Some concerns for investors

You're not alone if you are unhappy with the interest rates you are earning on your fixed income investments. Money market funds, savings accounts, and CDs are paying next to nothing. That's a problem if you were counting on your investment income to help pay your living expenses and you are now finding yourself spending principal just to keep up with inflation.

The Financial Industry Regulatory Authority, Inc. (FINRA) recently released a 16-page letter discussing how this challenge might lead you astray by making you susceptible to recommendations to chase yields without understanding the risks involved. Here is a list of some of the retail broker-sold investment products to consider:

· "Mortgage-backed securities" can carry significant re-investment risk, which can strongly affect your yield.

· "Non-traded REITS" can offer diversification benefits as part of a balanced portfolio but they have little price transparency and liquidity.

· "Municipal Securities" on the whole can offer significant benefits but they should be suitable for you. FINRA is asking brokers to obtain sufficient information about the issuer, disclose all material facts, and trade at prices that are fair and reasonable.

· "Complex exchange-traded products" (e.g. some ETFs) sometimes employ sophisticated strategies that can expose you to unforeseen risks. FINRA is especially concerned about ETFs that use synthetic derivatives and significant leverage, and says that during times of stress or volatility they may perform in unanticipated ways.

· "Variable annuities" can offer valuable benefits if you are seeking predictable income payments, tax deferral for investment gains, and flexible investment choices. But they have certain risks that might make them unsuitable for you, including long holding periods and significant surrender costs. High fees and expenses may result in poor performance.

High commissions can make the product a target for switching, meaning your broker might attempt to sell you a new one every few years. Brokers are required to inform you of the good and the bad features along with the associated costs of a variable annuity.

· "Structured products" might be sold to you with attractive yields and/or some promise of principal protection. FINRA warns that these products can be very complex and hard to understand. Possible problems include uncertain returns and potential illiquidity.

· "Private placements" are offers to purchase unregistered securities. FINRA is concerned that you be knowledgeable in these securities and meet personal income and balance sheet requirements.

· "Church bonds" can carry substantial credit and market risk that you may be unaware of. Since these bonds are frequently sold to folks who will buy them just because of their relationship with a church, they can occasionally be vehicles for fraud.

· "Promissory notes" can put you in significant danger of substantial credit and market risk exposures that may not be apparent to you.

· "Life settlements" involve the sale of existing life insurance policies to third parties. FINRA says they generally come with very high commissions and some risk, including the risk that the insurer may challenge the validity of the contract and not pay.

· "Microcap fraud" involves the sale of penny stocks and is particularly vulnerable to market manipulation. Beware of false or misleading information attempting to pump up the value of a microcap stock, high-pressure sales tactics, and "unbiased opinions."

Kenneth B. Petersen is an investment adviser and principal of Monterey Private Wealth, Inc., in Monterey. Send questions concerning investing, retirement or estate planning to 2340 Garden Road, Suite 202, Monterey 93940.