The wealthiest U.S. investors are putting fewer dollars into structured financial products than the less affluent, according to a study by the Securities Industry and Financial Markets Association.
As reported Nov. 11 by Investment News, U.S. investors bought more than a $42 billion of structured notes this year. Nearly every major bank or brokerage sells structured products. Morgan Stanley leads the pack, issuing $10.1 billion, the most of any bank, followed by Bank of America Corp., which issued $7.9 billion.
Because of their complexity, structured products are not for those who don’t fully understand them. Moreover, once an investor puts money into a structured product, he or she is essentially locked in for the duration of the contract.
And, contrary to promises of principal by some brokers, investors can still lose money – and a lot of it – in structured notes.
Case in point: Lehman Brothers Holdings. Investors who invested in principal-protected notes issued by Lehman Brothers lost almost all of their investment when Lehman filed for bankruptcy in September 2008. In total, structured products have been linked to an estimated $1 billion in investor losses in just Lehman notes.
Investors have since filed arbitration claims against UBS, one of the largest sellers of Lehman structured notes.
Other structured investment vehicles like reverse convertibles and equity-linked notes also have become the target of arbitration claims, as well as investigations by state regulators.
Most structured notes are “a hot mess,” said Janet Tavakoli, president of Tavakoli Structured Finance in Chicago in an Oct. 20, 2010, article by the New York Times. “Most professionals can’t analyze them. When I have done it, I find these notes are loaded with hidden fees and hidden risks.”
If you have suffered investment losses in principal-protected structured notes and wish to discuss filing an individual arbitration claim with Financial Industry Regulatory Authority (FINRA), please contact us.