FINRA Regulatory Notice: Reverse Convertibles
(Feb 2010)
FINRA Reminds Firms of Their Sales Practice Obligations With Reverse Exchangeable Securities (Reverse Convertibles)
The Financial Industry Regulatory Authority (FINRA) published Regulatory Notice 10-09 reminding financial firms selling reverse convertibles notes (RCN) to provide fair and balanced sales materials and communications, including proper statement on the risks associated with such notes.
In an upcoming SLCG study on RCN, we have found that investors of RCNs have been...
FINRA Investor Alert: Variable Annuities [Update]
(Sep 2009)
Variable Annuities: Beyond the Hard Sell
The Financial Industry Regulatory Authority (FINRA) published an Investor Alert to help investors decide on how to invest for retirement. An annuity makes periodic payments to the holder of the annuity. There are fixed annuities that make fixed payments and variable annuities that make variable payments.
Annuities can carry costs and risks that many investors may not be aware of because brokers who are incentivized by commission-generation do...
FINRA Investor Alert: Municipal Bonds
(Jun 2009)
Municipal Bonds-Staying on the Safe Side of the Street in Rough Times
The Financial Industry Regulatory Authority (FINRA) published an Investor Alert on municipal bonds. This provides a thorough background on municipal bonds and advice on investing.
There are certain risks in investing in municipal bonds. For example, the municipality issuing the municipal bonds can default, leading to the loss of some (if not all) interest and principal to the investor. This is called default risk....
FINRA Investor Alert: Cat Bonds
(Apr 2008)
Catastrophe Bonds and other Event-Linked Securities
The Financial Industry Regulatory Authority (FINRA) published an Investor Alert on catastrophe bonds, or 'cat bonds'. Cat bonds pay higher interest rates compared to the equivalent corporate bonds.
However, there are risks involved in holding cat bonds. Investors of a cat bond can lose interest and principal if the catastrophe, to which the bond is linked, occurs. Cat bonds are quite illiquid, the pricing information are generally not...
Forbes: Guaranteed to Go Up
(Nov 2006)
Guaranteed to Go Up
Forbes published an article examining structured products sold to retail investors around the world. It describes how a structured product works, the payoffs and risks, using an example of the principal protected note. It then explains how the principal protected note is equivalent to and can be replicated by a combination of traditional securities and derivatives.
A principal protected note returns at least the face value of the note at maturity. If the reference...
FINRA Investor Alert: Variable Annuities
(Mar 2006)
Should You Exchange Your Variable Annuity?
The Financial Industry Regulatory Authority (FINRA) published an Investor Alert on how to determine if investors should exchange their variable annuity for another model. An annuity makes periodic payments to the holder of the annuity. There are fixed annuities that make fixed payments and variable annuities that make variable payments.
While equity-indexed annuities have become increasingly popular, some have questioned their value and...
FINRA Press Release: Structured Products
(Sep 2005)
NASD Provides Guidance Concerning the Sale of Structured Products
The Financial Industry Regulatory Authority (FINRA) published a NASD Notice to Members 05-59 providing guidance to members concerning their sales practice obligations when selling structured protects to retail customers.
The complexity of structured products can often obscure their risks. It is therefore important that investors are protected from unscrupulous sales practices that might arise in an unregulated...
FINRA Press Release: Best Practices
(Apr 2005)
NASD Recommends Best Practices for Reviewing New Products
The Financial Industry Regulatory Authority (FINRA) published a NASD Notice to Members 05-26 providing best practices guidelines for firms on "developing and vetting" new structured products. This notice was motivated by the increasing popularity of structured products and the increasing complexity of these products.
Because structured products can be so complex, investors should be careful when considering them. They should...
