I fall into the category of investors which this regulatory notice is aiming to protect: I am a relatively young retail investor who has chosen to invest in complicated funds on a self direct brokerage. Therefore, I feel the need to discuss my experience with complex products.
I acknowledge that these funds are more complicated than conventional products. However, complication does not mean retail investors cannot be educated on how these funds work and their potential risks.
For example, in the process of researching and investing in leveraged ETFs, I was made abundantly aware that they target the daily performance of the underlying asset, they suffer from volatility decay when holding these funds for the long term, and therefore they can deviate substantially from what one may expect in the long term. Because of this information, I have chosen to keep these complex products a small portion of my overall portfolio to mitigate risk, and limit the ways in which I use them.
An increase in accessibility for complex strategies has also led to an increase in available knowledge for these products. Because information about these products and strategies has become more accessible, traditional tests like high net worth or status as a financial professional are increasingly ineffective at screening out who is capable of understanding these products. For example, the regulatory notice cites instances where FINRA has appropriately sanctioned members who provided unsuitable recommendations for their clients. While these instances are rare, they demonstrate how information and understanding cannot be assessed by only testing for wealth, background, or status as a financial professional.
I urge FINRA focus on ensuring the proliferation of accessible, accurate, and available knowledge for financial professionals and retail investors alike. I am in favor of mandates requiring retail investors read and properly understand the risks of complex products, and would not be opposed to self-directed platforms testing this knowledge provided that the process remains accessible. Nor would I be opposed to regulation on advertising or targeted communications, so long as these regulations do not prevent investors from being able to learn about complex products.
However, I firmly believe that restrictions should be limited to providing or testing knowledge, not any other factor. Barring retail investors through cost, net worth, status, or mandating supervision on how retail investors use these products can create the impression that regulators act against the interest of ordinary people and for a priviledged elite. Well informed individuals, regardless of background, should be able to decide how to invest for their personal financial goals.
Thank you for your time and for reading this comment.
Jonathan Wang Comment On Regulatory Notice 22-08
I fall into the category of investors which this regulatory notice is aiming to protect: I am a relatively young retail investor who has chosen to invest in complicated funds on a self direct brokerage. Therefore, I feel the need to discuss my experience with complex products.
I acknowledge that these funds are more complicated than conventional products. However, complication does not mean retail investors cannot be educated on how these funds work and their potential risks.
For example, in the process of researching and investing in leveraged ETFs, I was made abundantly aware that they target the daily performance of the underlying asset, they suffer from volatility decay when holding these funds for the long term, and therefore they can deviate substantially from what one may expect in the long term. Because of this information, I have chosen to keep these complex products a small portion of my overall portfolio to mitigate risk, and limit the ways in which I use them.
An increase in accessibility for complex strategies has also led to an increase in available knowledge for these products. Because information about these products and strategies has become more accessible, traditional tests like high net worth or status as a financial professional are increasingly ineffective at screening out who is capable of understanding these products. For example, the regulatory notice cites instances where FINRA has appropriately sanctioned members who provided unsuitable recommendations for their clients. While these instances are rare, they demonstrate how information and understanding cannot be assessed by only testing for wealth, background, or status as a financial professional.
I urge FINRA focus on ensuring the proliferation of accessible, accurate, and available knowledge for financial professionals and retail investors alike. I am in favor of mandates requiring retail investors read and properly understand the risks of complex products, and would not be opposed to self-directed platforms testing this knowledge provided that the process remains accessible. Nor would I be opposed to regulation on advertising or targeted communications, so long as these regulations do not prevent investors from being able to learn about complex products.
However, I firmly believe that restrictions should be limited to providing or testing knowledge, not any other factor. Barring retail investors through cost, net worth, status, or mandating supervision on how retail investors use these products can create the impression that regulators act against the interest of ordinary people and for a priviledged elite. Well informed individuals, regardless of background, should be able to decide how to invest for their personal financial goals.
Thank you for your time and for reading this comment.