Finra reminds firms of sales practice obligations for protected notes

By Jennifer Chiou

New York, Dec. 18 - Financial Institution Regulatory Authority said that firms must ensure that their promotional materials or communications to the public regarding the principal-protected notes are fair and balanced and do not overstate either the level of protection offered or an investment's potential returns.

According to a Finra news release, the retail market for principal-protected notes has grown in recent years, in part because they are often marketed as combining the relative safety of bonds with a potential for growth not available with traditional fixed-income products.

However, these products are not risk-free, and their terms and structures can be complex, Finra added.

The authority said that firms also have a duty to ensure that their registered representatives understand the risks, terms and costs associated with these products, and that they perform an adequate suitability analysis before recommending them to a customer.

Questions may be directed to Finra's office of emerging regulatory issues at (202 728-8472).

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