The Securities and Exchange Commission is warning RIAs and broker dealers to “implement robust and effective policies and procedures” to prevent violation of federal securities laws when they advise on or recommend complex exchange-traded products (ETPs).
Just days after the agency settled charges with five firms including Summit Financial Networks, the largest broker-dealer in the Cetera Financial Group, and American Portfolios Financial Services for making unsuitable sales of complex ETPs to retail investors, the SEC took the unusual step of issuing a public statement admonishing firms to ensure that their financial professionals understand the risks and purpose of complex ETPs and, along with independent contractors, follow firm policies and procedures to prevent violations of laws.
The charges against the five firms, whose settlements returned a total $3 million to investors, involved VIX-related ETPs that were intended for short-term use but were held longer, causing clients financial harm. The brokerage and advisory representatives of the five firms either failed to understand the product, determine its suitability or misrepresented risks to clients. In all cases the firms failed to provide their reps with the proper training about these products.