Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with brokers selling unsuitable Exchange Traded Products (ETPs). When a broker sells you a product that is “guaranteed” to make money during volatile markets, there’s no downside for the person selling the vehicle. They always make money on investors’ fear and ignorance.
A prime recent example is the widespread sale of volatility-linked Exchange-Traded Products. While these vehicles may make money in the short term when the stock market turns bearish, they can lose money in the long run, which brokers may not disclose. Volatility ETPs are linked to “fear” indexes like the CBOE Volatility Index, or VIX, a short-term gauge of downside activity. When the market dips, they can increase in value.
Average investors, however, get burned when they hold onto fear indexes. Brokers who sold these products know that, but often don’t get clients out before they lose money. The U.S. Securities and Exchange Commission (SEC) recently cracked down on broker-dealers who sold these vehicles to unsuspecting investors.