Do you know what constitutes an “alternative investment”? If you are like most casual investors, you trust your broker or financial advisor to recommend sound investments, and you do your best to make informed decisions based upon the information you are provided. You hear terms like “structured product” and “strategic return” thrown around, and at the end of the day you rely on your broker’s or advisor’s advice to make decisions about how to protect and grow your nest egg. Is an investment “alternative”? How are you supposed to know the difference?
Unfortunately, while many brokers and financial advisors lack the knowledge necessary to adequately advise their clients on alternative investment opportunities, this does not stop them from offering these risky investments. Additionally, despite their legal duties, many brokers and advisors fail to put their clients’ interests ahead of their own. Sadly, these forms of misconduct often lead individual investors to make unsuitable and ill-advised investments in “alternative” products that end up costing them their entire life’s savings.
Structured Products: A Common Form of Risky Alternative Investment
Generally speaking, alternative investments offer the potential for high yields in exchange for a high risk of substantial losses. While brokers and advisors consistently tout the upside potential of these investments, they often fail to disclose the significant risks they entail. In many instances, the likelihood of significant gains is so low and the chance of sustaining substantial losses is so high that few investors would be willing to risk their savings if they truly understood the risks involved. One of the most-common examples of a high-risk alternative investment is what is known as a “structured product.”
What is a “Structured Product”?
A “structured product” is a complex type of investment that offers a pre-packaged investment strategy tied to the performance one or more underlying assets. These underlying assets can include things like traditional securities, bonds, funds, currencies, options and commodities – all of which are complicated enough for most casual investors in their own right. But, instead of tying the investor’s returns to the actual gains or losses of the underlying assets themselves, structured products offer returns based upon often intricate calculations that may or may not directly correlate to the underlying assets’ performance.
Another key issue with many structured products is that – like more-traditional investments – they do not offer any principal protection for investors. But, some structured products do offer this protection, and this leads many investors to be even more confused about the risks they face when their broker or advisor fails to fully explain the risks associated with a particular structured product.
A Real-Life Example: The Strategic Return Note (SRN) Sold By Merrill Lynch
As an example, consider the Strategic Return Note (SRN) that Merrill Lynch began selling in 2010. The SRN was a type of structured product that offered returns based not upon the performance of any particular stock or index, but instead on how wildly the market fluctuated over time. Unfortunately, few investors truly understood the risks involved, and today their SRNs have lost more than 90 percent of their initial value. At Zamansky LLC, our legal team is actively investigating whether Merrill Lynch adequately informed its brokerage customers of the extreme risks associated with these SRNs.
Did you invest in a Strategic Return Note through Merrill Lynch? Learn more about our investigation.
Speak With a Financial Fraud Lawyer at Zamansky LLC
If you suffered substantial losses in an investment that your broker or financial advisor recommended and that you did not fully understand, you should speak with an attorney about your legal rights. You may be entitled to recover your investment losses. For a free, confidential consultation, call (212) 742-1414 or request an appointment online today.