FINRA Warns High-Yield CD Offers Can Be Bait for High-Commission Investments

WASHINGTON–(BUSINESS WIRE)–Advertisements touting higher-than-average CD yields might actually be a
lure to trick investors into buying costly investments, the Financial
Industry Regulatory Authority said today in a new Investor
Alert
.

“In light of today’s low interest rates, these ads attract attention.
Some may be legitimate marketing, but calls into our Securities Helpline
for Seniors indicate that many such ads are ploys in which the CD is
used as bait to try to sell you a high-commission product, such as a fixed
or equity-indexed annuity
, a complex insurance investment that is
not FDIC-insured and not subject to federal securities laws,” said Gerri
Walsh, FINRA’s Senior Vice President of Investor Education. “The reality
with these CD come-ons is that you may end up walking out with a costly
financial product that is not a CD, and not risk-free.”

Be wary if you respond to one of these promotions for a certificate of
deposit, Walsh recommended. Most require that you show up at an office
and speak with a salesperson, who may try to sell you an alternative
product very different from a CD. And whether you buy the CD or the
alternative, you generally must commit to a sizable minimum purchase
amount, such as $25,000.

In addition, the yield on the CD may include a “bonus,” which is an
amount above the average percentage yield, or APY. This bonus is
essentially an incentive paid by the company or salesperson to get you
in the door to hear the sales pitch for another product, such as a fixed
or equity-indexed annuity.

If you say “no” to the product being pitched, you can generally still
buy a CD, but the salesperson may direct you to a local bank or
elsewhere where you will get the going rate. The salesperson will then
likely pay you the difference between the CD rate offered by the issuing
bank and the promotional rate that got you in the door. From the
seller’s perspective, this “bonus” is simply a marketing cost, similar
to a free meal at an investment seminar.

After the purchase, you’ll probably receive sales pitches for additional
financial products, which may be offered at a discount, but you are
likely to pay a hefty commission.

If you have questions about the legitimacy of one of these promotional
offers, contact your state
insurance commission
.

To receive the latest Investor Alerts and other important investor
information, sign up for Investor
News
.

Investors can obtain more information about, and the disciplinary record
of, any FINRA-registered broker or brokerage firm by using FINRA’s
BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2014,
members of the public used this service to conduct 18.9 million reviews
of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or
by calling (800) 289-9999. Investors may find copies of this
disciplinary action as well as other disciplinary documents in FINRA’s
Disciplinary Actions Online database. Investors can also call FINRA’s Securities
Helpline for Seniors
 at (844) 57-HELPS for
assistance or to raise concerns about issues they have with their
brokerage accounts and investments.

FINRA, the Financial Industry Regulatory Authority, is the largest
independent regulator for all securities firms doing business in the
United States. FINRA is dedicated to investor protection and market
integrity through effective and efficient regulation and complementary
compliance and technology-based services. FINRA touches virtually every
aspect of the securities business – from registering and educating all
industry participants to examining securities firms, writing rules,
enforcing those rules and the federal securities laws, and informing and
educating the investing public. In addition, FINRA provides surveillance
and other regulatory services for equities and options markets, as well
as trade reporting and other industry utilities. FINRA also administers
the largest dispute resolution forum for investors and firms. For more
information, please visit www.finra.org.

Contacts

Financial Industry Regulatory Authority (FINRA)
Ray
Pellecchia
, 212-858-4387