Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network – both dual registered investment advisers and broker-dealers – agreed to pay a collective US $35 million penalty to the Securities and Exchange Commission related to their recommendation and sale of inverse exchange-traded funds to certain customers from April 2012 through September 2019. According to the SEC, these funds were sold by investment adviser representatives and registered representatives to some investors who were unfamiliar with the ETF’s unusual characteristics – and thus were unsuitable – and who were not adequately trained on such products. Inverse ETFs, said the SEC, are “complex financial instruments” that seek results that are opposite to the performance of an index for a designated time period – generally a single day. When held long-term, these ETFs could generate large and unexpected losses. The Financial Industry Regulatory Authority issued a regulatory notice warning members of the unusual characteristic of inverse ETFs in 2009 and alerting them of their obligation to ensure that customers fully understand such products’ terms and features. (Click here to access the regulatory notice.) The SEC charged that Wells Fargo’s policies and procedures were not reasonably designed to prevent and detect unsuitable recommendations of single-inverse ETFs, and did not mandate training for its financial advisers and supervisors. Wells Fargo’s penalty is intended to reimburse clients adversely impacted by their purchase of inverse-ETFs.