More On Legal & Compliancefrom The Advisor's Professional Library
- The New and Improved Form ADV Whether an RIA is describing its investment strategy in advertisements or in the new Form ADV Part 2, it is important the firm articulates material risks faced by advisory clients and avoids language that might be construed as a guarantee.
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
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.”