As more cutting-edge investment products work their way into the marketplace, there’s growing fear retail investors and even professional brokers are getting in over their heads.
Former SEC attorney David Gorman, who’s now a partner at Dorsey & Whitney, contends complex products designed for profits are creating unprecedented risks and U.S. regulators are taking notice.
“It’s just starting to emerge in their enforcement cases,” Gorman told CNBC’s “ຂອບ ETF” this week. “These products are incredibility complicated.”
The Financial Industry Regulatory Authority, or FINRA, considers leveraged and inverse ETFs, equity indexed annuities and reverse convertibles as complex products.
It may not be enough to even have a Ph.D. in economics to understand the sophisticated instruments, according to Gorman.
‘This is classic Warren Buffett’
He believes it’s key to have regulators enforce the disclosures in the products.
“In the meantime, you just continue to do increased education alongside the regulation,” noted Arthur. “You don’t need a complex product to go broke day trading on Robinhood. "
If there’s a broad federal crackdown, Dave Nadig, CIO and director of research at ETF Trends, warns it could have serious consequences for the industry.
“[It] could have a pretty chilling effect on the sales of those products and investor portfolios,” Nadig said in the same segment. “These are really powerful tools that investors have come to rely on.”
Source: https://www.cnbc.com/2022/04/01/investing-may-be-too-complex-for-retail-investors-and-brokers.html