LPL Financial is still worried about some leveraged index investments. Clarifying the firm's decision last week to forbid its reps from using leveraged index ETFs with magnification more than 2x, a company spokesman confirmed that the Boston and San Diego-based independent broker-dealer is including plain vanilla, non-ETF leveraged mutual funds in its ban, too.

"Based on a recent review, LPL Financial decided to prohibit the the sale of leveraged ETFs and mutual funds that seek more than 2x the long or short performance of the target index," LPL spokesman Joseph Kuo told the MFWire in an emailed statement, adding that LPL also offers advisor education and point of sale disclosures regarding leveraged index investments.

Like LPL's initial decision regarding leveraged index ETFs, this move basically only affects one of the three providers, Direxion. Direxion appears to be the only leveraged index fund provider with non-ETF mutual funds that offer more than 2x leverage and the only one who focuses on ETFs with more than 2x leverage (though ProShares does offer two 3x ETFs in addition to its 2x ones).

Yet this clarification may not matter much even for Direxion. Andy O'Rourke, senior vice president and marketing director for Direxion, noted that, even now, Direxion's leveraged international index funds already offer only 2x leverage. As for its domestic funds, the same filing this month that change Direxion's funds from tracking indexes daily to tracking them monthly, Direxion also proposed to switch the rest of its non-ETF leveraged mutual funds from 2.5x leverage to 2x, which would exempt them from LPL's ban. O'Rourke expects the funds to change by the end of the summer.

Several other B-Ds have also created policies regarding leveraged index ETFs, and others are looking into it. 

Edited by: Neil Anderson, Managing Editor


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