“Structured notes” are an investment designed to be structured to align with the investor’s objectives, such as income, growth, risk management, etc. Rather than a single investment, structured notes are a compendium of multiple investments.
The notes include a bond element along with other derivatives that adds some risk to the mix. For this reason, it’s known as a “hybrid security.” Returns are linked to the performance of one or more of the underlying assets, such as an interest rate or index, and allow more flexibility than other investment options.
Structured Notes – Advantages And Disadvantages
Structured notes are structured to an individual investor’s specific needs. Investors can have exposure to a larger number of different financial products and investments than they would with just one. Everyday investors can access markets that are generally only available to a smaller group of highly experienced and seasoned investors.
The derivative element, such as stocks or an index, offers flexibility and increased returns, but includes an added amount of risk. These investments include bonds but aren’t as safe as investing just in bonds. Some may include principal protection that will help prevent losses.
But the flexibility of the notes also means that these complex and complicated investments carry a higher risk and are primarily illiquid. In most cases, investors will have to hold onto the investments until maturity with little or no option to sell on a secondary market. The issuer may include a call provision that allows them to recall the note if it begins losing money. Furthermore, if the issuer defaults, the investor can still lose their entire investment.
Stifel Nicolaus And Broker Chuck Roberts
Structured notes are not without controversy. In recent months, nine investors have filed customer disputes with both broker-dealer Stifel Nicolaus and broker Chuck Roberts, (CRD# 2064602) a broker registered with the firm who is a proponent of structured notes. Roberts is a 33-year veteran of the securities industry and has been with Stifel-Nicolaus since 2016.
Roberts has been involved in structured notes and sold a considerable number of them to his clientele. But recently, several of these clients have filed customer disputes over the notes against Stifel. These disputes total more than $24 million, with Stifel as the respondent.
At issue is what Roberts used to structure these notes. In many cases, the notes contained a higher concentration of a mercurial biotech index, such as the unpredictable SPDR S&P Biotech ETF (NYSE: XBI). This specific index dropped from a high of $166.78 per share in February of 2021 to $63.07 in June of 2022 and is now hovering at about $80 per share. Many of these notes were allegedly overly concentrated in particular stocks such as Pinterest, Snapchat, and Dynatrace.
Roberts allegedly also traded more often, leading to concerns of excess trading to generate additional commissions. While the commissions were generally 1% to 2%, over time, they compounded to a considerable amount, and Roberts offered no discounts.
Stifel Nicolaus has stated that the clients’ claims are without merit claiming that the customers involved were all savvy, experienced investors who understood both the structured notes and the risks involved. Neither Stifel nor Roberts have commented on the allegations.
Roberts isn’t the first broker to face scrutiny over structured notes. For example, in June, former Stifel broker Gregory Robert Sain (CRD# 1629842) settled a case in which investors alleged that his recommendation of structured notes was also unsuitable.
Did You Lose Money With Stiefel Nicolaus In Structured Notes?
Silver Law Group represents investors in securities and investment fraud cases. Our lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses due to stockbroker misconduct. If you have any questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases are handled on a contingent fee basis, meaning that you won’t owe us until we recover your money for you. Contact us today at (800) 975-4345 and let us know how we can help.