By Tim McLaughlin
New York (Frankfurt: HX6.F - news) , June 16 (Reuters) - The chief of the FinancialIndustry Regulatory Authority, Wall Street's self-regulator,said on Monday he is worried about investors continuing tostretch for yield by going with complex products that sometimescarry high commissions.
With interest rates skipping along historic lows, investorsare hunting for better returns in investments that they may notunderstand. To make matter worse, they may be getting theirfinancial advice from brokers who don't understand theinvestments either, but are being paid high, up-frontcommissions.
"The industry continues to sell a range of complex andcomplicated products, often again stretching for yield,stretching for performance, in an environment where yields arelow," FINRA Chairman and Chief Executive Richard Ketchum said atthe Reuters Global Wealth Management summit in New York.
Ketchum listed everything from private placements and realestate investment trusts that don't trade, to speculative junkbonds, collateralized loan obligations and some exchange-tradedfunds as areas of concern. He noted how FINRA's advertisingreviews of complex products have expanded to some complex ETFs,describing some of their disclosures as misleading. He didn'tname any specific funds.
When asked about private placements, Ketchum said, "We havea significant numbers of enforcement investigations going on."
Red flags include investors being put in concentratedpositions in illiquid investments, he said.
"Our experience generally in many illiquid products relatesless to actual disclosure and more to failure of firms toproperly train registered reps to fully understand theinvestments they recommend," Ketchum said.
He said FINRA is concerned about any investment thatinvolves significant fees, adding later that "large commissionpercentages are not my favorite product." (Additional reporting by Linda Stern; Editing by Meredith (Frankfurt: MEZ.F - news)Mazzilli)
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