In recent years, the SEC and FINRA have been focusing on market practices related to the sale of complex products to senior citizens.10 Some state securities regulators have also expressed similar concerns. On July 10, 2013, the Massachusetts Securities Division issued a press release indicating that it had issued subpoenas to 14 broker dealers.11 The subpoenas requested information concerning the firms’ sales of alternative investment products to seniors in Massachusetts. These investment products include "REITs, oil and gas partnerships, [Rule] 506 private placements, structured products, tenancy-in-common" and other non-traditional securities.
In the press release, Secretary of the Commonwealth William F. Galvin indicated that these products are not unsuitable in and of themselves. However, he expressed his concern over their sale to inexperienced investors by untrained agents who are eager to make the sales, and to obtain the higher commissions that may be associated with these products.
This is not the first time that Secretary Galvin’s office has focused on the sale of complex products. In 2012, his office issued guidance in connection with retail sales of structured products.12 In addition to fair and balanced disclosures, the guidance requires that the sale must meet customer-specific suitability requirements. The guidance is at least in part a result of concern over "a large number of transactions to elderly customers." In addition, in previous settlements with five broker-dealers for improper sales of REITs to seniors, his office enabled Massachusetts investors to receive compensation of over $11 million.13 In 2011, his office obtained a consent agreement regarding improper sales of non-traditional ETFs to certain Massachusetts investors, which required a broker-dealer to reimburse those investors for their losses and to pay a fine of $250,000.14
Suitability is a principal issue associated with the sale of complex products. Market participants, of course, should be aware that a variety of regulators may scrutinize their recommendations when structured and other products are sold to senior citizens.