FINRA Warns Investors about Structured Products and Other Non-Conventional Securities


The Financial Industry Regulatory Authority (FINRA) has issued an investor alert warning against chasing yield with structured products, junk bonds and floating-rate bank-loan funds. The alert was prompted by “significant recent inflows” into high-yield products. Investors may find enhanced yields attractive in the current market environment of low yields on conventional fixed-income investments and higher stock market volatility.

“Investors should always look behind an investment’s yield, ensure that they understand how the investment works and carefully consider its fees and risks before investing,” said Gerri Walsh, vice president for investor education.

Structured products and other non-conventional investments have significant credit risk, market risk, lack of liquidity, high hidden costs, and reinvestment risk resulting from callability.

In addition, such investments may be fraudulent. FINRA warned that, despite promises by promoters, investments that pay 30% returns with no risk simply do not exist.

The market for floating-rate loans is “largely unregulated, relatively illiquid and difficult to value,” FINRA said.

Investor attorney J. Boyd Page, the senior partner of Atlanta-based Page Perry, said: “What FINRA left out of its investor alert is that its member firms routinely ignore FINRA notices reminding them of their sales practice obligations when selling non-conventional high-yield products. Brokers are required present a fair and balanced picture of the real risks of these products, not just their potential benefits. Brokers have the relationships with investors, not FINRA. But brokers rarely make full and fair disclosures of the real risks when selling these products, so FINRA has taken to issuing “investor alerts.”

Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 45 occasions. Page Perry’s attorneys have extensive experience in representing investors in cases involving structured products and other non-conventional securities. For further information, please contact us.