Investors Beware: Structured Products Not Suitable for All Investors

Securities fraud attorneys are currently investigating potential claims on behalf of investors who suffered losses in a variety of structured product investments. Wall Street has marketed structured notes and other products as safe and secure, but what does that really mean? One thing is certain, safe and secure does not mean risk-free. According to a study recently conducted by the nonpartisan policy center Demos and The Nation Institute, $113 billion has been lost by investors as a result of purchasing these “safe” instruments.

Furthermore, the study concluded that over $52 billion in structured notes were sold in 2010 alone. Investment fraud lawyers are concerned about what this increase in structured product sales means. Structured products have previously been sold only to sophisticated institutional investors. However, recent years have seen a repackaging of these products as a principal protection tool that is then sold to retail investors, who are often senior citizens. The study also stated that these products are among the most popular for pitching to income-oriented investors.

Structured products combine a zero-coupon bond and an option with a payoff that is linked to an index, benchmark, basket of benchmarks or an underlying asset. The notes can provide upside potential and reasonable returns when they pay off based on the linked index’s performance. Securities fraud attorneys say that this method of payoff can be very attractive given today’s market, but structured products can be extremely complex. A Financial Industry Regulatory Authority (FINRA) and Securities and Exchange Commission alert warned investors that these products often come with low guarantees, confusing terms and, in some cases, can keep money tied up in the investment for up to a decade.

In many cases, brokers and advisers may recommend structured products to investors for which the product is unsuitable. FINRA rules have established that brokers and firms have an obligation to fully disclose all the risks of a given investment when making recommendations, and those recommendations must be suitable for the individual investor receiving the recommendation given their age, investment objectives and risk tolerance.

If you believe you were unsuitably recommended structured products by your broker or adviser, you may be able to recover your losses through securities arbitration. To find out more about your legal rights and options, contact an investment fraud lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.