Finra Warns on Alternative Mutual Funds:

Somebody wake up the people at Finra… They are in the business of protecting investors, we get that. But their recent Investor Alert raises a caution flag on “Alternative Funds”, after nearly $200 Billion has already poured into the space since 2008. I guess better late than never… Their main point:

“Investors considering alternative mutual funds should be aware of their unique characteristics and risks.”

Our read between the lines translation = the alternative investments these products give you exposure to are usually reserved for only the most sophisticated of investors, and usually require dozens of pages of disclosure and explanation of the risks. We’ve sort of let a bunch of these get out there in the public without these disclosures being required – so… be careful.

Finra is essentially putting the need for increased disclosure on the investors, telling them to make sure they dig deep and find out everything they need to know, instead of putting the onus on the packagers of these products to make sure investors are given everything they need to know.

As for those of us in the futures brokerage business, we should be scared. “Wall St.”, for lack of a better term, has figured out a way to steal our business by giving the public easy access to the very same markets we specialize in and must be registered to conduct. Consider the following:

  • # of pages to open an account at eTrade and invest in a managed futures mutual fund = 2
  • # of pages to open an account at a futures FCM to trade a typical managed futures program = 52

Finra also doesn’t seem to get exactly what a lot of these funds are doing – saying they can’t charge 2/20 like a hedge fund. That may be true to the letter of the law, but there are plenty of players involved at the sub manager level of these products collecting their 2/20 just fine; through offshore management companies, swaps, and more. See here.

Finra’s closing line is perhaps their smartest:

“There may be other investment options to alt mutual funds that that are less complicated and cost less, but still help you accomplish your financial objectives.”

We couldn’t agree more. Managed futures can be less complicated (aside from the paperwork) and costly when accessing via managed accounts or private placements.

PS – FINRA is making headlines for other reasons as well. Strangely, FINRA’s Southern Regional Director, Mitchell Atkins is resigning after accusations from an ex-broker claiming Atkins used bingo earnings for non-charitable purposes more than 20 years ago. Bingo earnings – really?

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.