Finra warns investors about 'chasing return' through riskier products

By Angela McDaniels

Tacoma, Wash., July 25 - The Financial Industry Regulatory Authority issued an investor alert on Monday warning about the risks of investing in assets like structured notes with principal protection, high-yield bonds, floating-rate loan funds and leveraged products such as exchange-traded funds and mutual funds.

Finra said the investor alert, "The Grass Isn't Always Greener - Chasing Return in a Challenging Investment Environment," was prompted by significant recent inflows into such investments.

According to Finra, high-yield bond funds had $75 billion of new sales in 2010, floating-rate loan funds grew to $60 billion in April from $15 billion in 2008, and sales of structured products increased to $54 billion in 2010 from $33 billion in 2009.

"This alert serves to remind investors that when they invest in products that promise higher returns they are nearly always taking on more risk," the authority said in the alert.

The alert suggested that investors ask themselves the following questions:

• Does the higher return from the investment come with increased risk?

• Do you understand how the investment operates?

• What are the costs and fees associated with the new investment?

• Is the product callable?

• Could the new investment be fraudulent?

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