Investors are urged to be cautious about purchasing structured notes. Brokers are on track to sell more than $10 billion of structured notes linked to the S&P 500 stock index this year. In fact, sales will reach the highest levels in at least three years, according to Bloomberg (“Structured Notes Tied to S&P 500 Set to Top $10 Billion for Year”).
Issuers of the securities have sold an average $882.4 million of structured notes a month through October, up 8 percent from last year. Notes linked to the S&P 500 comprise more than one-quarter of total sales. The S&P 500 is the most commonly linked asset for U.S. structured notes.
Structured notes are alternative investment products. These complex products are not so much asked for by customers as pushed by brokers. The problem is, neither the brokers nor most of their customers fully understand the associated risks and problems.
Investors are attracted to structured products by sales pitches that claim the products are a safe way to earn extra yield in a persistent low-yield environment. These products are not safe, however. This is especially true of structured notes, which are really nothing more than an unsecured obligations of the issuer.
Investors should be very cautious and skeptical when considering structured notes and other alternative investments.
Page Perry is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.