Structured Notes

Structured notes are often described as a way to earn higher income or to be protected against market losses. The actual payout depends on terms written into the note, such as barriers, caps, and call features, and most notes offer no principal protection and cannot be sold on an exchange. Losing money in a structured note is not, by itself, a claim. The key questions are whether the note fit the investor and whether the professional who recommended it fulfilled their duties.

This May Not Be Your Fault

If you did not fully understand how your structured note worked, you are far from alone. These products are difficult to follow even for experienced investors.

That is exactly why the professional who recommended one had a duty to understand it first, explain it in terms you could follow, and recommend it only if it fit your goals, your age, and your ability to absorb a loss. Under FINRA rules and Regulation Best Interest, a broker must have a reasonable basis for a recommendation and must put your interests ahead of their own. When that does not happen, the responsibility belongs with the broker and the firm.

How Structured Notes Work

Most structured notes combine two parts: a bond, which is the issuer’s promise to repay you, and a derivative, whose value rises or falls with a reference asset. The note’s terms decide how those parts add up to what you are paid. Those terms usually include:

• A reference asset — the index, stock, or basket the return is tied to
• A maturity date — often several years out
• A barrier or buffer — the level that decides whether your original investment is protected or at risk
• A cap — a limit on how much you can earn, however far the reference asset rises
• Contingent coupons — interest paid only if the reference asset stays above a set level
• A call feature — terms that can end the note early, automatically or at the issuer’s choice

A single note can combine several of these at once, which is why they are so hard to evaluate. Several features deserve particular attention. The SEC’s investor bulletin on structured notes notes that the price paid at issuance is likely higher than the note’s estimated value, because selling, structuring, and hedging costs are built into that price. FINRA has warned that most structured notes offer no principal protection at all, meaning an investor can lose the entire amount invested. And because these notes rarely trade on an exchange, selling before maturity can mean accepting a steep discount, or finding no buyer at all.

Example: a retiree who needs steady income and access to their savings may be a poor fit for a note that caps gains, can stop paying interest, and cannot be sold for several years — even if the advisor seemed confident about it.

Common Examples of Structured Note Claims

• Notes described as “protected,” “safe,” or comparable to a CD or bond, without an honest explanation of what could cause a loss — see Misrepresentation and Omission
• Complex, principal-at-risk notes recommended to retirees or conservative investors — see Unsuitable Recommendations
• A large share of an account placed in structured notes, or in several notes tied to the same few stocks — see Overconcentration
• A firm that approved these products for sale without catching a pattern of risky or concentrated recommendations — see Failure to Supervise
• Notes chosen for the compensation they paid the broker rather than for the investor’s needs — see Regulation Best Interest
• “Worst-of” notes tied to several stocks at once, where the weakest performer decides the outcome
• Called notes repeatedly replaced with new ones, generating a fresh round of built-in costs each time

Why Are Regulators Focused on Structured Notes Right Now?

In May 2026, FINRA announced a targeted review of how brokerage firms supervise sales of higher-risk structured notes — specifically non-principal protected “worst-of” notes. FINRA said it had identified multiple instances where brokers concentrated customers’ assets in structured products that increase complexity and risk, and that some investors lost significant portions of their portfolios through those concentrated positions.

The review examines whether firms met their obligations under Regulation Best Interest when their brokers recommended these products, and it covers sales made between January 1, 2022, and December 31, 2025.

A regulatory review does not decide any individual investor’s case. But it does reflect a concern that these products were, in some instances, sold in ways that did not serve the people buying them.

How Can You Protect Yourself From Structured Note Losses?

Complex products are not off limits, but they call for more questions than a plain one does. A few steps that help:

• Ask what has to happen for you to lose money. Every structured note has a scenario where the investor absorbs the loss. If no one can explain that scenario plainly, that is a warning in itself.
• Find the estimated value. Issuers disclose their own estimate of the note’s value on the cover of the offering document. Compare it to what you are being asked to pay.
• Ask how you would get out early. Most structured notes cannot be sold on an exchange. Know what selling before maturity would actually involve.
• Check how much is going in. One note as a small part of a diversified account is very different from several notes holding a large share of your savings.
• Ask how your broker is paid on it. A product that pays more to sell is worth a second look against simpler alternatives.

Signs Your Structured Note May Have Been Unsuitable

• You were told the note was “protected” or “safe,” but no one explained what would make that protection disappear
• It was presented as an alternative to a CD, a bond, or other fixed income
• You learned you could not sell the note without taking a large loss
• A large part of your account ended up in structured notes, or in several tied to the same stocks
• Your interest payments stopped without warning
• At maturity you received shares of a stock instead of your money back
• When one note ended, your broker quickly replaced it with another
• No one walked you through the offering documents or pricing supplement