Nontraditional Exchange-Traded Funds: Suitability Guidelines

On June 8, 2016, FINRA published a News Release to announce that it had fined Oppenheimer & Co. Inc. (“Oppenheimer”) $2.25 million for failing to reasonably supervise transactions in nontraditional exchange-traded funds (“ETFs”). Through this disciplinary action, FINRA has made its expectations abundantly clear: A broker-dealer offering nontraditional ETFs must establish, maintain, and enforce an effective system for supervising transactions in these complex products. In this blog post, we identify what Oppenheimer did wrong so that your firm does not make the same mistakes. We then describe how your firm can use “suitability guidelines” to mitigate the risk of unsuitable recommendations involving nontraditional ETFs.

What Are Nontraditional ETFs?

The term “nontraditional” is commonly used to describe ETFs that are leveraged, inverse, or use other complex strategies to gain access to an index or underlying asset class. Nontraditional Read More…