| 22 July 2009

Looks like you'll have to look elsewhere if you're an Edward Jones client and want to get in on the Ultra3x fad. Leveraged ETFs, such as Direxion's very popular Financial Bear 3x (FAZ), use futures and derivatives to multiply the potential returns (or losses) of a particular index. FINRA came down hard on the product and issued a warning this month to advisers about the potential for abuse and misconduct.

Edward Jones, which bills itself as a relationship-driven business, decided not to take any chances and removed the leveraged funds from its mix of products entirely. At issue is not the funds themselves so much as how they're sold and whether investors understand what they're buying. We don't expect the online discount brokers to run away any time soon. They've typically done a good job of leaving suitability up to the client, especially for a non-solicited trade.

But the fact that FINRA is cracking down and now EJ is dropping the product certainly adds some mystique to what was already a bit of a Cinderella story. The FAZ was launched by Direxion only last November and yet quickly became one of the most traded securities on any given day. Analysts were calling for a reverse stock split just four months after its launch to try and reduce some of the volatility. Ultimately Direxion opted for a 1 for 10 reverse stock split on July 9.

In a report, an Edward Jones analyst called leveraged ETFs, "one of the most misunderstood and potentially dangerous types of ETFs."