But these types of ETFs can lead to devastating losses when held for more than a day and are traditionally recommended only for sophisticated investors.
Wells Fargo recommended that some clients hold them for “months or years,” even though those clients had “moderate or conservative risk tolerances,” according to the SEC settlement. “Some of these clients had little or no relevant investing experience.”
Wells Fargo said in a statement that it will no longer sell “single-inverse ETFs” in its “full-service brokerage” but that customers could still buy them from other providers.
The $35 million penalty will be distributed to Wells Fargo investors who were harmed, the SEC said.
Wells Fargo was sanctioned by the industry’s self regulator, the Financial Industry Regulatory Authority, in 2009 for sales practices involving these ETFs, but the conduct continued until 2019, according to the SEC.
“Wells Fargo’s policies and procedures relating to single-inverse ETFs … were not reasonably designed to prevent and detect unsuitable recommendations of these complex products,” the SEC said.
The fine comes as Wells Fargo struggles to repair its image after admitting to consumer abuses. Last week, it reached a $3 billion settlement with the Justice Department and the SEC to settle charges that its aggressive sales goals led to widespread consumer abuses, including millions of accounts opened in customers’ names without the customers’ consent.