The Securities and Exchange Commission (SEC) is keeping a close eye on financial advisors marketing alternative mutual funds to investors as more lucrative instruments compared to traditional mutual funds and other more mainstream holdings, according to an agency release.
The SEC is especially concerned with advisors portraying alt mutual funds as "bright, shiny objects" while failing to mention several characteristics of the alternative investment product that make them "sharp" or risky.
For instance, the SEC points out that alternative mutual funds often rely upon daily valuation with the offer of daily liquidity and a more volatile atmosphere that is "fraught with risk," according to SEC Office of Compliance Inspections and Examinations Director Andrew Bowden.
In June 2013, FINRA issued its investor alert, "Alternative Funds Are Not Your Typical Mutual Funds," describing the publicly offered funds as more complex and possessing unique characteristics and risks. Among the unique properties of alt mutual funds are greater diversification strategies and a potential for less transparency, increased portfolio turnover and credit risk, greater operating expensive than typical traditional mutual funds and limited performance histories, given that many alt mutual funds launched after 2008 and thus have not experienced down markets.
Bowden additionally referred to the SEC's emphasis on wrap fee arrangement and reverse churning, noting that the issue of suitability has and continues to be an area of concern for the agency.
If you have invested in an alternative mutual fund or with a broker, financial adviser or firm whose misleading or unsuitable recommendations have led to an investment strategy that has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.
News: Alt Mutual Funds are 'Sharp Objects,' SEC Warns (ThinkAdvisor)