Firms sanctioned for reps selling funds they didn’t understand

A couple of Wells Fargo firms are paying US$35 million to settle allegations that they failed to supervise reps who sold risky, unsuitable products to their clients.

The U.S. Securities and Exchange Commission (SEC) settled charges with the firms — Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network — for deficiencies in their oversight of reps who recommended single-inverse ETFs to retail investors.

The SEC found that the firms’ policies were not adequate to detect and prevent unsuitable recommendations of these risky products, that the firms failed to adequately supervise their reps’ recommendations and that some of their brokers and advisors didn’t understand the risk of losses in these complex products when they’re held long term.

As a result, certain reps “made unsuitable recommendations to certain clients to buy and hold single-inverse ETFs for months or years,” the SEC said.

The SEC said that some of these clients were senior citizens with limited incomes and conservative risk tolerances.

Wells Fargo agreed to pay the US$35 million penalty, which will be distributed to harmed investors, without admitting or denying the SEC’s findings.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.