schemes.”


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