Structured Products

A structured product is a prepackaged investment that usually has one or more derivatives and is tied to interests. The Financial Industry Regulatory Authority (FINRA) describes this complex investment as based on/from a security (or a basket of security), a commodity, an index, a foreign currency, and/or a debt issuance. Market-linked derivative investments, structured products can either be sold directly to investors or embedded in other products.

There are different types of structured products, which can come with various characteristics. For example, a structured product can take a traditional security and swap out usual payment features with payoffs that are not traditional, such as the performance of at least one of the underlying assets instead of the issuer’s cash flow. It also can be principal-guaranteed while rendering returns upon maturity.

Often touted by broker-dealers and their registered representatives as conservative, income-making investments, structured products tend to be high-risk, such as through market exposure or leveraged features. They also can be very illiquid and will usually charge high fees and commissions.

Although brokerage firms do sell structured products to retail investors, they are hardly ever suitable for inexperienced and conservative investors. Yet structured products continue to be touted as a guaranteed income source. They’ve grown popular with many inexperienced investors looking for a higher yield than what they would usually get from a certificate of deposit (CD) or a money market fund.

Our structured product fraud attorneys at Shepherd Smith Edwards and Kantas (SSEK Law Firm at investorlawyers.com) represent investors who have suffered losses from these complex investments.

Unfortunately, broker-dealers continue to market and sell structured products to customers for whom they are unsuitable. If you are one of these investors, contact us at (800) 259-9010 today so that we can help you explore your legal options.

• Structured CDs
• Harvest Volatility Collateral Yield Enhancement Strategy (CYES)
• UBS Yield Enhancement Strategy (UBS YES)
• Mortgage-backed securities (MBSs)
• Structured collateralized debt obligations (CDOs)
• Steepener structured notes
• Vida Longevity Fund

In this video, Shepherd Smith Edwards and Kantas partner and attorney, Sam Edwards, talks about structured finance products:

Granted, there are benefits involving structured products depending on the specific investment. Principal protection, enhanced returns, the possibility of reduced volatility, and the chance to make a positive return even in a low-yield situation are some of them. But the risks can be greater, including:

• Taking on credit risks. Structured products tend to be unsecured debt.
• No liquidity.
• There is no guarantee of making income even when high-risk derivatives are involved.
• Lack of transparency regarding pricing or any hidden costs.
• The risk of losing most or all of an investor’s principal.
• Changes in interest rates.
• Any guarantees of principal protection are only as solid as the company’s financial stability who is making that guarantee.
• Should an investor need to cash out before maturity, selling structured products to anyone (including reselling them to the purchaser) may prove challenging.

Both sophisticated customers and retail investors remain drawn to structured products and the chance to make returns from the performance of securities or an index. Yet these investments can be difficult for even the most experienced investors to understand.

Investment professionals also may find structured products challenging to explain to retail customers. Still, brokers must make sure any investment they recommend is a good fit for an investor, but also, they must appraise each client of the risks involved in a way that the latter can fully comprehend. Unfortunately, many brokerage firms continue to sell structured products to investors for whom they are unsuitable, including older investors and retirees.

If you are an investor who has suffered losses in structured products, you may be able to recover damages from your registered representative and their broker-dealer by filing a Financial Industry Regulatory Authority (FINRA) arbitration claim. For your free case consultation with a knowledgeable structured product fraud attorney at SSEK Law Firm today. Call (800) 259-9010 or contact us online.