More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
Secretary of the Commonwealth of Massachusetts William Galvin launched an exam sweep Wednesday into broker-dealers’ sales of alternative investments to seniors, calling the often-risky products "accidents waiting to happen."
Galvin, who heads the Massachusetts Securities Division, subpoenaed BDs doing business in the state and asked them for information on their sales of alt products to seniors to determine the firms’ supervision, compliance and training associated with the sales of these products.
Subpoenas went to Morgan Stanley, Merrill Lynch, UBS Securities, Fidelity Brokerage Services, Charles Schwab & Co., Well Fargo Advisors, TD Ameritrade, ING Financial Partners, LPL Financial, Commonwealth Financial Network, MML Investor Services, Investors Capital Corp., Signator Investors, Meyers Associates and WFG Investments.
Galvin noted that “being included on the list is not an indication of wrongdoing at this time.”
The alternative investments under Galvin’s radar include REITs, oil and gas partnerships, private placements under Rule 506, structured products, tenancy-in-common and other securities carried on the broker dealers’ nontraditional product platforms.
These products “are attractive to seniors as they provide a return considerably higher than that of traditional investment options,” he said.
“With this higher return, however, come higher risks. The complexity of the products also makes them difficult for the average investor to understand.”
Galvin noted his recent settlement with five independent broker dealers for improper sales of REITs to seniors, which returned more than $11 million to Massachusetts investors.
“My office’s recent REIT investigation has only heightened my concern that the senior marketplace is being targeted for the sales of these high-risk, esoteric products,” Galvin said. “While these products are not unsuitable in and of themselves, they are accidents waiting to happen when they are sold to inexperienced investors by untrained agents who push the products to score the large commissions associated with alternative investments.”