Wells Fargo’s woes continue unabated.
The Financial Industry Regulatory Authority on Monday ordered Wells Fargo Clearing Services LLC and Wells Fargo Advisors Financial Network LLC to pay more than $3.4 million in restitution to affected customers for unsuitable recommendations of volatility-linked exchange-traded products (ETPs) and related supervisory failures.
Between July 1, 2010, and May 1, 2012, certain Wells Fargo registered representatives recommended volatility-linked ETPs without fully understanding their risks and features, FINRA found.
Also on Monday, the self-regulator issued Regulatory Notice 17-32 to remind firms of their sales practice obligations relating to these products as well as the unique features and risks of volatility-linked ETPs.
The action is the first case FINRA has brought against a firm involving ETP volatility. Wells Fargo neither admitted nor denied the charges but consented to the entry of FINRA’s findings.
According to FINRA, Wells Fargo reps “mistakenly believed that the products could be used as a long-term hedge on their customers’ equity positions in the event of a market downturn.”
However, as FINRA points out, volatility-linked ETPs “are generally short-term trading products that degrade significantly over time and should not be used as part of a long-term buy-and-hold investment strategy.”