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Wells Fargo Fined $3.4 Million for Recommending Unsuitable Volatility-Linked ETPs

Posted on Thursday, October 26th, 2017 at 12:03 pm    

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Erez Law is currently investigating Wells Fargo financial advisors across the country regarding losses sustained from unsuitable recommendations of volatility-linked exchange-traded products (ETPs).

In October 2017, FINRA ordered Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC to pay more than $3.4 million in restitution to customers for unsuitable recommendations of volatility-linked ETPs, as well as related supervisory failures.

ETPs derive their value from securities such as stocks, bonds, commodities or indices. They are traded similar to individual stocks on an exchange. ETP purchases are on shares of the overall portfolio and not on the underlying investments or indexes. ETPs may diversify your portfolio, as they represent multiple stocks, bonds or other asset classes. Volatility ETPs are generally used as short-term holdings that offer exposure to volatility and are used primarily by traders looking to capitalize on market downturns.

The FINRA investigation found that between July 2010 and May 2012, some Wells Fargo advisors recommended ETPs, which are complex products, without fully understanding their risks and features. FINRA found that some Wells Fargo registered representatives believes that the ETPs could we used as a long-term hedge on equity positions in the event of a market downturn. However, volatility-linked ETPs are short-term trading products that degrade significantly over time and should not be held for a long-term buy-and-hold investment strategy. Products such as these require heightened supervision.

According to the FINRA release, FINRA found that Wells Fargo failed to implement a reasonable system to supervise solicited sales of these products. However, Wells Fargo took remedial action to correct its supervisory deficiencies in May 2012, prior to detection by FINRA and around the time that the firm was fined for similar violations relating to sales of leveraged and inverse ETPs.

Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, Wells Fargo may be liable for investment or other losses suffered by its customers.

Erez Law represents investors in the United States for claims against Wells Fargo financial advisors across the country regarding losses sustained from unsuitable recommendations of volatility-linked exchange-traded products (ETPs). If you were a client of Wells Fargo or another firm, and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.