FINRA Says that Leveraged and Inverse ETFs Are Not Suitable for Retail Investors
FINRA has declared that leveraged and inverse ETFs are not suitable for retail investors who plan to hold such securities for more than one trading session. In a recent Notice to Members, FINRA warned of the mathematical compounding effects of such investment vehicles that could result in significant tracking error from the applicable index, particularly in volatile markets. FINRA considers leveraged and inverse ETFs as derivative financial products subject to IM-2310-2(e). FINRA requires any sales material to note that the vehicle will not track the underlying index and that declared that prospectus disclosure is not sufficient.
OUR TAKE: Many financial planners and investment advisers use leveraged and inverse ETFs as a volatility-reducing tool in a broad portfolio. Why is FINRA forcing the retail investor to invest long-only especially after what just happened in the markets?