FINRA to Warn Investors About High Risks of Alternative Securities

FINRA, the Financial Industry Regulatory Authority, will soon publish the latest in a series of warnings to investors, this time about the risks of alternative securities.

Richard Ketchum, chairman and chief executive of the Financial Industry Regulatory Authority, told Reuters reporters and editors attending Reuters Global Wealth Management Summit that low interest rates and worries about investing in stocks continue to push investors toward higher yielding securities that can be difficult to cash in on.

FINRA has seen a "steady shift" toward alternative securities in recent years, he said, adding that not all advisers or investors understand those products, and investors do not always understand that higher yields come with the risk of not being able to withdraw their money. One area of potential concern: investment vehicles that invest in shares of various hedge funds, Ketchum said.

Occasionally, FINRA issues warnings to investors about risky securities and stepped up that effort in the wake of the financial crisis, issuing alerts about various risky products including real estate investment trusts that do not trade on exchanges and other privately traded securities.

Reuters writes that the demand for higher yielding investments is fueling a sales push at major Wall Street firms, which are increasing their offerings of alternative securities such as hedge funds and private equity funds to their wealthiest clients.

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