Wells Fargo Advisors Alters Leveraged ETF Sales Policy

By Daisy Maxey, Of DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- Wells Fargo Advisors is no longer permitting its advisers to sell leveraged and inverse exchange-traded funds through advisory accounts.

The policy has been in place for several weeks, according to a Wells Fargo adviser in the bank brokerage channel, who wished to remain anonymous.

"As a matter of firm policy, we can't solicit those products," the adviser said, adding that the change affects a small number of brokers. Clients may still buy leveraged or inverse ETFs unsolicited through a non-fee-based account if the profile on the account includes "trading and speculation," the adviser said.

A Wells Fargo Advisors representative had no comment on its sales policies regarding leveraged and inverse ETFs. In an email last month, the representative said the company was reviewing its policy regarding non-traditional ETFs.

"There are brokers out there who lack the sophistication to understand how these products work, and how damaging it could be if the market were to move against a client," the adviser said. "The firm is just trying to protect itself."

ETFs trade daily on exchanges like stocks. Leveraged ETFs, sometimes labeled " ultra" or "2X," use futures or derivatives to multiply the daily returns of an index, sometimes striving to double or triple the return. Inverse ETFs seek to return the opposite of the index, or double or triple the opposite of the return of the index.

Most of these products reset daily, and concerns have arisen because their performance over longer periods can differ significantly from the performance of their benchmark, an effect that can be magnified in volatile markets.

Earlier this week, the Securities and Exchange Commission and the Financial Industry Regulatory Authority issued an alert, advising investors to consider leveraged and inverse ETFs only if they're confident the product can help meet their objectives and if they're knowledgeable about and comfortable with their risks.

The regulators' alert said: "While there may be trading and hedging strategies that justify holding these investments longer than a day, buy-and-hold investors with an intermediate or long-term time horizon should carefully consider whether these ETFs are appropriate for their portfolio."

ProShare Advisors LLC, which sells leveraged and inverse ETFs, said at the time: "We are very pleased that the SEC and Finra confirmed that the funds can be suitable to hold for periods longer than one day for a variety of strategies."

Some brokers have stopped selling the products or changed their sales practices in the wake a June notice from Finra, which reminded brokers and securities firms of their sales-practice obligations related to these complex financial products.

-By Daisy Maxey; Dow Jones Newswires; 212 416 2237; daisy.maxey@dowjones.com

(Annie Gasparro contributed to this story.)

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