A Structured Note is a debt security issued by financial institutions. Its return is based on equity indexes, single equity, a basket of equities, interest rates, commodities, or foreign currencies. The performance of a Structured Note is linked to the return on an underlying asset, group of assets, or index.
A major disadvantage of Structured Notes is that the investor must undertake significant credit risk if the issuing investment bank forfeits its obligations, as was the case with the collapse of Lehman Brothers in 2008.
Structured Notes can be principal-guaranteed that issue returns on the maturity date.
The risks associated with Structured Notes can be fairly complex—they may not be insured by the FDIC and they tend to lack liquidity. Specifically, FINRA has described a complex product as a product with features that may make it difficult for a retail investor to understand the essential characteristics of the product and its risks (including the payout structure and how the product may perform in different market and economic conditions).
Structured Notes may offer big payouts, but those advertised yields aren’t always worth the risks, particularly for a person who cannot risk his or her principal investment, such as a retiree, an elderly person or a person who must rely on a future stream of income for the rest of his life.
Research on how Structured Notes have performed, reveal they often fail.
Because Structured Notes can be built (“structured”) in so many different ways, Structured Notes may be suitable for some investors who are looking to diversify their portfolio with an alternative investment, such as a Structured Note.
It’s not the same correlation, however, with either bonds or stocks, to provide just further diversification. Structured Notes are much riskier and may not be in your best interest.
Contact a Securities Attorney Near You
If you have lost part or all your investment from a Structured Note, call our Michigan Securities Law Firm for a consultation. Our securities lawyers have extensive knowledge and experience and will fight to recover undue losses and protect your investor rights.