Both the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) have issued an alert to investors titled Structured Notes with Principal Protection: Note the Terms of Your Investment. The alert contains information pertaining to how principal protected notes are structured and the risks associated with investing in them. A few examples of what the SEC and FINRA want investors to know about principal protected notes is that they can have complex payout structures, principal lockup periods, and caps on returns. Most importantly, they want investors to know that principal protection is sometimes limited to just 10% of the original investment, and payment will depend on the financial strength of the issuing institution.
A Principal protected note is an investment contract with a guaranteed rate of return of at least the amount invested. Traditional fixed-income investments such as CDs and bonds provide investment security and modest returns with little or no risk of capital loss, while stocks have the potential to deliver greater returns, but with much greater risk. In recent years, investors have turned to structured products such as principal protected notes that offer both security and potential growth for their principal. Principal protected notes are linked to a broad range of underlying investments that may include indices, mutual funds, equities, and even alternative offerings such as hedge funds. At the heart of a principal protected note is a guarantee - typically guaranteeing 100% of invested capital, as long as the note is held to maturity. This means that regardless of market conditions, investors receive back all money they invested plus appreciation from the underlying assets, if any.
The alert recommends that investors consider the following questions before investing in a principal protected note:
-What are the costs?
-Are there any conditions for protection?
-What type of principal protection is offered?
-What are the potential risks?
-Will the product meet investment objectives?
-Are there alternative investment options?
-What is the payout structure?
-Are there tax implications?
-Is there a cap on gains?
-Is a call feature provided?
-Is liquidation permitted prior to maturity?
-For how long will the money be locked up?
Investors must also understand that principal protected notes are subject to the credit risk of the issuer. Consequently, if an issuer is not financially sound, it cannot guarantee 100% redemption of principal at maturity to an investor if the underlying investment deteriorates in value. That is why investors, especially those in retirement, should not be misled by the words "principal protected," no matter how appealing the investment is perceived to be.
Have you suffered a loss in a principal protected note? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.
A Principal protected note is an investment contract with a guaranteed rate of return of at least the amount invested. Traditional fixed-income investments such as CDs and bonds provide investment security and modest returns with little or no risk of capital loss, while stocks have the potential to deliver greater returns, but with much greater risk. In recent years, investors have turned to structured products such as principal protected notes that offer both security and potential growth for their principal. Principal protected notes are linked to a broad range of underlying investments that may include indices, mutual funds, equities, and even alternative offerings such as hedge funds. At the heart of a principal protected note is a guarantee - typically guaranteeing 100% of invested capital, as long as the note is held to maturity. This means that regardless of market conditions, investors receive back all money they invested plus appreciation from the underlying assets, if any.
The alert recommends that investors consider the following questions before investing in a principal protected note:
-What are the costs?
-Are there any conditions for protection?
-What type of principal protection is offered?
-What are the potential risks?
-Will the product meet investment objectives?
-Are there alternative investment options?
-What is the payout structure?
-Are there tax implications?
-Is there a cap on gains?
-Is a call feature provided?
-Is liquidation permitted prior to maturity?
-For how long will the money be locked up?
Investors must also understand that principal protected notes are subject to the credit risk of the issuer. Consequently, if an issuer is not financially sound, it cannot guarantee 100% redemption of principal at maturity to an investor if the underlying investment deteriorates in value. That is why investors, especially those in retirement, should not be misled by the words "principal protected," no matter how appealing the investment is perceived to be.
Have you suffered a loss in a principal protected note? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.
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