Home > Blog > Archive for the “ETF” Category

Archive for the ‘ETF’ Category


FINRA fines Berthel Fisher and affiliate $775,000 for supervisory failures

The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Berthel Fisher & Company Financial Services, Inc. and its affiliate, Securities Management & Research, Inc., of Marion, Iowa, a combined $775,000 for supervisory deficiencies, including Berthel Fisher’s failure to supervise the sale of non-traded real estate investment trusts (REITs), and leveraged and inverse exchange-traded funds (ETFs). As part of the settlement, Berthel Fisher must retain an independent consultant to improve its supervisory procedures relating to its sale of alternative investments.

Brad Bennett, FINRA’s Executive Vice President of Enforcement, said, “A strong culture of compliance is an essential element of the proper marketing of complex products. Berthel’s supervision of the sales of non-traded REITs, inverse ETFs and other products fell short of this standard, as it failed to ensure that its registered representatives understood the unique features and risks of these products before presenting them to retail clients.”

FINRA found that from January 2008 to December 2012, Berthel Fisher had inadequate supervisory systems and written procedures for sales of alternative investments such as non-traded REITs, managed futures, oil and gas programs, equipment leasing programs and business development companies. In some instances, the firm failed to accurately calculate concentration levels for alternative investments, thus, the firm did not correctly enforce suitability standards for a number of the sales of these investments. Berthel Fisher also failed to train its staff on individual state suitability standards, which is part of the suitability review for certain alternative investment sales.

FINRA also found that from April 2009 to April 2012, Berthel Fisher did not have a reasonable basis for certain sales of leveraged and inverse ETFs. The firm did not adequately research or review non-traditional ETFs before allowing its registered representatives to recommend them to customers, and failed to provide training to its sales force regarding these products. The firm also failed to monitor the holding periods of these investments by customers, resulting in some instances in customer losses.

In settling this matter, Berthel Fisher and Securities Management & Research neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

FINRA fines firms $9 million for leveraged ETFs

The Financial Industry Regulatory Authority, or Finra, has ordered Citigroup Inc. (C), Morgan Stanley (MS), UBS AG (UBS) and Wells Fargo & Co. (WFC) to pay a combined $9.1 million for allegedly improper sales of leveraged and inverse exchange-traded funds.

Wall Street’s self-regulator fined the companies a total of more than $7.3 million and also ordered them to pay $1.8 million in restitution to customers who bought the ETFs.

Finra said the brokerages failed to reasonably supervise sales of these types of ETFs in 2008 and part of 2009, and wrongly steered some clients to them. Leveraged and inverse ETFs are designed for short-term trading, and aren’t for long-term investors.

ETFs trade daily on exchanges like stocks, and the leveraged versions use futures or derivatives to multiply the daily returns of an index, sometimes striving to double or triple the return. Inverse ETFs seek to return the opposite of the index. Over terms longer than a day, the compounding effect can lead to results that vary significantly from the one-day outcome, making them unpredictable and highly risky to hold for longer periods.

Finra said Tuesday that each of the four companies sold billions of dollars of these non-traditional ETFs to customers, and some were held for extended periods when markets were volatile.

Schwab considers warning customers about complex ETF’s

The move follows the sudden plunge in an exchange-traded note called VelocityShares Daily 2X VIX Short-Term ETN, or TVIX, which lost 60 percent of its value in a short span of March.

The warning would be similar to one that pops up when investors trade options related to volatility, which are more complex than stocks.  The note, which pops up at the final verification stage of a trade, will serve as a last warning to a customer.  Schwab’s review and consideration of a warning for investors is significant because it comes at a moment after federal and state regulators have zeroed in on volatile trading and other activity involving exchange-traded notes.

The Importance of Selection of Counsel

The retention of an attorney is an important decision made with great care. Please review our web site and examine our experience and credentials.


Contact Us