What is selling away?

Selling away refers to the practice of a broker or financial advisor recommending or selling a security that is not on the approved product list of their firm. This can occur when the broker or advisor has a financial incentive to recommend the security, such as a commission or fee, or when they believe that the security is a good investment for their client.

Selling away can be a serious violation of securities laws and regulations, as it can lead to investors losing money. In some cases, selling away can also be considered fraud.

There are a number of reasons why a broker or advisor might sell away. In some cases, they may simply be unaware that the security is not on their firm's approved product list. In other cases, they may be pressured by their clients to recommend a particular security. Whatever the reason, selling away is a serious issue that can have significant consequences for both the broker or advisor and their clients.

If you are considering investing in a security that is not on your broker's or advisor's approved product list, you should be aware of the risks involved. You should also consider getting a second opinion from an independent financial advisor.

Selling Away

Selling away is a serious issue that can have significant consequences for both the broker or advisor and their clients. It is important to be aware of the risks involved in selling away and to consider getting a second opinion from an independent financial advisor before investing in a security that is not on your broker's or advisor's approved product list.

Unapproved Products
Financial Incentives
Client Pressure
Securities Laws
Fraud
Investor Losses

Selling away can occur when a broker or advisor recommends or sells a security that is not on the approved product list of their firm. This can happen for a number of reasons, including financial incentives, client pressure, or a lack of knowledge about the security. However, selling away is a violation of securities laws and regulations and can lead to serious consequences, including fines, imprisonment, and loss of license.

Investors who are considering investing in a security that is not on their broker's or advisor's approved product list should be aware of the risks involved. They should also consider getting a second opinion from an independent financial advisor before making any investment decisions.

1. Unapproved Products

Unapproved products are securities that are not on the approved product list of a broker-dealer firm. This means that the firm has not reviewed the security and has not determined that it is suitable for sale to its customers.

High Risk
Unapproved products are often high-risk investments that are not suitable for all investors. They may be complex, illiquid, or have a high potential for loss.
Limited Information
Unapproved products may have limited information available to investors. This can make it difficult for investors to understand the risks and potential rewards of the investment.
Sales Pressure
Brokers and advisors may be pressured to sell unapproved products to meet sales targets or generate commissions. This pressure can lead to investors being sold unsuitable investments.
Regulatory Violations
Selling unapproved products can be a violation of securities laws and regulations. This can lead to fines, imprisonment, and loss of license for the broker or advisor.

Investors should be aware of the risks involved in investing in unapproved products. They should only invest in these products if they understand the risks and are prepared to lose their investment.

2. Financial Incentives

Financial incentives are a major factor in the problem of selling away. Brokers and advisors may be tempted to recommend or sell unapproved products if they receive a financial incentive to do so. This incentive may come in the form of a commission, fee, or other payment.

Commissions
Commissions are a common financial incentive for brokers and advisors to sell away. When a broker or advisor sells a security, they may receive a commission from the sale. This commission is typically a percentage of the amount of the sale.
Fees
Fees are another financial incentive for brokers and advisors to sell away. When a broker or advisor recommends a security, they may receive a fee from the issuer of the security. This fee is typically a flat fee or a percentage of the amount of the investment.
Other Payments
Brokers and advisors may also receive other payments for selling away. These payments may include bonuses, trips, or other perks.
Sales Targets
Brokers and advisors may also be pressured to sell away to meet sales targets. These targets are set by their firms and can be difficult to achieve. This pressure can lead brokers and advisors to recommend or sell unapproved products that they may not otherwise recommend or sell.

Financial incentives can create a conflict of interest for brokers and advisors. This conflict of interest can lead to brokers and advisors recommending or selling unapproved products that are not in the best interests of their clients.

3. Client Pressure

Client pressure is a major factor in the problem of selling away. Clients may pressure their brokers or advisors to recommend or sell unapproved products for a variety of reasons, including:

Lack of knowledge: Clients may not be aware that the security is not on their broker's or advisor's approved product list
Financial need: Clients may be desperate for investment income and may be willing to take on more risk than they should
Peer pressure: Clients may be influenced by friends or family members who have invested in the security
Sales pressure: Clients may be pressured by their broker or advisor to invest in the security

Client pressure can be a significant challenge for brokers and advisors. They may feel pressured to recommend or sell unapproved products even if they believe that the products are not in the best interests of their clients. In some cases, brokers and advisors may even give in to client pressure and sell away.

It is important for investors to be aware of the risks of client pressure. They should not feel pressured to invest in a security that they do not understand or that they are not comfortable with. Investors should also be aware of the potential conflicts of interest that can arise when their broker or advisor is under pressure to sell a particular security.

4. Securities Laws

Securities laws are a body of laws and regulations that govern the offer, sale, and purchase of securities. These laws are designed to protect investors from fraud and abuse, and to ensure that the securities markets are fair and efficient.

Registration
One of the most important securities laws is the Securities Act of 1933. This law requires that all securities offered for sale to the public be registered with the Securities and Exchange Commission (SEC). The registration process involves filing a registration statement with the SEC that contains detailed information about the security, the issuer of the security, and the offering.
Anti-Fraud
Another important securities law is the Securities Exchange Act of 1934. This law prohibits fraud and manipulation in the securities markets. It also requires publicly traded companies to file periodic reports with the SEC that contain financial and other information about the company.
Broker-Dealer Regulation
The Securities Exchange Act of 1934 also regulates broker-dealers. Broker-dealers are firms that buy and sell securities for their customers. The SEC requires broker-dealers to register with the SEC and to comply with a number of rules and regulations designed to protect investors.
Enforcement
The SEC is responsible for enforcing the securities laws. The SEC has a number of enforcement tools at its disposal, including the ability to bring civil and criminal actions against violators of the securities laws.

Securities laws play a vital role in protecting investors and ensuring the integrity of the securities markets. Selling away is a serious violation of the securities laws, and it can have significant consequences for both the broker or advisor and their clients.

5. Fraud

Fraud is a serious violation of the securities laws, and it can have significant consequences for both the broker or advisor and their clients. Selling away is a type of fraud that occurs when a broker or advisor recommends or sells a security that is not on the approved product list of their firm. This can happen for a number of reasons, including financial incentives, client pressure, or a lack of knowledge about the security.

Misrepresentation
One of the most common types of fraud in the context of selling away is misrepresentation. This occurs when a broker or advisor makes false or misleading statements about a security to induce an investor to buy or sell the security. For example, a broker or advisor may misrepresent the risks of a security, the potential return on investment, or the liquidity of the security.
Omission
Another common type of fraud in the context of selling away is omission. This occurs when a broker or advisor fails to disclose material information about a security to an investor. For example, a broker or advisor may fail to disclose that the security is not on their firm's approved product list, that the security is illiquid, or that the security has a high risk of loss.
Unauthorized Trading
Unauthorized trading is another type of fraud that can occur in the context of selling away. This occurs when a broker or advisor buys or sells a security for a client without the client's authorization. Unauthorized trading can result in significant financial losses for the client.
Churning
Churning is a type of fraud that occurs when a broker or advisor excessively trades a client's account in order to generate commissions. Churning can result in significant financial losses for the client.

These are just a few of the types of fraud that can occur in the context of selling away. It is important for investors to be aware of these types of fraud and to take steps to protect themselves from becoming victims.

6. Investor Losses

Selling away can lead to significant investor losses. This can happen in a number of ways, including:

Unsuitable Investments
When brokers or advisors sell away, they may recommend or sell investments that are not suitable for their clients. This can happen for a number of reasons, including financial incentives, client pressure, or a lack of knowledge about the security. Unsuitable investments can result in significant losses for investors.
Misrepresentation and Omission
Brokers or advisors who sell away may also misrepresent or omit material information about the security to investors. This can lead investors to make investment decisions based on incomplete or inaccurate information, which can result in losses.
Unauthorized Trading
In some cases, brokers or advisors who sell away may engage in unauthorized trading. This means that they may buy or sell securities for clients without the clients' authorization. Unauthorized trading can result in significant losses for investors.
Churning
Churning is a type of fraud that can occur when brokers or advisors excessively trade a client's account in order to generate commissions. Churning can result in significant losses for investors, as they may be charged excessive commissions and may see their investment returns diminished.

These are just a few of the ways that selling away can lead to investor losses. It is important for investors to be aware of these risks and to take steps to protect themselves from becoming victims.

Frequently Asked Questions about Selling Away

Selling away is a serious issue that can have significant consequences for both the broker or advisor and their clients. It is important to be aware of the risks of selling away and to take steps to protect yourself from becoming a victim.

Question 1: What is selling away?

Selling away is the practice of a broker or financial advisor recommending or selling a security that is not on the approved product list of their firm. This can occur when the broker or advisor has a financial incentive to recommend the security, such as a commission or fee, or when they believe that the security is a good investment for their client.

Question 2: Why is selling away a problem?

Selling away can be a problem because it can lead to investors losing money. In some cases, selling away can also be considered fraud.

Question 3: What are the risks of selling away?

The risks of selling away include:

Unsuitable investments
Misrepresentation and omission
Unauthorized trading
Churning
Investor losses

Question 4: How can I protect myself from selling away?

You can protect yourself from selling away by:

Investing only with reputable brokers and advisors
Asking your broker or advisor about their approved product list
Getting a second opinion from an independent financial advisor

Question 5: What should I do if I think I have been a victim of selling away?

If you think you have been a victim of selling away, you should contact your state securities regulator or the SEC.

Selling away is a serious issue, but it can be avoided by taking the proper precautions. By being aware of the risks and taking steps to protect yourself, you can help ensure that your investments are safe.

To learn more about selling away, please visit the SEC's website.

Conclusion

Selling away is a serious problem that can have significant consequences for both investors and the financial industry. It is important to be aware of the risks of selling away and to take steps to protect yourself from becoming a victim.

By taking the proper precautions, you can help ensure that your investments are safe and that you are not a victim of selling away.