The US Financial Industry Regulatory Authority (FINRA) slapped two Stifel broker-dealer segments with fines totalling $2.3m for inadequate advice on leveraged and inverse exchange-traded products (ETPs).
FINRA fines two Stifel broker-dealer divisions
These divisions reportedly did not implement protocols to create, sustain, and execute suitable supervisory systems regarding non-traditional ETPs. This action comes a decade after FINRA fined the company for similar transgressions.
Since the 2014 misdeeds, the Stifel Financial Corporation (SF) subsidiaries devised new policies, but these also seemingly fell short of regulatory requirements. Investors hold onto leveraged and inverse ETPs for short periods of time. FINRA claims Stifel Nicolaus & Co. and did not advise customers of the risks when holding onto these products for longer than a month.
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Based on data from the Financial Times, existing policies did not contain guidance on advisable exit or hold procedures, and the guidelines referring to such procedures are stated as possibilities and not obligations. FINRA furthermore found that the policies did not contain ways of recognising unsuitable recommendations.
Allegedly, the company had set up an alert that provided a notification when customers retained non-traditional ETPs for longer than 30 days. According to the investigation findings, Stifel however, “deactivated this alert after it resulted in over 2,000 hits per day”.
In March 2015, the company reinstated this alert but did not train supervisors to spot and examine red flags. As a result, 381 customers received “unsuitable recommendations” because supervisors were encouraged and not ordered to address lengthy holding periods.
According to the Financial Times, one retired customer held onto the product for 454 days and lost $5,000. Another suffered a $13,000 loss after holding onto a non-traditional ETP for over a year.
