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Sunset Financial Services, Inc. Fined for Failure to Establish Supervisory System Governing Non-traditional ETFs

Kansas City, Missouri based Sunset Financial Services, Inc. submitted a Letter of Acceptance, Waiver and Consent in which the firm consented to, but it did not admit to or deny, the described sanctions and the entry of the Financial Industry Regulatory Authority's (FINRA) findings that it failed to establish and maintain a supervisory system, including written procedures (WSP), governing the sale of non-traditional (leveraged or inverse) exchange-traded funds (ETFs). The findings stated that the firm permitted its registered representatives to recommend and sell non-traditional ETFs to its customers, but its WSPs did not address non-traditional ETFs. In addition, the firm did not conduct due diligence of non-traditional ETF products before allowing their representatives to recommend them to customers.

ETFs are investment funds that are traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as a stock index or bond index and are attractive investments because of their low costs, tax efficiency, and stock-like features. By owning an ETF, investors benefit from the diversification of an index fund as well as the ability to purchase as little as one share. In addition, expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, investors pay the same commission to their brokers that they would pay on any regular stock order. Leveraged and inverse exchange traded funds are designed to magnify short-term returns of a fund's underlying assets by a factor of 2 or more. They employ derivatives and are generally considered to be unsuitable for ordinary buy-and-hold investors.

Because of the risks associated with the products, FINRA advised broker-dealers and their representatives that non-traditional ETFs are typically not suitable for retail investors. The findings also stated that the firm did not provide its representatives or supervisors with any training or other guidance regarding whether and when non-traditional ETFs might be appropriate for their customers. Moreover, the firm did not place any restrictions on its customers' ability to trade non-traditional ETFs into or out of their accounts. The firm did not create or obtain any exception reports or other tools to monitor either the length of time that customers held open positions in non-traditional ETFs or the losses occurring in those positions. As a result, the firm was censured and fined $20,000.

Have you suffered losses in your Sunset Financial Services, Inc. account due to a non-traditional ETF? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is accepting clients with valid claims against Sunset Financial Services, Inc. stockbrokers who may have engaged in unethical sales practices and caused investment losses.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 33 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

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