Leveraged and inverse exchange traded funds (ETFs) are back under the microscope, as Finra (Financial Industry Regulatory Authorities) has been studying them and has issued a warning to their providers, brokers and registered investment advisors.

Finra has reminded brokers and registered investment advisers about their fiduciary responsibilities regarding selling ETFs that offer leverage. In a notice placed on Finra’s website, brokers and advisors are reminded that these instruments are complex and unsuitable for investors who plan to hold them for more than one trading session, reports Daisy Maxey for The Wall Street Journal.

The proper management, fairness and accuracy of sales and all sales materials has been stressed, because of the nature of their sophisticated strategies and internal compounding, which requires daily management. Finra also calls for firms to have adequate supervision to make sure that these obligations are being met.

Michael Sapir, ProFunds‘ CEO, says they’re working with Finra to be sure they have all the information they need.

ProShares, Direxion and Rydex have all done a good job of educating investors about the proper usage of their funds, and have been open about what type of investor they are intended for. In the end, these ETFs work exactly as they ought to, but they do need to be used with caution. The issue really is investor education, and any push to get the word out to those who might be tempted to misuse them can only be a good thing.

The problem isn’t with these funds themselves; it’s an issue of understanding and self education on the user’s part.

For more stories on this subject, visit our long-short category.

Tags: Long-Short ETFs