Exchange traded funds are making a splash in the investment world as more investors start including the investment tool in their portfolios. However, people should not blindly invest in anything before fully understanding what they are getting themselves into, as some brokerage firms painfully find out.

The Financial Industry Regulatory Authority found that Berthel Fisher & Company Financial Services Inc. had inadequate oversight on sales of alternative investments, such as derivatives-backed ETFs, and fined the firm $775,000 for failure to properly supervise the sales, reports Matthias Rieker for the Wall Street Journal.

Finra has been looking into inverse and leveraged ETFs that use futures or derivatives to produce multiple daily returns of an index. The regulator has found that some brokers who sold the ETFs did not fully understand how the products work or the risks involved.

Berthel Fisher has stopped offering leveraged and inverse ETFs to clients.

Novice investors typically don’t know that most geared ETFs will usually rebalance on a daily basis, which could lead to deviations between the ETF’s target strategy and underlying index over longer periods, especially in volatile market conditions. [What Are Leveraged ETFs?]

Geared ETFs have been gaining popularity among longer term investors over the past year as a trending bull equity market augmented returns in leveraged-long ETFs due to compounding. [Leveraged ETFs Gain Popularity in Trending Markets]

For more information on ETFs, visit our ETF 101 category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.