On 16 October, FINRA ordered Wells Fargo to pay $3.4mn for ETP sales.
- To Wells Fargo Clearing Services LLC; Wells Fargo Advisors Financial Network LLC.
- Wells Fargo associates made unsuitable recommendations of volatility-linked ETPs.
- Related supervisory failures, $3.4mn restitution will be paid to affected customers.
- Between July 2010 and May 2012, some registered representatives recommended
clients trade volatility-linked ETPs, without fully understanding their risks, features.
- Mistakenly believed could be used as long-term hedge on customer equity position.
- This misunderstood the purpose of these complex products which were not suitable.
- Short-term trading products degrade significantly over time, should not be used in
a long-term buy-and-hold investment strategy, inappropriate for regular investors.
- On same day, FINRA issued notice on selling volatility-linked product.
Wells Fargo Findings
- Failed to implement reasonable system to supervise solicited sales of the products.
- Took remedial action to correct supervisory deficiencies in May 2012, after fine for
similar violations relating to sales of leveraged and inverse ETPs, client assistance.
- Hired a consulting firm, to determine the proper restitution for affected customers.
- FINRA took account cooperation, remedial action, assistance in resolution of matter.