In an InvestementNews.com article from January20,2012, Dan Jamieson writes that in a regulatory notice, Finra outlined characteristics of what it calls “complex products,” which could include structured notes, inverse or leveraged exchange-traded funds, hedge funds and securitized products such as asset-backed securities.

Finra stated that brokerage firms should have formal written procedures covering everything from the initial due diligence to post-sale performance. This notice specifically identifies duties that fall to individual brokers in understanding complicated products and explaining them to customers. The notice also said that registered representatives should consider whether less complex and cheaper products might achieve the same objectives.

“Finra is letting it be known that recommendations of complex products will be given even more scrutiny going forward,” said Mary Harris-King, co-founder of Comprehensive Securities Compliance Solutions Inc.

Jamieson writes that in its notice, Finra reviewed what a number of European regulators had done in characterizing various complex products. The notice also said that registered representatives should consider unbundling structured products.

“Registered representatives should compare a structured product with embedded options to the same strategy through multiple financial instruments on the open market, even with any possible advantages of purchasing a single product,” Finra said in the notice.

This was good news to Robert Gordon, chief executive at Twenty-First Securities Corp., which replicates structured notes by buying underlying instruments like zero-coupon Treasuries and options on ETFs.

“It looks like Finra is saying that brokers can’t say this [structured note] is simpler — that’s not a good excuse” to buy it, he said.

The InvestmentNews.com article goes on to say that buying the components of a note that guarantees principal is 2% to 3% cheaper than buying the package, offers tax advantages, and lessens counterparty risk, Mr. Gordon said.

Asset-backed securities · brokers explaining complicated products to customers · brokers recommending risky investments · comparing stuctured product with embedded options · failure to supervise brokers · Financial Industry Regulatory Authority · FINRA · FINRA arbitration · FINRA defines complex products · finra lawyer · finra securities arbitration · finra securities arbitration lawyer · Finra surpervising operations · fort lauderdale securities fraud lawyer · hedge fund · high risk investments · internal supervisory procedures of brokerages · inverse ETFs · inverse exchange-traded funds · Leveraged ETFs · leveraged exchange traded funds · leveraged inverse ETF's · risky investments · securititzed products · Soreide Law Group PLLC · Stock fraud lawyer · stock loss · stockbroker misconduct · structured notes · targeting elderly investors · unbundling structured products · unbundling sturctured products