FINRA Sanctions International Assets Advisory, Orlando, FL
According to the public records on FINRA’s website, on December 4, 2019, the regulator reportedly sanctioned International Assets Advisory LLC (CRD No.10645, Orlando, FL) with a censure and a $30,000 fine.
FINRA alleges that from October 2014 through September 2015, the firm purportedly failed to establish, maintain, and enforce a supervisory system, including written supervisory procedures, in relation to the sale of non-traditional exchange traded products (NT- ETPs).
Non-traditional exchange traded products are designed to return a multiple of an underlying index or benchmark, the inverse of that benchmark, or both, over only the course of one trading session — usually a single day, according to FINRA. NT-ETPs typically rebalance their portfolios on a daily basis.
As a result, due to the effects of compounding of daily returns during the holding period, the performance of NT-ETPs over periods longer than a single trading session “can differ significantly from the performance … of their underlying index or benchmark during the same period of time.”
Because of these risks and the complexity of the products, FINRA has reportedly advised broker-dealers that NT-ETPs “are typically not suitable for retail investors who plan to hold them for more than one trading session, particularly in volatile markets.”
Prospectuses for the NT-ETPs that a registered representative recommended to IAA customers warned that the products were risky and were intended to be daily trading tools for sophisticated investors, and should be actively and frequently monitored, even intra-day.
Due to its alleged unreasonable supervisory system, International Assets Advisory purportedly failed to detect a registered representative’s unsuitable recommendations of NT-ETPs to five of his customers to purchase and hold 21 solicited NT-ETPs positions for an average of 327 days.
The representative apparently did not understand the unique features and specific risks associated with these products, including the risk of holding the products long-term, and, therefore, lacked a reasonable basis for making the recommendations. The representative’s customers reportedly incurred approximately $92,805.13 in losses as a result of the alleged unsuitable recommendations.
FINRA’s sanctions reportedly include restitution to the customers in the total amount of $92,805.13 plus interest, in addition to the censure and fine.
For FINRA’s full findings see FINRA Case # 2017056579501.
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