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Morgan Stanley pays penalty after allegations of inverse ETF investments

The Securities and Exchange Commission (SEC) announced Feb. 14, 2017 that Morgan Stanley Smith Barney will pay $8 million and admit wrongdoing after allegations related to single inverse ETF (exchange –traded fund) investments it recommended to advisory clients.

The ETFs are supposedly unsuitable for long-term investing.  EFTs generally should be sold within one trading cycle.  Morgan Stanley, however, allegedly solicited the ETFs to clients for retirement.

“Morgan Stanley recommended securities with unique risks and failed to follow its policies and procedures to ensure they were suitable for all clients,” said Antonia Chion, associate director of the SEC Enforcement Division.

The easiest way to understand ETFs is to think of them as a mutual fund that trade like stocks.  ETFs are like mutual funds in that they are a combination of commodities, bonds, or a group of assets, but you can trade ETFs on the major stock exchanges anytime during the trading day. Their prices will fluctuate throughout the day just like stocks.  Mutual Funds shares are priced once a day after the markets close.

Everybody loves to save money.  In helping investors save money, ETFs offer all of the benefits associated with index funds with a lower fee. The fees for mutual funds can vary from 0.01% to over 10%, while expense ratios for ETFs range from 1.10% to 1.25%.  Although, ETFs trade through a brokerage firm, which incurs commission charges for transactions.  So there needs to be a balance between the expense ratios and commission charges to make EFTs funds more cost effective.

If you feel you have been misled regarding investing in ETFs and wish to discuss legal action, please contact Darren Blum at 1-877-786-2552 (Stock Law), for a free consultation

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