U.S. securities regulators have sanctioned a firm for lax supervision of complex products, such as inverse and leveraged exchange-traded funds (ETFs).

The U.S. Financial Industry Regulatory Authority (FINRA) announced that it has fined brokerage firm, Berthel Fisher & Company Financial Services, Inc. and its affiliate, Securities Management & Research, Inc., a combined US$775,000 for alleged supervisory deficiencies concerning the sale of complex leveraged and inverse ETFs, and non-traded real estate investment trusts (REITs).

FINRA found that from January 2008 to December 2012, Berthel Fisher had inadequate supervisory systems and written procedures for sales of alternative investments such as non-traded REITs. It says that the firm failed to accurately calculate concentration levels for alternative investments, and so, it did not correctly enforce suitability standards for a number of the sales of these investments.

Additionally, FINRA says that from April 2009 to April 2012, the firm did not have a reasonable basis for certain sales of leveraged and inverse ETFs. FINRA says that the firm did not adequately research or review non-traditional ETFs before allowing its registered reps to recommend them to customers, and failed to provide training to its sales force regarding these products. The firm also failed to monitor the holding periods of these investments by customers, resulting in some instances of customer losses, it adds.

In settling the allegations, the firms neither admitted nor denied the charges, but consented to the entry of FINRA’s findings. As part of the settlement, Berthel Fisher is also required to retain an independent consultant to improve its supervisory procedures relating to its sale of alternative investments.

“A strong culture of compliance is an essential element of the proper marketing of complex products. Berthel’s supervision of the sales of non-traded REITs, inverse ETFs and other products fell short of this standard, as it failed to ensure that its registered representatives understood the unique features and risks of these products before presenting them to retail clients,” said Brad Bennett, FINRA’s executive vice president of enforcement.