When FINRA announced its Business Conduct Priorities for 2014, the list included a peculiar investment known as Frontier Funds, or funds that operate in developing markets known as the frontier. Though frontier funds may sound like exciting opportunities under certain conditions, the uncertainty associated with developing or foreign markets can insert undue risk.
Frontier funds often operate in unfamiliar markets which happen to include those in the developing world. Such foreign markets can be risky just as they are attractive because a market in Africa or the Middle East, for instance, is "far behind on the development curve" and therefore susceptible to unique threats, such as less liquidity or—more notably—lower investor protection standards.
For instance, FINRA's reach may not extend to west Asia, even if such a fund is sponsored or solicited through a U.S. brokerage firm. When it comes to exchange-traded funds ("ETFs") and similar products, that concern can be magnified.
Nonetheless, the appeal of the frontier is that same unpredictability and hope for growth. For instance, the iShares MSCI Frontier 100 ETF (FM) grew 20% in 2013 while a comparable emerging market fund lost 3.7%.
When investing—especially in a developing or foreign market—accurate and reliable information is of tantamount importance, and brokers have an obligation to provide the same to their clients.
If you have invested in a frontier fund following a broker or adviser's misrepresentation or omission of material facts, and such misinformation has proven harmful to your financial interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881.
News: FINRA turns its ever-watchful eye on frontier funds (InvestmentNews)