The Doss Firm, LLC is currently investigating whether Ameriprise Financial f/k/a H&R Block Financial Advisors violated industry rules on a wide-spread basis in connection with the unsuitable sale of reverse convertible notes to senior citizens.
FINRA fined the firm as well as Andrew MacGill, a broker with the firm, this week for making unsuitable sales of reverse convertible notes to a senior couple. Andrew MacGill practices out of Tampa, Florida. The Doss Firm, LLC has been retained by other Ameriprise clients who are complaining they too were sold reverse convertible notes.
Reverse convertible notes are inherently very risky investments. Unfortunately, in many instances they were sold as safe income-producing alternative investments, which is why FINRA has taken action against H&R Block Financial Advisors.
A reverse convertible note is a type of structured product. According to Notice To Members (“NTM”) 05-59, structured products are securities created by investment banks that are derived from or based on a single security, a basket of securities, an index, a debt issuance, and/or foreign currency. As such, these investments come in many shapes and sizes.
Most structured products pay an interest or coupon rate substantially above the prevailing market rate. Structured products also frequently cap or limit the upside participation in the referenced asset. These unique financial instruments are typically issued by investment banks or their affiliates and have a fixed maturity date. Some structured products are listed on a national securities exchange and some are not. Because they are so unique, however, even those listed on a national exchange are thinly traded.
As a result, once an investor purchases such an investment, it is difficult to get out of it prior to the maturity date without suffering a substantial penalty. Structured products typically have two components – a note and a derivative (often an option). The note pays interest to the individual at a specified rate and interval. The derivative component or option component establishes the payment upon maturity.
Most reverse convertibles sold to consumer are linked to a single stock in a household name company (e.g. Jet Blue, Norfolk Southern, Lowes and Bristol Myers to name a few.) Prior to the maturity date, which was typically only a few months, investors receive interest payments at a rate that is higher than the prevailing market rate. Importantly, the reverse convertible notes do not allow investors to participate in any upside in the referenced underlying stock. Investors fully participate, however, in all downside market risk of that stock, because upon maturity (i.e. at the expiration of the option), if the price per share of the underlying stock falls below a predetermined value, the note converts into shares of underlying common stock at the eroded price per share. In other words, in exchange for receiving some income, investors risk losing some or all of their principal investment by assuming all of the downside risk of the underlying stock and by giving up all of the upside potential.
If you believe you have been sold unsuitable reverse convertible notes and suffered losses, you may have a claim to recover damages. Please contact The Doss Firm, LLC at 770-268-2404.
Jason Doss is the owner of The Doss Firm, LLC, an Atlanta-based law firm devoted to representing consumers across the country in a variety of areas including investment disputes and consumer class action litigation. Mr. Doss earned his J.D. from Florida State University in 2002 and his B.A. from the University of Florida in 1997.