MSSB Bans Leveraged ETF Sales

Morgan Stanley Smith Barney (MSSB) became the latest wirehouse to put its foot down on exchange-traded funds (ETFs).

The firm announced today that it is banning solicited purchases of leveraged, inverse, and leveraged inverse ETFs in traditional brokerage accounts. Unsolicited purchases will be permitted but subject to enhanced oversight and review. Additionally, no purchases of these securities will be permitted in advisory accounts managed by MSSB financial advisers.

Furthermore, MSSB said it has encouraged advisers to review existing position in the ETFs “to emphasize their unique characteristics and risks.”

The Financial Industry Regulatory Authority (FINRA) has warned about the products. In Regulatory Notice 09-31 it notes that leveraged ETFs “typically are unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.” It also reminds firms of their obligations that recommendations to customers be suitable.

UBS announced last week that it had stopped selling ETFs that use leverage, saying they detract from long-term investing, Reuters reported. Edward Jones also recently banned the sale (see “Edward Jones Puts Brakes on Leveraged ETFs”).