FINRA thinks it’s time for investors to educate themselves when it comes to their investment plans. In a 16-page letter
distributed to the industry’s compliance officers, FINRA outlined its concerns and sent them to firms.
“Investors may not realize that they could be taking on more risk if they invest in products with higher returns,” the alert reads. As investors explore higher-yielding investment options, they should ask several questions. Does the higher return come with increased risk? Do they understand how the investment operates? What are the costs and fees associated with the new investment? Is the product callable? Could the new investment be fraudulent?”
Given low Treasury rates – currently at about 1.84% on the 10-year – FINRA said it is concerned investors might be taking risks that they do not understand or that lack proper disclosure. This is also among the concerns the self-regulatory organization outlined in its 2012 watch list of business and sales practices aimed at consumers.
To ensure investors are making informed decisions, FINRA will examine whether transparent and accurate financial details are available whenever they buy them.
“The classification of cash flow returns is particularly important so investors know when returns are being paid from their own principal or from capital raised in subsequent offerings,” according to the letter.