When closed-end funds prove to be a bad investment

The securities fraud attorneys at Frankowski have seen firsthand how retirement plans can be destroyed and dreams crushed when investors give bad advice or favor themselves before the needs of the investors. Our lawyers understand the complexities of closed-end funds and alternative securities options. Richard Frankowski. has been fighting aggressively for investors who have lost money due to broker negligence or fraud for over 15 years. His legal team has a strong record of success in front of securities arbitration panels and in other forums.

What are the dangers of closed-end fund investments?

There are some key risks to investing in closed-end funds. There is a strong chance that the fund’s assets will be distributed, and CEF investments include broker fees and costs on the original IPO as well. Every time a closed-end fund is bought or sold, the broker receives an additional commission.

Brokers have an incentive to repeatedly buy and sell these funds to make a lot of money off of commissions. Because closed-end funds tend to be concentrated, investment portfolios may not be properly diversified.

What questions should investors ask about closed-end funds?

FINRA recommends that investors ask their broker or brokerage firm the following:

• Are closed-end funds suitable for the investor’s objectives?
• What is the investment strategy for the closed-end fund?
• What portion of the price paid per share in an IPO will be invested?
• What tax considerations are there?
• How is the distribution rate set?
• Are the shares trading at a premium or discount to Net Asset Value (NAV)?

Our securities negligence attorneys also understand that the price the closed-end fund trades for depends on supply and demand. Closed-end funds often trade at a premium or discount to its NAV.