Berthel Fisher & Company Financial Services, Inc. and its affiliate, Securities Management & Research, Inc. are going to pay the Financial Industry Regulatory Authority a combined $775,000 for purported supervisory deficiencies related to leveraged and inverse exchange-traded funds and non-traded real estate investment trusts. The firm settled without deny or admitting to the allegations.
FINRA claims that from January 2008 to December 2012 Berthel Fisher had inadequate written procedures and supervisory systems to deal with the sale of alternative investment products, such as managed futures, non-traded REITs, oil and gas programs, managed futures, business development companies, and equipment leasing programs. The SRO says that the brokerage firm’s staff were improperly trained with regard to state suitability standards, and criteria wasn’t properly enforced in a number of alternative investment sales because the firm did not figure out the correct concentration levels of certain financial instruments.
FINRA also said that from 4/09 to 4/12, Berthel Fisher lacked a reasonable basis for certain ETF sales, resulting from numerous reasons, including a failure to properly review or research non-traditional ETFs before letting registered representatives make recommendations to customers. Inadequate sales training was not provided and some customers suffered losses because the brokerage firm did not monitor investment holding periods.
Inverse and leveraged ETFs are typically not considered appropriate, for buy-and-hold, low risk customers. They offer greater exposure to market fluctuations and can differ a lot from the benchmark for periods lasting over a day. The SRO notes that Berthel Fisher representatives recommended $49.5 million in nontraditional ETFs to over 1,000 customers. Unfortunately, a number of these products were sold to clients who wanted their investments handled more conservatively
As part of the settlement, Berthel Fisher agreed to retain an independent consultant to enhance supervisory procedures for alternative investment sales. It will also pay almost $13,293 in investor restitution. The broker-dealer no longer has inverse and leveraged ETFs on its platform.
FINRA Fines Berthel Fisher and Affiliate, Securities Management & Research, $775,000 for Supervisory Failures Related to Sales of Non-Traded REITs and Leveraged and Inverse ETFs, FINRA, February 24, 2014
Finra fines Berthel Fisher $775,000 for compliance failures, Investment News, February 24, 2014
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