Monthly Archives: May 2020

On May 15, 2020, the Financial Industry Regulatory Authority (FINRA) issued a Regulatory Notice (“Oil-Linked Exchange-Traded Products”), which highlighted the fact that Exchange-Traded Products (ETPs), which provide different types of exposure to the oil market through several product structures, might not be understood by investors or investment professionals and that the performance of such products may be linked to unfamiliar indices or reference benchmarks, making them difficult for the average investor to comprehend.

An ETP is “a security listed on an exchange that seeks to provide exposure to the performance of an index, benchmark or actively-managed strategy. The most common type of ETP is the exchange-traded fund (ETF).”

This Regulatory Notice noted that oil-linked ETPs are not only “complex products that may not be suitable for some investors, such as retail investors with conservative investment objectives and long-time horizons,” but that they “are complex products that could be easily misunderstood and improperly sold by registered representatives” who may not fully understand “the heightened risks that these products raise.”

To demonstrate the volatility and risks that are associated with oil-linked ETPs, an example cited by FINRA in its Regulatory Notice is that “as of April 22, 2020, the largest oil-related ETP had lost 41 percent of its value in one week.”

Moreover, in this Regulatory Notice, FINRA has reminded “firms of their sales practice obligations in connection with oil-linked ETPs, including that recommendations to customers must be based on a full understanding of the terms, features, and risks of the product recommended; communications with the public must be fair and accurate; firms must have reasonably designed supervisory procedures in place to ensure that these obligations are met; and firms that offer oil-linked ETPs must train registered representatives who sell these products about the terms, features and risks of these products.”

In addition, all “communications regarding oil-linked ETPs that present the benefits of the products must be balanced by a clear description of the risks, and may not omit any material fact or qualification that would cause such a communication to be misleading. For example, communications that present the benefits of oil-linked ETPs must include key risks such as the inherent fluctuations of oil prices and the speculative nature of futures investments, and must explain clearly that the ETP’s price will not track directly the spot price of oil.”

If you are an investor who has any concerns about your ETP investments with any brokerage firm, please contact attorney Steven B. Caruso in the New York City office of our firm at (212) 837-7908 for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

On April 30, 2020, the Financial Industry Regulatory Authority (FINRA) issued an a report (“Protecting Senior Investors 2015-2020, An Update on the FINRA Securities Helpline for Seniors, Other FINRA Initiatives and Member Firm Practices”), which highlighted the fact that seniors, who “make up an increasingly large share of the American population and hold higher levels of wealth than other generations,” are “an attractive target for financial exploitation, with evidence suggesting that such exploitation has been increasing in terms of both scope and magnitude.”

This report further noted the reality that “while seniors sometimes fall victim to financial exploitation by strangers, they are often exploited by individuals they know and trust”, such as family members, caregivers and financial professionals, and that “senior investors who are isolated or suffering from cognitive decline may be particularly vulnerable to harm.”

FINRA has “maintained a longstanding commitment to protecting senior investors and continues to work to address risks facing this investor population” as part of its regulatory mission.

This commitment is particularly noteworthy when it comes to suitability – the obligation to ensure that an investment is appropriate for an investor in view of his or her investment objectives, risk tolerance and investment profile.

Among the factors that FINRA advises firms should consider when it comes to suitability issues in the context of senior investors are “providing disclosure of additional risks or limiting products being marketed to senior investors; having a clear, up-to-date understanding of investment objectives as a customer nears or begins retirement (e.g., importance of generating income, preserving capital or accumulating assets for heirs); understanding a senior customer’s sources of income (e.g., whether the customer is living on a fixed income or anticipates doing so in the future); gaining an awareness of how much income a senior customer may need to meet fixed or anticipated expenses; asking about health care insurance and whether the customer may need to rely on investment assets for anticipated or unanticipated health costs; addressing additional concerns for senior investors, such as shortened time horizons, potentially decreased risk tolerance and additional significant liquidity needs; and if applicable, considering potential cognitive decline when making recommendations to senior investors, and making additional efforts to explain the features and risks of products.”

If you are a senior investor who has any concerns about your investments with any brokerage firm, please contact attorney Steven B. Caruso in the New York City office of our firm at (212) 837-7908 for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).