On July 25, 2011, FINRA issued an investor alert that warns investors about the risks of investing in riskier and sometimes complex products that promise higher returns. FINRA's Investor Alert, “The Grass Isn't Always Greener—Chasing Return in a Challenging Investment Environment,” was prompted by significant recent inflows into investments like high-yield bond funds, floating-rate loan funds, and structured retail products.

The alert may be found at the following link: http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/TradingSecurities/P123947.  

The alert does not raise any significant new issues relating to the sale of structured products. However, the alert reflects FINRA’s continuing concerns about how these products are marketed, and whether investors understand the nature and risks of these instruments. Regarding structured products, the release recommends that investors focus on, among other things:

  • The higher risks that are associated with potentially higher returns.
  • The potential lack of liquidity for structured products.
  • The costs and fees associated with structured products, the impact of which on the terms of the investment may not be easy to understand.
  • Whether the instrument provides the issuer with a call right that could limit the investor’s returns.
  • The possibility that the return on a “principal-protected” structured product may be less than that of a conventional debt security.  

The alert also highlights FINRA’s concerns as to leveraged ETFs, which were originally addressed in a 2009 FINRA alert