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Investor Alert: What You Should Ask About Securities-Backed Lines of Credit

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On Monday, December 21, 2015, FINRA issued an Investor Alert regarding the growing trend of offerings in securities-backed lines of credit (SBLOCs). Numerous investors have received offers from securities firms regarding these loans. The FINRA Investor Alert discusses why it may be more beneficial to see beyond the claims of an easy and inexpensive way to borrow against their portfolio to obtain cash. FINRA warns of the risks that are associated with SBLOCs.

Gerri Walsh, Senior Vice President for Investor Education at FINRA, gave the following statement:

"We want to provide investors with the basics of SBLOCs, how they are marketed and the benefits and risks you should consider before posting your investment portfolio as collateral. SBLOCs might seem like an attractive way to access extra capital when markets are producing positive returns, but market volatility can magnify your potential losses, placing your financial future at risk."

The FINRA Investor Alert offers 10 questions that investors should ask regarding SBLOCs in order to protect themselves from potential risks. The answers you receive can help prepare you before you use your assets as collateral and determine how the risks may affect your long-term investments.

The 10 questions to ask are:

  • What am I agreeing to when I take out an SBLOC?
  • Who will the lender be?
  • Am I using my investments as collateral?
  • Will my portfolio value decrease?
  • Does my investment mix have any impact?
  • What do I do if my securities are liquidated in order to meet requirements for collateral?
  • Will the SBLOC affect my pledged investments?
  • What are the interest rates and what happens if they rise?
  • How are brokers compensated when I take out an SBLOC?
  • Can I move to a new firm if I have an existing SBLOC with another firm?

To learn more about SBLOCs or to determine if you have a case after you took out an SBLOC based on misrepresentation, call Meyer Wilson. In your free case evaluation with our securities fraud lawyers, we will gather the necessary details of your matter and determine the strongest course of action.

The information contained in The Firm’s posts on its blog, fraud alerts, investigations or elsewhere on the site is based upon information obtained from other sources including, but not limited to, news outlets and federal, state, and regulatory agency filings. All suspects and subjects of postings herein are presumed innocent until proven guilty in a court of law or administrative action and any and all crimes are alleged until a court or regulatory agency finds otherwise .

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