FINRA Names Products on Their Watch List for 2015

The Financial Industry Regulatory Authority (FINRA) named eight products it will be monitoring in 2015. These are products which could lead to risks for investors, many of whom do not know enough about the products before investing in them. FINRA feels brokers also need to learn more about these products before they sell them to their clients. Brokerages need to have adequate controls in place to alert clients to the risks of these products.

Below is a summary of the 2015 FINRA watchlist:

1.Variable annuities: similar to mutual funds, can often be good investments, however may be too complex for some investors to understand.

2.Alternative mutual funds: products which are marketed as a way for investors using hedge fund-like strategies to invest in mutual funds. Suitability needs to be watched.

3.Non-traded Real Estate Investment Trusts (REITs): some trade on exchanges and others do not, poor liquidity in non-traded REITs, difficult to value, some can be a corporation, trust or association that owns or manages income-producing property. Additional information on risks needs to be made clear to the clients.

4.Exchange Traded Products that track alternatively Weighted Indices: tied to stocks, commodities, and indices, products get returns linked to a market index, may be thinly traded.

5.Structured retail products: unsecured debt instruments with payoffs that are linked to their underlying assets, can offer higher returns but they are also thinly traded, incur high costs, and have market risk.

6.Floating rate bank loan funds: invest in floating rate bank loans, mainly used by institutional investors but can affect retail investors through mutual funds, could face liquidity challenges if many investors make redemption requests simultaneously.

7.Securities-backed line of credit: allow investors to borrow money from banks using the securities that they hold as collateral in their brokerage accounts, procedures should be in place allowing the monitoring of the customer’s account to make sure clients are notified when the value of collateral falls.

8.Interest rate-sensitive fixed income securities: FINRA would like firms to discuss the impact of rate changes on the price of the products when they communicate with their clients in interest rate sensitive products such as high yield bonds and mortgage backed securities.

If your broker/financial advisor recommended risky alternative investments such as these, which may have created losses to your portfolio, call the Soreide Law Group for a free consultation with an attorney on how to potentially recover those losses at: 888-760-6552.