June 16, 2014 / 7:45 PM / in 4 years

REUTERS SUMMIT-FINRA chief warns about illiquid investments that come with high fees

(For other news from the Reuters Global Wealth Management Summit, click here)

By Tim McLaughlin

New York, June 16 (Reuters) - The chief of the Financial Industry Regulatory Authority, Wall Street’s self-regulator, said on Monday he is worried about investors continuing to stretch for yield by going with complex products that sometimes carry high commissions.

With interest rates skipping along historic lows, investors are hunting for better returns in investments that they may not understand. To make matter worse, they may be getting their financial advice from brokers who don’t understand the investments either, but are being paid high, up-front commissions.

“The industry continues to sell a range of complex and complicated products, often again stretching for yield, stretching for performance, in an environment where yields are low,” FINRA Chairman and Chief Executive Richard Ketchum said at the Reuters Global Wealth Management summit in New York.

Ketchum listed everything from private placements and real estate investment trusts that don’t trade, to speculative junk bonds, collateralized loan obligations and some exchange-traded funds as areas of concern. He noted how FINRA’s advertising reviews of complex products have expanded to some complex ETFs, describing some of their disclosures as misleading. He didn’t name any specific funds.

When asked about private placements, Ketchum said, “We have a significant numbers of enforcement investigations going on.”

Red flags include investors being put in concentrated positions in illiquid investments, he said.

“Our experience generally in many illiquid products relates less to actual disclosure and more to failure of firms to properly train registered reps to fully understand the investments they recommend,” Ketchum said.

He said FINRA is concerned about any investment that involves significant fees, adding later that “large commission percentages are not my favorite product.” (Additional reporting by Linda Stern; Editing by Meredith Mazzilli)

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