After Finra warning, firms back away from leveraged ETFs

At least three brokerage firms have decided not to sell leveraged exchange traded funds a month after the Financial Industry Regulatory Authority Inc. warned brokers that they “typically are unsuitable for retail investors” who hold them longer than a day. The New York- and Washington-based regulator clarified its position on such ETFs in a podcast July 13, saying Finra member firms could recommend that a retail investor hold such ETFs for longer than one day provided that a suitability assessment is conducted with respect to the investor and the ETF. But that didn't stop Edward D. Jones & Co. LP of St. Louis, Ameriprise Financial Inc. of Minneapolis, and LPL Investment Holdings Inc. of Boston, from banning the sale of such ETFs within the last few weeks. In LPL's case, the company decided to prohibit the sale of leveraged ETFs that seek more than two times the long or short performance of the target index, said spokesman Joseph Kuo. Direxion Funds of Newton, Mass., one of the major players in the leveraged ETF and mutual fund arena, is reaching out to the brokerage firms to argue that the funds can be used successfully, said Andy O'Rourke, the firm's marketing director. Special attention, however, is being paid LPL because Direxion believes that firm's registered representatives are best suited to use its ETFs, he said. “We're talking about what the rationale is behind their decision, and if there is anything we can do to get them to open up [access to leveraged ETFs] to a limited audience,” Mr. O'Rourke said.