Investors Nationwide Beware – Exchange-Traded Notes Carry Unpleasant Surprises!
The Financial Industry Regulatory Authority (FINRA) has recently raised concerns about disclosure and sales practices involving Exchange Traded Notes (ETNs). Of primary concern is the number of clients not suited for the risks associated with ETNs, but who still were recommended ETNs by their brokers. As a result, FINRA has issued a regulatory notice to provide broker-dealers with guidance on how to oversee the sale of complex products such as ETNs that are difficult for retail investors and brokers to understand. Firms are now required to make sure that their marketing materials fairly disclose risks, and that supervisors and registered representatives are trained to understand the risks associated with ETNs. FINRA also warned that ETNs have little or no performance history, their investment indexes and investment strategies are complex, their returns have the potential to be volatile, and the price given by the issuer can vary significantly from the price on the secondary market.
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