(Bloomberg) -- Brokers selling higher-fee investments like non-traded real-estate investment trusts and derivative-backed structured notes may get more scrutiny this year after those markets grew in 2013.

FINRA will examine how brokers are paid for selling securities and look at funds that have risks individual investors might struggle to understand, according to the regulator's 2014 priorities letter. The “complex” investments may be sensitive to changes in interest rates or volatility, FINRA said.

The regulator’s letter comes as investors bought more private REITs and structured notes tied to stocks than in 2012 as property and equity values rose, according to data compiled by Bloomberg and from investment bank Robert A. Stanger. The watchdog proposed last month a trading-surveillance system to prevent brokers from overcharging their customers.

The fees may be a “strong incentive” to sell unsuitable investments to individuals, FINRA said. The watchdog also intends to examine how brokers explain risks, according to the letter, which was posted on FINRA’s website Thursday.

Sales of structured notes tied to stocks rose 20% last year to $30.4 billion as the Standard & Poor’s 500 Index jumped the most since 1997, Bloomberg data show.

Brokers are estimated to have raised a record $20 billion for non-traded REITs last year, said Nancy Schabel, vice president at Robert A. Stanger, which tracks the market.

The S&P/Case-Shiller index of property prices in 20 cities climbed 13.6% in October from the year-ago period, the biggest 12-month gain since February 2006, a report from the group showed Dec. 31.


FINRA also intends to examine the marketing and sales of mortgage-backed securities, long-duration bond funds and exchange-traded funds, it said. The watchdog may scrutinize frontier funds in less developed markets, long-duration corporate bonds, emerging market debt, municipal securities and notes sold in small denominations.

The points in the annual letters are a way for firms to plan, make sure their systems are compliant and ascertain that they have “the appropriate controls,” Michelle Ong, a spokeswoman for Finra in Washington, said in a telephone interview.

Duration is a gauge of securities’ price sensitivity to rate moves.

Banks create structured notes by packaging debt with derivatives to offer customized bets to retail investors while earning fees and raising money. Derivatives are contracts with values derived from stocks, bonds, commodities and currencies, or events such as changes in interest rates or the weather.

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