Wells Fargo Failed to Disclose Risk and Fees in Structured Products
Wells Fargo Advisors can’t say it wasn’t warned. For the past few years, the Financial Industry Regulatory Authority (FINRA), which oversees the vast majority of US broker-dealers and securities investing, has been sounding the alarm to brokerage firms and investors alike about the perils of alternative and complex structured investment products. Now they are taking regulatory action to ensure their warnings are heeded throughout the financial industry.
FINRA Crack-down on Alternative Complex Structured Products
FINRA has issued numerous Investor Alerts and regulatory warnings to broker-dealers like Wells Fargo about investment products that represent an alternative to the old reliables - stocks and bonds. These products are part of a new breed of investment opportunity which offers high rates of return - for higher risk. During the bull market with very low interest rates over the past few years, investors seeking greater returns have been steered or pushed by stock brokers into products that may not be suitable for them. Often investors do not know these products are unsuitable for them, or that they hold an overconcentration in any one product, set of products, or industry, until it’s too late. Indeed, that same bull market that has supported a shift toward riskier products may be set to reverse itself shortly due to historical factors and interest rate hike. Such a reversal could leave thousands of investors shaking their heads as the high risk of alternative and complex structured products finally reveals itself, and wreaks havoc in their investment accounts.
Types of Alternative Complex and/or Structured Products
- Structured Notes with Principal Protection
- Non-traded Real Estate Investment Trusts (REITs)
- Non-traditional leveraged and inverse Exchange Traded Funds (ETFs)
- Alternative (“Alt’) mutual funds
- High-yield bond funds
- Reversible notes or reverse exchangeable securities
- Event-linked securities (Catastrophe bonds)
Failure to Disclose Fees and Unsuitable Sales Practices
Wells Fargo is the latest in FINRA’s campaign to chasten broker-dealers and warn investors that higher returns come at a higher risk. According to FINRA, Wells Fargo’s sales materials failed to disclose serious risk and termination fees related to “structured repackaged asset-backed trust securities” (or STRATS), which paid a variable interest from 3 to 8 percent.
Wells Fargo has agreed to pay FINRA a $500,000 fine for the unsuitable sales; the firm will also return $242,000 to 66 customers who lost money in structured products.
Securities Litigation Law Firm
Our attorneys have more than a decade of experience helping aggrieved investors recover for financial injury resulting from broker misconduct, unsuitable sales, and investment fraud. If you or someone you know has been the victim of financial misconduct, please contact our securities attorneys immediately for a free consultation at 1-855-462-3330 or by using our online contact form.
