The Financial Industry Regulatory Authority has put out a new investor alert warning about advertisements that are marketing higher-than-average CD yields. The self-regulatory authority says that some of the ads might be an attempt to get investors to buy a much more much more expensive investment, such as a fixed or equity-indexed annuity, that is not risk free. Often, the alternative investments are insurance products.
FINRA warned that with most CD promotions that are marketing ploys, an investor would be required to go to an office or talk to a salesperson, who may try to convince the prospective buyer to purchase an alternative product that is not a CD. Typically, the minimum purchase amount is high, such as $25K. Such ploys would also tout a “bonus”-a sum the salesperson would pay you plus the average percentage yield of the CD. FINRA warns that this bonus is actually an incentive to get you to hear the pitch for the more complex product. Meantime, the seller may be earning a high commission for making the sale.
FINRA cautioned that a prospective investor who is a target of a high-rate CD pitch might end up with an expensive financial instrument that is not insured by the Federal Deposit Insurance Corp. and is not free of risks. The SRO, in its alert, said that investor should be wary whenever a salesperson promises the possibly of earning riches that come with little or no-risk guarantees. Pressure placed on a prospective investor to buy right away because of limited supply is also a red flag, as is the offer of a free meal or some other special offer to make you feel like you must reciprocate by investing.
Not all high-yield CD sales pitches are a ploy to bait investors into buying more complex products. FINRA says it is important to make sure that a broker and his/her firm is registered by going to BrokerCheck. You can also check with a state’s regulator.