Leveraged and Inverse ETFs: The Risk of Black Box Investments
By Hal M. Bundrick
NEW YORK (MainStreet) Many advisors, and clients alike, are fascinated by engineered investments. The process of taking a conventional security and manufacturing a black box investment lures those of us seeking a "secret sauce" for profits. One such class of geared investments, leveraged and inverse exchange-traded funds, is once again garnering regulatory attention and stiff fines.
St. Louis-based Stifel Financial Corporation has been ordered by FINRA to pay more than $1 million in fines and restitution for unsuitable sales of the non-traditional ETFs.
"The complexity of leveraged and inverse exchange-traded products makes it essential for securities firms and their representatives to understand these products before recommending them to their customers," says Brad Bennett, FINRA executive vice president and chief of enforcement. "Firms must also conduct reasonable due diligence on these and other complex products, sufficiently train their sales force and have adequate supervisory systems in place before offering them to retail investors."
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