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Investing may be getting too complex for retail investors — and even professional brokers – CNBC

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3 years ago

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As more cutting-edge investment products work their way into the marketplace, there’s growing fear retail investors and even professional brokers are getting in over their heads.

Former SEC attorney David Gorman, who’s now a partner at Dorsey & Whitney, contends complex products designed for profits are creating unprecedented risks and U.S. regulators are taking notice.

“It’s just starting to emerge in their enforcement cases,” Gorman told CNBC’s “ETF Edge” this week. “These products are incredibility complicated.” 

The Financial Industry Regulatory Authority, or FINRA, considers leveraged and inverse ETFs, equity indexed annuities and reverse convertibles as complex products.

It may not be enough to even have a Ph.D. in economics to understand the sophisticated instruments, according to Gorman.

‘This is classic Warren Buffett’

“This is classic Warren Buffett. If you don’t understand it, you can’t invest in it. And, that’s what’s happening here,” he said. “The first line of defense here is the broker-dealer. The broker-dealer is supposed to have policies and procedures in place that say this is how you teach people about this stuff. This is what this stuff is. And in the cases the SEC brought, those weren’t being followed.”

Main Management CEO Kim Arthur highlights the wide availability of alternative investments on trading platforms as problematic. His firm caters to institutional clients and high net worth individuals.

“We do use complex products, mostly options. And, they’re mostly covered call options. So, the big difference with that is you’re using that to dampen volatility. Create another stream of income or hedge against larger swings,” said Arthur in the same segment.

He believes it’s key to have regulators enforce the disclosures in the products.

“In the meantime, you just continue to do increased education alongside the regulation,” noted Arthur. “You don’t need a complex product to go broke day trading on Robinhood.”

If there’s a broad federal crackdown, Dave Nadig, CIO and director of research at ETF Trends, warns it could have serious consequences for the industry.

“[It] could have a pretty chilling effect on the sales of those products and investor portfolios,” Nadig said in the same segment. “These are really powerful tools that investors have come to rely on.”

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S&P/TSX composite up more than 100 points, U.S. stock markets mixed

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2 days ago

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October 16, 2024

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TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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S&P/TSX up more than 200 points, U.S. markets also higher

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7 days ago

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October 11, 2024

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TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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Economy

S&P/TSX composite little changed in late-morning trading, U.S. stock markets down

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1 week ago

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October 10, 2024

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TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.

The S&P/TSX composite index was up 0.05 of a point at 24,224.95.

In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.

The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.

The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.

The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.

This report by The Canadian Press was first published Oct. 10, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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