FINRA wrote: The remaining issues have to do with the suitability of the investments in UITs. UIT
investments have high up-front costs (approaching 4%) and penalties for early
selling. Indeed, there were, in fact, early sales resulting in such losses.
Furthermore, some of the UITs were, in addition to the higher costs and fees
charged up front, unduly risky given the precarious nature of Claimants’ financial
situation and recent history: unemployment, failing business, and remaining
monetary pressures to see their two children complete their college educations at
fairly expensive schools. UITs are particularly unsuitable for an investment strategy
based on very high continuing debt and the obvious need for flexibility to deal with
their investments in that volatile situation. Some UITs invest in “CEFs” which may
and do use additional borrowings to boost potential investment returns. UITs are
suited for investors who can hold those investments to their maturity, without the
myriad uncertainties, which Respondents should have known did not exist in this
Indeed, the strategy recommended to Claimants, whom Groshong had previously
recommended a 70% equity exposure to, resulted in nearly 100% equity exposure.
Moreover, when margin borrowing is taken into account, Claimants’ equity exposure
was roughly 133%. The selected UITs further increased this equity exposure
through the use of leveraged CEFs.
Finally, In June 2015, Respondents sold all of the three initial UITs, and invested
Claimants’ remaining Ameriprise One funds in even less suitable investments. Fully
half of their entire portfolio was then invested in a UIT comprised of stocks and
CEFs of stocks invested in the heavily beaten-down energy sector. Thus, 50% of
Claimants’ investment performance would be determined by the fate of a single
equity sector – energy – which was highly correlated to the global price of oil. The
second UIT was invested in a basket of 13 stocks, which was too small a number of
companies to adequately diversify-away company-specific stock risk. Combined
with the margin leverage, these two undiversified funds were unsuitable
investments and generated the majority of Claimants’ realized losses.
In sum, Respondents maximized the benefits they derived from Claimants’ accounts
instead of giving Claimants prudent “investment” advice, after first obtaining all the
pertinent facts about their customers, as required by FINRA rules.
Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
3 posts • Page 1 of 1
I thought others may be interested in the types of investments Ameriprise advisers recommend. From a FINRA arbitration decision:
Ameriprise was our first big mistake as young investors. We got stung for over $5K in loads, but it convinced us to drop Ameriprise and figure out how to invest on our own (though we left a small amount there in Roth IRAs). Luckily we put nothing in the VUL policy they wanted to sell us. The returns we've had since then, approximating the market, have far outpaced what we left at Ameriprise. Last year we finally cleared out the final Roth IRA holdings, xferred to Fidelity.mancich wrote:Just one more reason to stay away from Ameriprise (and many other financial advisers). Keep things simple and avoid trying to be too clever.
An investment in knowledge pays the best interest.