FINRA alerted investors to the risks of complex products, just as the SEC was releasing results of its sweep examination into broker-dealer who sell structured securities products ("SSP's").  The Commission reported weaknesses and deficiencies throughout a cross section of broker-dealers - by RR's and supervisors, alike.  

The Grass Isn't Always Greener - Chasing Return in a Challenging Environment, FINRA's Investor Alert, warns investors about putting their assets into riskier and sometimes complex products that promise higher returns than more traditional investments. 

Investors have few options for high returns, so they may be tempted by hungry brokers or well-intentioned neighbors to chase returns by investing in structured notes with principal protection, high-yield bonds, floating-rate loan funds and leveraged products.  And they've done so in recent times - buying high-yield bond funds, floating-rate loan funds and structured retail products.  

High-yield bonds ...  are low-rated bonds with higher risk of default.  The higher yield may come with an increased possibility of losing money.

Floating-rate loan funds ...  invest in loans extended by financial institutions to entities of below investment-grade credit quality.  These are high interest rate loans, offering returns above those of investment-grade bonds.  The interest rates on floating-rate loans adjust by a pre-determined spread over a reference rate - e.g., the London Interbank Offered Rate (LIBOR).  A fund that invests in floating-rate loans may be attractive in a low or rising interest rate environment because, in addition to having higher yields, the fund's interest rate increases when rates rise.

Structured retail products ... are typically unsecured debt with payoffs linked to a variety of underlying assets.  They can seem attractive with their higher returns, and might even feature a level of principal protection, subject to the credit worthiness of the issuer.  However, SSP's also come with credit risk, market risk, lack of liquidity and high hidden costs.

Leveraged products ...  include ETFs and mutual funds seeking to deliver multiples of a specified benchmark.  As exposure to the benchmark increases - using derivatives - the returns increase as well, but so do the risks.  Leveraged products often "reset" daily - i.e., their performance are geared for short-term returns, which are tracked daily.  Performance over longer periods can differ significantly from the performance of their underlying index or benchmark.

Broker-dealer personnel should be reading along with their customers.   [FINRA News Release, 7/25/11, "The Grass Is .."]