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Robert W Pearce
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Mr. Pearce has tried, arbitrated and mediated numerous disputes involving complex securities, commodities, administrative, contract, commercial, business tort and employment law issues for over 30 years. He has represented hundreds of clients in Federal and state courts (trial and appellate) as... More
My company:
The Law Offices of Robert Wayne Pearce, P.A.
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The Investor's Rights Law Blog
  • H&R BLOCK FINANCIAL ADVISORS (AMERIPRISE ADVISOR SERVICES) FINED BY FINRA FOR REVERSE CONVERTIBLE SALES 1 comment
    Jan 14, 2013 10:19 AM

    H&R Block Financial Advisors, now Ameriprise Advisory Services, has been fined $200,000.00 by the Financial Regulatory Industry Authority (FINRA) for failing to establish a proper supervisory system to monitor reverse convertible note sales to clients. FINRA said that between January 2004 and December 2007, H&R Block sold reverse convertibles to clients without keeping an eye on possible over-concentrations of reverse convertibles in clients' accounts. FINRA added that H&R Block did monitor unsuitable investments through an automated surveillance system, but no system was in place to keep track of reverse convertible transactions, which caused them to miss signs of perilous levels of reverse convertibles in client accounts. Moreover, FINRA said that the firm had failed to provide guidance to its supervisors concerning suitability as it relates to their agents' recommendations of reverse convertibles to clients.

    Reverse convertibles are alternative investments that are not suitable for all investors. Their complexity is hardly ever understood, and they are oftentimes misrepresented as fixed income products. Reverse convertibles are made of a note and a derivative. The note is a loan by the investor to the issuer that pays an income stream to the investor, while the derivative establishes the payment at maturity. The derivative can either be a put option, which would allow the issuer to sell the underlying derivative or security back to the investor, or it can be a call option, which would allow the issuer the right to buy the underlying security at a predetermined price.

    In connection with FINRA's action, H&R Block broker Andrew MacGill was suspended for 15 days and ordered to pay $10,000.00 in fines and $2,023 in disgorgement for making unsuitable reverse convertible sales to a retired couple. Mr. MacGill suggested that the couple put up to 40% of the total liquid net worth in reverse convertibles. H&R Block was ordered to pay $75,000.00 in restitution for the losses incurred. Both Mr. MacGill and H&R block consented to FINRA's findings.

    Most investors are not capable of evaluating whether reverse convertibles are suitable investments. What investors should recognize though is that reverse convertibles put principal at risk if the price of the underlying security rises above or falls below a predetermined amount. The issuer will either sell or buy the security, which may cause investors to lose a significant amount of principal. However, investors are attracted to reverse convertibles because of their yields; reverse convertibles have averaged 13% in certain years. This comes as no surprise since yields on CDs and other conservative investments are near all-time lows, and fixed income investors need to generate income to pay bills and keep up with increasing costs. Still, investors must realize that reverse convertibles are not the solution. Rather than chase yields and risk losing hard earned savings, investors need to stick to what is suitable for them in order to avoid financial calamity.

    Have you suffered a loss in a reverse convertible? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.

    The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

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  • Brian Rezny
    , contributor
    Comments (3) | Send Message
     
    Robert,

     

    You have some great material!

     

    My firm is a Fee Only Registered Investment Advisor and I regularly talk about the Wall Street Conflicts on my radio and TV shows.

     

    We get most of our clients from Wall Street Screw Ups.

     

    Check out my website and firm I maybe able to refer you some business once and awhile.
    14 Jan 2013, 05:00 PM Reply Like
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