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Because structured products are bespoke, it is important that investors understand the terms of an instrument before investing. The terms will determine how an instrument will behave if certain conditions are met. Thoroughly evaluate any financial professional with whom you intend to do business.
What am I looking for?
- What am I trying to achieve?
- Is a structured product the best solution? Why is this so?
- What is my time frame?
- How much can I afford to lose if the market goes against my expectation?
How much risk am i prepared to accept?
- Capital protection structured products may be appropriate for defensive investors seeking market exposure with principal preservation. These typically offer full or partial principal protection at maturity with the potential for additional return based on the performance of the underlying.
- Enhanced yield structured products may be appropriate for more risk tolerant investors seeking higher returns than comparable debt instruments. Investors generally accept a risk in capital at maturity in exchange for the potential to earn higher returns. These structured products are generally exposed to downside risk and may generate losses for their investors.
- Participation: Participation products offer an enhanced exposure on the underlying asset performance. Usually, no coupon is paid on these product and investors are exposed to downside risk of the underlying and may lose part or all of their original investment.
- Leverage products: Structured products that utilise leverage may be appropriate for aggressive investors wanting to speculate on a particular market view. These products provide no principal protection but do offer the potential to receive leveraged returns on the performance of the underlying.
- Credit linked structured products: A Credit Linked Note (CLN) is a structured product whose repayment and coupons are linked to the behaviour of one or more Credit Default Swaps (CDS). The investor in a CLN is therefore exposed to and remunerated for the credit risk of the CDS reference entity as well as for the credit risk of the issuer of the product.
Thoroughly evaluate the background of any financial professional with whom you intend to do business.
- Is he regulated? By whom?
- What is her/his experience in structured products?
- How trustable is the manufacturer and/or the issuer and/or the distributor?
Read the documentation
Read the Key information document (KID) that you must receive before your investment. Glossary
Where can I get more information about this investment?
Ask questions
- How liquid is this investment? How easy would it be to sell?
- What are the specific risks associated with this investment?
- What is the maximum that could be lost? How probable is the potential gain or loss?
- How trustable is the manufacturer and/or the issuer and/or the distributor?
Do not hesitate to ask about the fees.
Understanding the fees an investor pay is key to understanding an investment. As with any business, there are costs associated with running an activity that buys and sells securities or provides investment advice. These include transaction costs and operating expenses such as salaries, advertising, and technology.
Product costs may not be paid directly by yourself, they could be charged by the manufacturers and reduce the returns achieved. Those fees should be disclosed in both the pre-trade and annual costs and charges reports to improve clarity and help you understand what you are paying for.
