Dow Jones Tanks, Leading to Losses for Investors Holding Structured Notes
The COVID-19 pandemic has wreaked havoc on the Dow Jones Industrial Average, and the stock market as a whole. As such, investors who hold structured notes linked to the S&P 500, Russell 1000 Index, or individual stocks may have incurred unexpected losses. Conservative or moderate investors have the potential to be particularly hard-hit by these losses. Read on to learn more about structured notes and what to do if you’ve incurred losses after investing in structured notes.
What are structured notes? Structured notes are investment products issued by financial institutions. The returns on these investments are linked to the performance of the indices to which they are linked. Some unscrupulous brokers might brush off customer concerns about potential losses by touting so-called “principal protection.” But FINRA, the Financial Industry Regulatory Authority, warns that “principal protection” doesn’t mean “risk-free.” If the issuer of the note goes bankrupt, your “principal protection” disappears. Think this would never happen? Think again. When Lehman Brothers went bankrupt during the 2008 financial crisis, investors who held structured notes with so-called “principal protection” still lost their whole investment. And principal protection may only remain in force if you hold the note until maturity, so if issuers call these notes (as many recently did), your principal protection may no longer apply, leaving you with significant losses. Keep in mind that when issuers call notes, they typically do so when it serves their interests (such as when interest rates are low). Issuers do not prioritize the interests of investors.
Well-known brokerage firms have issued billions of dollars worth of structured notes over the last several years. But it is important to understand that structured notes are not suitable for every investor. Structured notes could tie up your money for years. It could be impossible to access the cash value of your investment during that time; thus, structured notes are not suitable for investors who need liquidity. Which firms offer structured notes? Firms offering structured notes include:
- UBS, A.G.
- Barclays Plc
- Morgan Stanley
- Bank of American Merrill Lynch
- JPMorgan Chase & Co.
These structured notes can go by many names, which can lead to confusion among investors. They might be called:
- Autocallable Securities
- Callable Yield Notes
- Accelerated Return Notes
- Strategic Return Notes
- Trigger Performance Securities
- Capped Leverage Return Notes
- Target Term Securities
- Market Linked Notes
- Return Optimization Notes
- Performance Leveraged Upside Securities (PLUS)
- Equity Linked Securities (ELKs).
- ETRACS
Whatever name they go by, structured notes come with significant risks. In the case of ETRACS, structured notes offered by UBS, these structured notes have already lost 60% of their value, triggering a mandatory redemption. Some of the notes were “2xLeveraged,” meaning that market gains were doubled — but so were losses, leading to significant losses for investors, many of whom may not have fully understood these complex products.
If your broker recommended that you invest in structured notes and you later incurred significant losses, it’s time to contact a securities attorney. Don’t hesitate to contact the securities attorneys of Fitapelli Kurta. Call (877) 238–4175 or email info@fkesq.com for your free case consultation with a securities attorney.
