According to FINRA, Berthel, Fisher & Company Financial Services, Inc. was censured and fined $100,000 for failing to exercise due diligence when approving options trading and for recommending unsuitable options transactions to a customer.

The firm failed to verify a customer's investment experience and knowledge when reviewing a request for options trading approval. A broker recommended that the customer begin trading options to generate income, and submitted a form indicating the customer had good knowledge of options and moderate experience trading them. In reality, the customer had little or no knowledge of options and zero experience with options investing.

The firm also failed to apply its own income and net-worth guidelines for options trading. These guidelines should have limited the customer to the firm's Level 1 options trading, which included only covered-call writing. Instead, the firm approved the customer for Level 2, which included riskier types of options trading. The firm approved this without providing the required written explanation for deviating from its guidelines.

The broker then recommended unsuitable options transactions, including purchases of call and put options that carried the risk of total loss if they expired out of the money. These transactions resulted in net losses of more than $31,000 in the customer's account.

The findings also revealed broader supervisory failures. The firm failed to enforce its written procedures regarding options trading. Contrary to those procedures, the firm approved options trades while failing to respond to red-flag warnings that many transactions were potentially unsuitable. The firm did not provide options-specific training for its registered options principals and did not oversee their activities. The reports used for daily review of options transactions did not include information relevant to suitability reviews, such as the account's profit or loss over time.

Investors should understand that options trading involves significant risks and is not appropriate for inexperienced investors. Firms must conduct proper due diligence before approving options trading and must adhere to their own suitability guidelines. Warning signs of unsuitable options trading include frequent transactions, high commissions relative to account value, and recommendations that do not match your investment experience or objectives.