Massachusetts' Galvin to investigate alternative fund sales by advisers

Sales of 25 top 'liquid alts' mutual funds will come under greater scrutiny from the state regulator

Jul 15, 2015 @ 12:07 pm

By Trevor Hunnicutt

Massachusetts' top securities cop, William F. Galvin, launched an investigation Wednesday into sales of 25 alternative mutual funds by state-registered financial advisers.

In a statement, Mr. Galvin said alternative mutual funds “can be accidents waiting to happen when they are sold to investors who do not understand the risks and downside associated with the product.”

The Massachusetts Securities Division said it sent subpoenas to advisory firms about “recommendations to retail clients” regarding funds, including top offerings by BlackRock Inc., JPMorgan Chase & Co., Wells Fargo & Co., MainStay Investments and Hatteras Funds. Collectively, the funds manage about $25 billion in assets.

“Being included on the list is not an indication of wrongdoing at this time,” according to the statement.

A spokesman for Mr. Galvin, Brian McNiff, said the funds were chosen because of their “volume of sales, investment strategies and size.”

He didn't say which advisory firms received subpoenas, but they likely included financial advisers registered in the state or their affiliated broker-dealers.

Alternative funds, sometimes called liquid alts, are often pitched to financial advisers and investors as tools using hedge-fund-style investment strategies to mitigate risks in traditional investments, like stocks and bonds.

The Securities and Exchange Commission launched its own examinations of top alternative managers last year.

The Massachusetts regulator has been active. In an announcement Tuesday, the regulator said LPL Financial Inc. agreed to pay $250,000 to settle charges that its representatives misrepresented their qualifications in working with senior investors. That followed other cases targeting marketing to seniors, and sales of variable annuities and real estate investment trusts.

And Massachusetts regulators did a similar “sweep” exam in 2013 that focused on broker-dealers' sales of REITs, oil and gas partnerships, structured products, and other alternative securities.


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