Edelman, Nadig Say FINRA Complex Product Ideas Are 'Unworkable,' Terrifying

However, "important regulatory concerns arise when investors trade complex products without understanding their unique characteristics and risks," FINRA said.

Nadig told FINRA in his comment letter that "If you chase all of the footnotes and referenced documentation (hand up!), it's not hyperbole to suggest that every fund providing anything but plain vanilla beta exposure to stocks and bonds would be included" in FINRA's list of complex products.

"In filings and commentary referenced, FINRA has suggested everything from structured notes with knock-out features all the way down to the simplest Target Date Fund would be scooped up," Nadig continued.

"I agree that some products are complex, however modern markets are complex," he added.

"The role of the SEC is to determine what products are available to investors under what rules. Just a few years ago, after 20 years, they finally codified what is and isn't an ETF under rule 6C11. I believe the SEC is the appropriate jurisdiction to continue to define and maintain any kind of classification of products by type or structure."

Encourage Investors to Rely on Advisors

Edelman, founder of Edelman Financial Engines who now leads the Digital Assets Council of Financial Professionals, or DACFP, told FINRA in his letter that while the regulator is "correct to acknowledge that investment-product complexity has exceeded the knowledge base for most investors, and that efforts are indeed needed to reduce this gap," requiring investors to pass a competency exam is "fatally flawed."

Said Edelman: "Testing investors before they invest so they can prove they have the knowledge required to make informed investment decisions is completely unworkable. Any attempt to implement would create havoc in the marketplace, disrupt the entire asset management industry, and materially harm millions of Americans who are striving to save for retirement."

The better, easier way: "FINRA should encourage investors to rely on the services of a professional financial advisor," Edelman said. "Advisors are already required to pass an extensive battery of exams, at both the federal and state levels, and are obligated to complete ongoing continuing education requirements to maintain their proficiency."