Structured Products Lawyer

Were You Improperly Sold a Structured Product?

Financial advisors have a duty to recommend suitable investments to their clients. They should keep in mind their client’s risk averseness, short-term vs. long-term goals, and overall financial picture while recommending financial product to them. When a financial advisor does not consider a client’s best interests, or places their own interests above their client’s, they can be held accountable for improperly selling a structured product.

Unfortunately, many people do not realize that not every product in the financial market is suitable for average investors. For example, complex structured products sometimes cause average investors to lose money due to a lack of deep understanding of the underlying mechanics, including hidden costs and risk factors. If you lost significant money on an improperly sold structured product, our attorneys at Wolper Law Firm, P.A. may be able to help you recover your investment. We have extensive experience handling claims involving structured products, and we have an overall 99% success rate in recovering money for wronged investors.

What Are Structured Products?

Structured products are investment vehicles based on or derived from a single security, a basket of securities, an index, a commodity, a debt issuance, and/or a foreign currency. They have a fixed maturity date and are designed to offer specific risk-return tradeoffs, with pre-set formulas for both the potential risk and return. However, these calculations are very complex and well beyond the capabilities of most retail investors, making structured products unsuitable for average investors saving for retirement and other goals. Unfortunately, this unsuitability does not stop some brokerages and investment advisors from recommending them, mainly because structured products can bring high commissions and profits to the advisors.

On their own, structured products are not illegal or unethical investments. They are registered with the Securities and Exchange Commission (“SEC”) just like stocks or bonds. Driven by the need to issue cheap debt, structured products became popular in the 1980s. Typically, issuers offer structured products with returns contingent on underlying assets that are paid upon maturity. The investment horizon can range from 6 months to twelve years. The invested capital may be fully protected, partially protected, or unprotected. Investment advisors must disclose the specific risks associated with each structured product to their clients.

Structured Notes vs. Structured Products

A structured product is a broader term that encompasses a variety of investments bundled under one option. The underlying assets may include stocks, bonds, currencies, commodities, and more.

A structured note, on the other hand, is a specific kind of structured product. It does not involve a principal guarantee, unless a third party is involved as a guarantor of payout in case of issuer default. Structured notes can be categorized broadly as participating notes (P-Notes), yield enhancement notes, or notes with minimal redemption of principal at maturity.

How Do Structured Products Work?

Structured products offer investors a return on investment when the market goes sideways, because of the way that payoffs are structured. They enable investors to bank on different market scenarios. Some formulas allow for returns in the event of a bull market, others for a stable market or even a bear market.

Structured products are attractive to some investors because they can be customizable based on their risk averseness and needs. For instance, an investor who is willing to give up some protection on their principal may be able to recover more in the event of a bullish market – more than the market would produce organically upon the maturity date of the structured product.

On the other hand, structured products lack liquidity. Investors may need to wait a significant period before realizing returns, and the complex calculations involved could lead to some investors inadvertently losing protection on their principal. Since the performance of structured products depends upon an underlying asset’s performance, adverse price shifts can cause an investor to lose unprotected capital. Given their complexity and rigid terms, structured products, are therefore, unsuitable for some investors.

Types of Structured Products

Structured products come in many varieties, including market-linked notes, steepener notes, structured certificates of deposit and auto-call notes. Many of these products are sold to retail investors under the guise of being straightforward and traditional “bonds”, which they are not.

Market-linked Notes

Asset class diversification and market-linked notes are often used in tandem to reduce a portfolio’s market risk. If held to maturity, they can provide either full or partial protection for the principal even if the linked asset class drops in value. Market-linked notes may provide protection against market volatilities by foregoing some interest payments, and dividend payments, as well as sacrificing some return opportunities. However, market-linked notes are not FDIC-insured and are subject to high risks.

Steepener Notes

Steepener notes sold to retail investors from brokerage firms tend to have long maturities, usually around 20 or so years. They are highly illiquid debts and are after about one year generally callable at par plus accrued interest for part of a quarter after about one year. Many steepener notes offer an attractive teaser interest rate for one or two years, but then leave investors out to dry for the long haul.

Steepeners are often tricky investments, usually only suitable for those who do not require liquidity from their capital for a significant period of time. They can cause serious issues for investors when they are sold as simple securities or as fixed-income investments.

Structured Certificates Of Deposit

Structured certificates of deposit (SCDs) are financial instruments that represent a certain amount of deposit held for a fixed period of time. SCDs can offer additional payments at maturity and periodic interest payments based on the performance of a reference asset. SCDs must be marketed to investors as what they are – CDs with reduced liquidity and additional complex calculations linked to their payoff. These are not particularly suitable for investors with a low risk tolerance or those who need easy access to their funds.

Autocallable Structured Products

Auto-call notes are complex synthetic investments created and issued by financial institutions and sold to retail brokerage customers. The investor purchases the auto-call note, which typically offers an above-average income stream, sometimes upwards of 10% (known as a “teaser” rate). The notes have a fixed maturity date, but the income stream and the ability to receive a return are correlated to the underlying stocks or indices referenced within the prospectus. If the underlying stock or index falls below a certain threshold, i.e. a “barrier,” investors may lose both their income and principal.

Most auto-call notes can be “called” or redeemed early by the issuer. If the auto-call note happens to perform in a way that is advantageous to the investor, the issuer may redeem the investment so that it does not have to continue paying high interest rates. In other words, the house always wins.

Why Are Structured Products Lucrative for Financial Advisors?

Structured products can be quite lucrative for advisors. Brokerage firms incentivize their brokers and financial advisors by offering them selling commissions of approximately 3%-4%. Despite the high commissions for financial advisors, structured products may not be the most efficient investment for retail customers.

Financial advisors know that they are the experts in a retail investor dynamic. It can be unfortunately easy for an unscrupulous financial advisor to sell their client bad investments, and still see returns for themselves from commissions and fees.

For instance, structured products are subject to their issuer’s credit quality. Bad structured products can collapse in upon themselves should their issuer declare bankruptcy, and not all structured products offer “principal guarantee” functions. Some purposefully jettison investor security in favor of the possibility of higher payoffs linked to the performance of one or more underlying assets, such as an equities index or a group of indices. These risks do not necessarily harm the financial advisor who recommended them – but they can tank your portfolio just as the market takes a downturn, leaving you to sell at a steep loss or attempt to recover as a creditor in bankruptcy court.

FINRA Guidelines Concerning Structured Products

The Financial Industry Regulatory Authority (FINRA) oversees brokerages and brokers in the United States. Certain rules under the FINRA govern the sale of structured products. For example, under Rule 2110 (Standards of Commercial Honor and Principles of Trade), all sales pitches, oral presentations, and marketing materials must outline both risks and benefits to investors when discussing structured products. Promotional materials should also include information about interest rates and the creditworthiness of the issuer.

Additionally, investors must be informed about the possible risks of their structured products, such as the possibility of losing their principal or owning the underlying asset at a lower value when the product expires. Sales of structured products are often limited to investors with approved options trading accounts and are subject to a suitability analysis (among other checkpoints).

When Should I File A Claim For a Structured Product Loss?

Did your financial advisor neglect to disclose structured product risks? Or did you lose money due to an unsuitable investment? In either case, you may benefit from a consultation with a financial fraud attorney. The following are some common scenarios that we hear at Wolper Law Firm:

• Your advisor did not clearly explain structured product investment and its risks
• Your broker failed to realize that structured products were not suitable for your risk tolerance and the goals of your investment portfolio
• Your broker did not do their “due diligence” in reviewing the product that they sold to you and it turned out to be fraudulent or had other problems
• Your advisor gave you misleading or inaccurate information about the investment
• Your broker recommended the product with their interests in mind — i.e., high commissions (rather than your best interests)

If you have any suspicion that an investment was not clearly explained to you, that you were misled about it or that your advisor knew it was too risky for your portfolio and goals, reach out to our attorneys. We will review the facts of the situation and advise you about your options for filing a claim.

What Is The Process For Recovering Lost Structured Product Investments?

You can file a structured product loss lawsuit or seek a FINRA arbitration to resolve your case.

In a FINRA arbitration, one or three arbitrators hear the arguments and evidence from both sides and then decide the outcome. Once arbitrators make a decision, it is binding, meaning that it cannot be appealed. Sometimes, if both sides agree to mediation, claims may be settled that way and not go to arbitration unless mediation is unsuccessful. Additionally, for some investors, suing in court may be an option if the customer agreements they signed with their brokerage firms do not bind them to arbitration, which most brokerage agreements do.

Cases that go to civil trials are generally longer due to their complex procedures and potential appeals. If a decision is appealed, it could take years for a lawsuit to be resolved. This is why many investment fraud victims prefer arbitration over a lawsuit. Claims are decided by independent arbitrators, who are ranked in order of preference by both parties from a list of possible arbitrators auto-generated by the FINRA.

How Long Will My Structured Product Lawsuit Take?

According to the FINRA, claims that go to arbitration generally take around 16 months to be resolved. On the other hand, settlements through FINRA mediation take a shorter period of time, i.e. approximately one year. Once awards and settlements are made, FINRA requires brokerages/brokers to pay investors within 30 days. If they do not pay within this timeframe, their licenses may be suspended or canceled.

Do I Need To Hire a Structured Product Attorney To File a Claim?

You are not required to hire an attorney to take your auto-call note claim or other structured product claim to FINRA arbitration or to the courts. However, you can be sure that the brokerage house will have a team of specialized and highly knowledgeable investment industry attorneys arguing on their behalf. You will put yourself at a distinct disadvantage attempting to argue your claim on your own, especially when it hinges upon the complexities of structured products and why they are not typically suitable for the average retail investor.

Our structured product lawyers have worked on both sides of the industry—defending brokerage houses and now exclusively standing up for the rights and interests of individual investors. This comprehensive experience provides us in-depth insight into the intricacies of the industry and how brokerages operate. We bring this expertise to bear on behalf of our clients, fighting for their rights to full disclosure and fair treatment in the financial industry.

How a Structured Product Attorney Can Help When You Have Lost Money Due to Fraud or Negligence

Brokers and advisors are supposed to look out for the financial well-being of their investor clients. When they fail to do so, either through intentional fraud or through negligence, they can be held accountable. When you trust us to hold your broker to account for your investment losses we will:

• Carefully review all of the evidence involved to build a strong case against your broker for fraud or negligence
• Prepare and file all the paperwork necessary for filing a claim with FINRA or the courts
• Be available to answer your questions and address any concerns you have about your case and the claim process
• Argue on your behalf before arbitrators or a judge
• Advise you throughout the entire claims process

At Wolper Law Firm, our attorneys are passionate about helping investors who have been taken advantage of by dishonest or inept brokers. Structured products are one of our areas of expertise, as they are often subject to complex regulations and additional FINRA governance. Without the help of a knowledgeable investment fraud attorney, it may be difficult to properly identify the specific violations that contributed to your losses and recover lost amounts.

Contact Our Structured Product Lawyers at Wolper Law Firm For a Free Consultation

The Wolper Law Firm, P.A. has extensive experience handling claims involving structured products and other commonly disputed investment products. Here are some things to keep in mind if you are considering Wolper Law Firm to handle your investment loss claim:

• We have a 99% recovery rate for wronged investors
• We have recovered millions of dollars for investors
• We have decades of legal experience in the securities industry
• We provide personalized service and are available 7 days a week
• We offer free initial consultations so you do not need to worry about upfront fees

For help with filing a structured product claim, contact us today.