Call Now For a Free Consultation:
(614) 532-4576
Nationwide Representation

News: FINRA Educates Investors by Issuing Smart Beta - What You Need to Know

The Financial Industry Regulatory Authority (FINRA) issued Smart Beta – What You Need to Knowan investor alert aimed at educating stockholders about financial products. These products include mutual funds, but primarily focus on exchange-traded funds (ETFs).

ETFs are a form of marketable securities that monitor an index, commodity, bond, or a group of assets. Meyer Wilson has a great explanation of ETFs and how they work, which you can view here. They look at alternatives to weighted indices, called “smart beta” indices. A normal index looks at a company’s market capitalization to determine how much weight a particular stock has in an index. Alternatively, a smart beta looks at non-market-capitalization-based measures, which include earnings and volatility. Examples of known indices include S&P 500, NASDAQ 100, and Russell 2000.

By using smart beta indexes, investors both receive diversification when it comes to weighted market value, however, it can be a risky venture. Because it does not follow the traditional method of tracking indices, returns for smart beta indices can vary greatly from market-cap-weighted indices.

By issuing the new investor alert, FINRA seeks to give investors an overview of smart beta strategies. They recommend asking six questions to help better understand smart beta indices. Before considering a product linked to a smart beta index, ask the following:

  • What is the product’s strategy?
  • What are the costs?
  • What are the potential advantages?
  • What are the potential risks?
  • How liquid is the product and its holdings?
  • Are the performance figures back-tested?

By asking these question, investors can make a more informed decision on smart beta indexes. FINRA wants investors to understand how the financial product works, what does it mean fiscally to invest in such a venture, and what are the advantages and disadvantages of the index. With their new investor alert, FINRA hopes investors will proactively protect their investments and know exactly what they are participating in.

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 .

Share This Story
If you found the information provided by this article useful, consider sharing to your social media channels to help others in their search for reliable resources.
Consult with Our Legal Team
There is never a cost associated with a consultation
Atlanta Office

945 East Paces Ferry Road, Suite 2275
Atlanta, GA 30326
Columbus Office

305 W. Nationwide Blvd
Columbus, OH 43215
Meyer Wilson
New Orleans Office

900 Camp Street 
Suite 337
New Orleans, LA 70130
Los Angeles Office

2029 Century Park East,
Suite 400N
Los Angeles, CA 90067
Cleveland Office

4781 Richmond Rd.
Suite 400
Warrensville Heights, OH 44128
Bloomfield Hills Office

41000 Woodward Ave.,
Suite 350
Bloomfield Hills, MI 48304
Quick Links
The information contained in this Website is provided for informational purposes only, and should not be construed as legal advice on any subject matter. No recipients of content from this site, clients or otherwise, should act or refrain from acting on the basis of any content included in the site without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the recipient's state. Read More
The information contained in this Website is provided for informational purposes only, and should not be construed as legal advice on any subject matter.
Read More
chevron-down linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram