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What is a structured note investment?

My financial adviser has proposed that I invest money into a structured note, but I am unclear what a structured note is or whether it is a good idea.

What is a structured note investment?

A structured note investment is a fixed term (normally around 4 to 6 years) investment product normally sold by investment banks and is not available on the high street. It is made up of two or more derivatives (such as stocks, shares and indexes, eg. the FTSE100) and can pay money during the term while also provides a payment of up to 100% of the original investment at the end of the fixed period.

The amount of money paid out by a structured note will depend on the conditions offered at the start of the fixed term that are related directly to the lowest performing derivative. During the life of the structured note, there will be regular reviews at which point the performance of each derivative will be reviewed and if the lowest performing derivative is outperforming a specific measure (eg. 5% above the original value) then it will pay out.

At the end of the fixed term, if the lowest performing derivative is above a conditional marker (for example 80% of the original value) the investor will normally receive the full investment back.

Due to the complex nature of structured notes, they are normally only available for sophisticated or high-net worth investors, however financial advisers typically fall into one of these categories and therefore can offer them to their clients, providing they fully explain and ensure that the investor fully understands the structured note, including the risks and benefits.

It is uncommon for an entire investment portfolio to be constructed by structured notes and will normally account for around 10% of a total investment.

We have written a comprehensive guide to structured notes, with specific reference to how they are offered to expats, including examples, explanations of fees, an overview of the risks and benefits and why you should always invest cautiously if they are being offered.

We also offer a free consultation with an independent financial adviser for anybody who needs clarification around structured notes, or if they would like a review of any investment decisions previously made including a review of any existing structured notes investments.

As always, the information above is written as a guide only and before any investment or financial decision is made, advice must be sought by an independent financial adviser or wealth manager.

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Last updated: 5 September 2018

Request a free consultation

If you would like independent advice about an investment decision or a second opinion about some advice you have already received, enter your details below and we will ask an expert from our network to arrange a free consultation with you