On March 8, 2022, the Financial Industry Regulatory Authority, Inc. (“FINRA”) issued Regulatory Notice 22-08 (Complex Products and Options) (the “Notice”). The Notice is FINRA’s most significant statement on sales of complex products since 2012.
FINRA notes that the number of accounts trading in complex products and options has increased significantly in recent years and that important regulatory concerns arise when investors trade such products without understanding their unique characteristics and risks. Further, these concerns may be heightened when retail customers access these products through self-directed platforms without the assistance of a financial professional. In light of these concerns, FINRA cautions that trading in complex products and options requires member firm scrutiny and supervision.
Although there is no standard definition for a “complex product,” FINRA lists examples which include: leveraged or inverse exchange-traded products (ETPs), geared ETPs, structured products that may employ options, interval funds, options strategies, and non-traded REITs.
The essence of FINRA’s guidance is that some of these products are being sold by brokers who don’t understand the risks, and therefore investors are buying them without a full and fair understanding of the risks. Additionally, these products are unsuitable for many investors.
Finally, FINRA cautions that brokerage firms have a high duty to supervise the sale of these complex products to retail investors. Many brokerage firms are falling short of their supervisory duties relating to suitability and disclosure in the sale of these products.
Please feel free to contact us immediately if you believe you may have been improperly sold a complex investment product or option. Maddox Hargett & Caruso, P.C. represents investors in actions against their brokerage firms and financial advisors. Our founding partner, Mark Maddox, is happy to give you a free initial review to evaluate your situation. Feel free to call him at 317-598-2043 or email him at mmaddox@mhclaw.com.