Autocallable Structured Notes

Have you been sold an unsuitable investment by your broker or financial advisor? If so, Wolper Law Firm may be able to help you recover from your loss. Typically, autocallable structured notes are unsuitable for many investors due to their complex structure, illiquid nature, credit risk, and other factors. All investment advisors have an ethical and legal responsibility to only recommend financial products that are suitable for their clients’ risk appetites and profiles. When they fail to perform due diligence on the legitimacy of a product, put their own interests before those of their clients, or wrongfully recommend risky investments, they can be held accountable with the help of an investment fraud lawyer.

Structured Notes Explained

Structured notes are a kind of structured product, or a debt holding that is linked to the performance of an underlying asset or index. Structured notes are notoriously complex debt securities that include an embedded derivative aspect as well as the stock, bond, or initial asset. For instance, a standard structured note might look like a five-year bond coupled with a commodities futures contract. Return of principal is linked to the performance of the commodity in the overall market, or the performance of the S&P 500 with gains and losses (either capped or uncapped). This allows investors the opportunity to recover both their initial investment as well as a higher rate of profit depending on futures performance. However, as structured products do not typically involve full principal protection, it is also possible to lose income payments – even 100% of the initial investment if one of the underlying stocks or assets falls to a price below the Coupon Barrier.

Structured products examples can include participating notes (P-Notes), reverse convertible notes, leveraged notes, yield enhancement notes, or notes with minimal redemption of principal at maturity. These notes differ in what kinds of protection they offer to investors as well as levels of return.

What Is an Autocallable Note?

Structured notes may seem like a good investment opportunity, especially when an autocall feature is attached. But every seasoned investor knows that if it sounds too good to be true, it probably is.

An autocallable note is a market-linked investment that includes a coupon that is only available if the note automatically matures before a set maturity date. A note can be automatically matured if its value meets or exceeds its reference asset. If this happens, the investor can then make a considerable return with the coupon. However, these autocallable structured notes are not without risk.

Autocallable notes are highly speculative. Payment upon autocall varies, and can expose investors to loss of the principal depending on the performance of reference assets. When the underlying derivative becomes volatile, such as due to equity prices, interest rates, and foreign exchange rates, there can be dire implications for the holder of the note. Autocall notes can quickly outpace the protective barriers in place, leading to a cessation of income payments. Additionally, repayment depends entirely upon the creditworthiness of the issuer, and is subject to a heightened default risk.

Who Should Invest in Autocallable Structured Products?

If you’re looking for higher returns and want to diversify your investments, autocallable structured products could be an option. Investors who understand futures contracts might also be a better fit for autocallable structured products. Since these products use complex formulas and involve derivatives, it’s important to fully understand the risks involved before investing.

Many brokers recommend structured notes to investors because they have the potential to offer higher returns, exposure to expanded asset classes, as well as the ability to bet upon volatile or unconventional market performances. However, these same features also make them unsuitable for many retail investors. Autocallable structured notes often do not guarantee the return on your full investment. This means you could lose some or all of your money. This is why it’s important to only invest money you can afford to lose.

Understanding the Risks of Autocallable Notes

There are many potential risks associated with autocallable notes. To start, they are not designed to be liquid, nor do they offer principal protection. In fact, autocallable notes can be extremely volatile. If the security declines below a threshold level, the autocallable notes can lose all of their value and cease paying income. Gains are also dependent on the creditworthiness of the issuer, so if you cannot make payments, you could lose money.

Besides these, structured products have been criticized for being purposefully oblique, with returns depending upon a chain of variables that most investors are not expected to fully understand. For example, autocallable notes with multiple stocks can contain a heightened risk that at least one stock will decline. In addition, the pricing of structured notes is based on an initial estimated value of embedded components from the issuer. This formula determines the eventual payout – unfortunately, the initial estimated value is less than the price of the note, thereby confusing investors about the actual value of their holding.

These are just a few of the more serious risks associated with autocallable structured notes. It is possible that your investment advisor may be banking on the complexity of this financial instrument to sell you a risky product and earn a higher commission. You can reach out to your investment loss lawyer if you believe your financial advisor or stockbroker is responsible for the losses you endured after investing in an autocallable structured note.

What Are the Red Flags Investors Must Watch Out For?

Your investment advisor is supposed to be your guide and navigator through the financial landscape, protecting your interests and recommending only options that suit your portfolio, age, and risk tolerance. When they fail to do so, you can face serious losses without realizing what brought you to this point. A common red flag is a broker or advisor who pressures you to act quickly, or who does not leave time for you to conduct your own research. Overly complex strategies, unregistered products, and missing documentation are all warning signs that something may not be above board in your investments.

Remember, you can always request further explanations or information before you invest. Any broker or financial advisor who fails to provide answers may be trusting in their client’s inexperience to sell them an unsuitable product. Similarly, promises of guaranteed returns or a “sure thing” that you need to act on immediately are the number one red flag that something is not right with your investment.

Do You Suspect You’ve Been Defrauded?

If you believe you have been defrauded or if you have been recommended an inappropriate investment by your broker, speak to a structured product lawyer as soon as you can.

An investment fraud attorney can help advise you about what kinds of evidence you will need to collect in order to file a claim. Our office can review financial documentation, contracts, as well as any communications between you and your financial professional in order to parse what is aboveboard and what may be admissible as proof of fraud. In some instances, a FINRA complaint may be a faster and more viable option to pursue financial recovery. At Wolper Law Firm, we can help ensure that all of the paperwork is filed correctly and represent your case to FINRA moderators as well as in court if necessary.

How Can an Investment Fraud Lawyer Help?

An investment fraud lawyer can help evaluate the strength of your claim, advise you about what kinds of proof you will need to build your case, as well as represent you during the recovery process. At Wolper Law Firm, we can assist you in negotiating with third parties as well as navigating complex securities laws. We can help you understand how you got here as well as fight for your interests in recovery. Matt Wolper has spent years litigating securities fraud cases, and knows the strengths and weaknesses of such claims. He brings that expertise to fight on behalf of defrauded investors and help them secure the maximum possible recovery.

Have Questions About Autocallable Structured Notes? Contact a Qualified Investment Loss Lawyer

If you lost money due to an investment of autocallable structured notes and don’t know where to turn, reach out to a reputable investment loss lawyer at Wolper Law Firm, P.A. to discuss your legal options. Our firm has the insight, experience, and resources necessary to take on big financial institutions and brokerage firms. We have a proven track record of successful recoveries involving structured products and understand the shifting landscape of unsuitable investment fraud. For help, contact us today.