Yield Seeking Investors Beware of Structured Notes

Friday, December 14th, 2012

According to an Investment News report, structured notes are poised to surpass FDIC-principal protected structured certificates of deposit in popularity in the year ahead.  This is in large part due to the Fed’s ongoing low-interest-rate policy, since investors looking for income have to be more creative to find any kind of nominal return.

The risk, of course, is that the investors that most often seek income are retired investors who can ill afford the risks of structured products.

At the core of any structured product strategy is the use of derivative instruments designed to hedge or leverage the exposure of an underlying investment, such as the S&P 500 Index.

Structured products, which have set maturities, are created and issued continuously, and they come in multiple flavors.

A structured note, for example, might limit losses at 10% and cap performance at 15% for the period of the contract.

But when the derivatives are used for principal protection in a low-interest-rate environment – such as with structured CDs – it is almost impossible for performance to keep pace with inflation.

Thus, structured notes are debt instruments that expose investors to the financial health of the issuing firm.  This fact is often not explained.

The White Law Group continues to investigate structured products and the litigation options investors in these products may have if they have sustained losses.

Financial advisors and broker-dealers have a duty to their clients to perform the necessary due diligence on an investment before offering it for sale to their clients and to ensure that any investment recommendation that is made is suitable in light of the client’s age, investment experience, net worth, and investment objectives.   Unfortunately for investors in structured products, brokerage firms often down play the risk of these products to their clients.  To the extent that a financial professional or brokerage firm misrepresents the risk of a structured product, they may be liable for any resulting loss.

If you have questions about a structured product investment you made, please call the securities attorneys of The White Law Group at 312/238-9650 for a free consultation.

The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Boca Raton, Florida.

For more information on The White Law Group, visit http://www.whitesecuritieslaw.com.

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