Massachusetts targets structured products

Massachusetts regulators are collecting information about the sale of structured products at five major brokerage firms.
The state today sent letters to Bank of America Investment Services, Morgan Stanley, Citi Group Global Markets, the broker-dealer for Smith Barney, Wachovia Securities LLC, Linsco/Private Ledger Corp, and Cantella & Co.
The letters ask for a list of structured products sold to retail investors, account-opening documents, sales and training materials, and any evidence of customer complaints.
Firms are asked to comply by August 1.
The state doesn’t suspect any wrongdoing, said Brian Lantagne, head of the state’s securities division in Boston.
“It’s more of a prophylactic effort,” he said, “so we don’t end up with another situation like we had with variable annuities where investors come in and say, ‘I didn’t know what I got.’”
He said the state wants to find out “the extent of the [retail sales] push here, and how [the firms are] disclosing risk.”
The most popular structured products at the retail level offer a current yield with some upside based on the movement in an index or stock, and some type of downside guarantee if the investor holds to maturity.
When brokerage firms “dress things up with principal protection … it’s ripe for abuse,” Mr. Lantagne said.
NASD has also been gathering information about structured products.
Massachusetts’ initiative is unrelated to the NASD effort, Mr. Lantagne said.