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July 28, 2011 at 09:36 AM
Procedures designed to protect retail investors from the purchase of unsuitable structured securities products (SSPs) might have been inadequate or missing, according to a report issued by SEC staff on Wednesday.
In an examination conducted by SEC staff of 11 broker-dealers, gaps were found in the way customers were informed of the nature of SSPs, in both expense and risk. The reports cited such practices as pricing, and training of supervisors and registered representatives as problem areas offering the potential for clients to be sold SSPs when such products did not fit with their risk tolerance.
The staff found a number of possible deficiencies, including:
- Recommendations of unsuitable SSPs to retail investors;
- Trading at prices disadvantageous to retail investors;
- Omission of material facts about SSPs offered to retail investors;
- Engagement in questionable sales practices with customers.
In a statement, Carlo di Florio, director of the SEC’s office of compliance inspections and examinations, said, “Sales of structured products to retail investors have increased over recent years and may continue to increase as they are marketed as a higher return investment alternative. This report could help companies strengthen their compliance programs to better address the issues we observed during our sweep and in subsequent exams.”
