RJ bans double long/short etf's

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Tarpon's picture
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A complince memo was out last week.  It essentially bans FA's from buying leveraged ETF's.   If you attempt to enter a buy order, it says security restricted.  No if's, and or butt's about it.   Compliance is getting alot of pushback but I bet they will stick to their guns.
 
This also goes for 3x etf's as well.

Indyone's picture
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Joined: 2005-05-30

Wow...did they say what prompted their decision?

Tarpon's picture
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Their argument had to do with slippage.  The fact that double long etf's always don't follow the basket.  Case in point take a look at fxp and fxi.  Double long and short china 25. 
 
The funny thing it, our chief strategist has been recommending these to the field for years. Go figure.
 
I have made good use of skf and srs over the last 6 months.  We can still buy 1x etf's. 

B24's picture
B24
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Oh lord.  I never thought I would see the day.  We can actually still buy these at Jones, but they have been banned by another firm.  I hope the sun still comes up tomorrow....

MinimumVariance's picture
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Joined: 2008-08-20

These inverse and double inverse investments are absolutely horid. You would think they would work exactly like a hedged position using an option contract, and they do FOR EXACTLY ONE DAY. If the marketed changes direction they are re-priced and cumulative gains / losses re-calibrated. EG if the market went from 750 to 800 to 700 and back to 750 these things, if initially bought at 100, might end up at 85. (This is an example, the math to calculate this is really complicated and depends on a bunch of other assumptions).
 
Under no circumstances should these be bought in client accounts and left to dry. I learned this the hard way
 
 
 

troll's picture
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Joined: 2004-11-29

Been long FAS and short FAZ for months!!! (in margin account of course)

Sportsfreakbob's picture
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Joined: 2008-08-24

This makes me wonder - i have been hearing a lot about RJ being broker friendly and letting you run your business the way you want. But this makes me wonder - comments from "the field"

YHWY's picture
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Joined: 2007-07-18

As an employer, one has an obligation to know which tools it may trust
its employees with. Sounds like RJ has decided its employees can't
handle certain tools. As a non-correlated example, would you, as an employer, give an epileptic dynamite and a
jack-hammer?

B24's picture
B24
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Joined: 2008-07-08

Nice analogy.
 

CDO Squared's picture
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Joined: 2009-01-20

those Triples are like a futures contract

Indyone's picture
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Sportsfreakbob wrote:This makes me wonder - i have been hearing a lot about RJ being broker friendly and letting you run your business the way you want. But this makes me wonder - comments from "the field"
 
That's more to the point of my surprise earlier.  The ETFs in question may have some problems as have been referenced.  I have a hard time believing that there is never a time and a place for them although to be honest, I haven't used them and haven't done any due diligence on them.
 
My consternation is more towards RJ's heavy-handed control from the top.  This sounds like RJ's variable annuity policy, and frankly, like a page from the Edward Jones playbook...if we decide something is complicated and/or prone to be misused, never mind the fact that it is a legal and widely-used investment, we'll simply outlaw it so we don't have to police it.  I'm not trying to beat up Jones here...I understand that they aim to keep the playbook simple due to the number of new reps in the field under their umbrella.
 
Ray Jay, on the other hand, as an indy B/D, should be hiring experienced reps and should treat them as such.  I would have a problem with that kind of heavy-handed compliance.  As an independent, I resent managing compliance to the lowest common denominator (ie, penalizing and restricting me simply because someone else has shown themselves to be incompetent.)

Indyone's picture
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YHWY wrote:As an employer, one has an obligation to know which tools it may trust its employees with. Sounds like RJ has decided its employees can't handle certain tools. As a non-correlated example, would you, as an employer, give an epileptic dynamite and a jack-hammer?
 
My problem with your analogy is that it assumes all employees are epileptic.

Sportsfreakbob's picture
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Joined: 2008-08-24

YHWY wrote:As an employer, one has an obligation to know which tools it may trust its employees with. Sounds like RJ has decided its employees can't handle certain tools. As a non-correlated example, would you, as an employer, give an epileptic dynamite and a jack-hammer? To echo Indyone's point - which is exactly what i thought when i read your post YHWY, tHats fine, and i understand your point - but what about the independents - independent is just that - independent - why go indie if you are going to have restrictions that assume you need to be prevented from exercising bad judgement.

Sam Houston's picture
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CDO Squared wrote:those Triples are like a futures contract
 
Not even close.

CDO Squared's picture
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Sam Houston wrote: CDO Squared wrote:those Triples are like a futures contract
 
Not even close.

3% dow move give u 9% move (200 point dow move)

how much does 1 s and p contract move in 200 pt dow day?
% wise ($500 a point)

im too dumb to do math

your right not a real commod.
but pretty high powered for freakin listed stock.   

futures are Heroin.   these little bad boys a line of coke?

YHWY's picture
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Joined: 2007-07-18

My point was that, obviously, RJ has perceived risk/liability of its brokers using certain tools (i.e. double/triple leveraged ETF's), nothing more, nothing less. Not all Indy's are created equal. I strongly suspect that RJ has evidence to back up its policy decision. Don't like their conclusion? Take it up with them or vote with your feet.

CDO Squared's picture
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Joined: 2009-01-20

i know.    freak show ADD i guess
no patience.
its a sickness that spreads.

my wife and gals and guys on team start sounding like me in emails.
its annoying getting them

somethimes i read them and am like WTF?
speak English dumb ass

Its like a STD i guess

CDO Squared's picture
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Joined: 2009-01-20

They are dangerous. Cramer was ranting about them.
Whatever the witch Doctor BS science projects inside these things, they do not act like they are suppose to.   
It seems like at market extremes (financial puts, China on upside etc) they accelerate up or down more then they should relative to underling index.

what was the last Wall Street product these MIT mensa math boys put together?

oh yea.....CDO's,SIV's,CDS.   
how'd that work out for you?

end of the free world? (time will tell)

Tin Cup's picture
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CDO Squared wrote:They are dangerous. Cramer was ranting about them. Whatever the witch Doctor BS science projects inside these things, they do not act like they are suppose to.    It seems like at market extremes (financial puts, China on upside etc) they accelerate up or down more then they should relative to underling index. what was the last Wall Street product these MIT mensa math boys put together? oh yea.....CDO's,SIV's,CDS.    how'd that work out for you? end of the free world? (time will tell)
 
Well if Cramer's again 'em, I'm again 'em.

CDO Squared's picture
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cramer is annoying
cramer lies
cramer is whip-saw boy
cramer is a know-it-all

but the sob is a gamer
went on with stewart
takes his hits
gets up
shows up everyday
always swinging
puts nads on line

for some reason I respect the guy

Spaceman Spiff's picture
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He has a show on TV.  Period.  I wouldn't trust Dr. Phil with my kid's psychosis and I wouldn't trust my parent's money with Cramer. 
 
If he's so good he needs to go back to running money full time. 

Conrad Dobler's picture
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CDO Squared wrote: Sam Houston wrote: CDO Squared wrote:those Triples are like a futures contract
 
Not even close. 3% dow move give u 9% move (200 point dow move) how much does 1 s and p contract move in 200 pt dow day? % wise ($500 a point) im too dumb to do math your right not a real commod. but pretty high powered for freakin listed stock.    futures are Heroin.   these little bad boys a line of coke?
 
Who hired someone with this level of language skills to run other people's money?

Conrad Dobler's picture
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Indyone wrote: 
My consternation is more towards RJ's heavy-handed control from the top.  This sounds like RJ's variable annuity policy, .
 
What's the objectional VA policy?

Bodysurf's picture
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Joined: 2008-08-02

I'm at an Indy firm that uses RJ to clear on our retail accounts, and this has prompted another move of our advisors to switch to the Ameritrade platforms.  RJ won't even let brokers buy these ETF's in our own accounts.I love these levered ETF's as a hedging tool, and to write covered calls against them.  The premiums are unbelievable, even in the near month.  And to issue a blanket statement that no broker can use no levered ETF in no accounts--even his own--is something you would expect from a wire.  Maybe when a few hundred million dollars moves off their platform, they'll reconsider.  But probably not.

Independent's picture
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Joined: 2006-08-15

Our firm also clears through Raymond James.  You can make points to both sides.  Leveraged ETFs might be good for a short term trade, but their long term value is open for debate.  For a quick example, go to yahoo.com/ finance.  Type in DIG and get a quote, then click on basic charts and type in DUG for comparison.  You will see two mirror opposite ETFs that should perform the inverse of each other; yet the performance is negative on both.  When there is volatility, the tracking on these things is sometimes horrendous.  It is just a matter of time before some lawyer comes out with a commercial, "Did you buy leveraged ETF's?  You may be entitled to compensation."  Raymond James probably decided the elephant in the living room had to go.

Indyone's picture
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Conrad Dobler wrote:Indyone wrote: 
My consternation is more towards RJ's heavy-handed control from the top.  This sounds like RJ's variable annuity policy, .
 
What's the objectional VA policy?
 
Back some time ago...maybe 2 years(?), RJ made a unilateral decision to cut comp on variable annuities, which effectively eliminated the L-share from their platform.  They claimed it was in the best interest of the customer, but it smells like a desire to widen the spread between what the firm gets and what it passes on to the rep (aka, the haircut...which in this case, looks like a crew cut).  From what I understand, VA firms had to make a RayJay-specific product, which brings up a second question as to whether these dogs could be transferred out to other B/Ds.

LuvIndy's picture
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Joined: 2008-06-25

Indyone wrote:Conrad Dobler wrote:Indyone wrote: 
My consternation is more towards RJ's heavy-handed control from the top.  This sounds like RJ's variable annuity policy, .
 
What's the objectional VA policy?
 
Back some time ago...maybe 2 years(?), RJ made a unilateral decision to cut comp on variable annuities, which effectively eliminated the L-share from their platform.  They claimed it was in the best interest of the customer, but it smells like a desire to widen the spread between what the firm gets and what it passes on to the rep (aka, the haircut...which in this case, looks like a crew cut).  From what I understand, VA firms had to make a RayJay-specific product, which brings up a second question as to whether these dogs could be transferred out to other B/Ds.
 
 
I believe the annuity changeover started almost 3 years ago now. In defense of RJ, when making the annuity companies create RJ specific products, they had them lower the M&E to match the lowered compensation requirements. Therefore the client was seeing a cost reduction to match the advisor's comp reduction, and I haven't heard anything to indicate RJ is scraping off the top.
 
Coming from Jones, the idea of company specific products made me cringe, but it was being done at a legitimate cost savings to the client. I believe they were generally fairly liberal on their structure (i.e. some C share annuities paying 1.25% trail), and I learned recently Met Life's RJ specific product has an L share structure available, so I sense the tide may be reversing already within the existing framework. 
 
Additionally, all of my Jones annuities (A shares included) moved to RJ without issue. The RJ specific ones are going to be the same. Every damn annuity contract is different anymore anyway, so pricing and product name is just another thing to keep track of.
 
 

someonewouldntexpect's picture
Joined: 2008-10-25

Anyone that's read the fund info knows they are only act like they're engineered to for a single day, not long. 

Broker Fee's picture
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Joined: 2004-11-30

Also in defense of my B/D RJ
 
http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20090315/REG/303159974
 
RJ is not the only B/D to remove certain products from it's plateform in the environment we have been operating in the past year. The article states that LPL & Commonwealth have removed certain annuities from their plateform. I have tons of respect for LPL & Commonwealth they are right up there with RJ, but they are also removing certain investment choices from their shelves.
 
While we as indy's would ultimately like to make the final decision as to what is or is not appropriate to sell these uncertain times have made all of our B/D's re evaluate their risk exposure. This removal of risky providers is likely to continue if the market decides to retreat again.
 
 

Indyone's picture
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Joined: 2005-05-30

I understand your point, and agree that B/Ds have a right to remove products that they deem unsuitable, although I quibble with removing products that are suitable in some instances.  In reading through the double and triple inverse ETFs, I'm doggoned glad I never recommended any.  At the same time, if some advisors can effectively use such products to hedge exposure, I hate to see their right to do so taken away just because they may not be right for my clients.
Likewise, I have no problem with my B/D removing an unstable carrier from my platform.  My beef going back to the original example, is a B/D jacking with my compensation.  That's one of the big reasons I originally went independent, and if LPL started that crap, it would be like stepping back in time.  I am glad to hear that RayJay may be loosening up a bit on that policy, as I thought it was stupid the day they rolled it out.

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