I was sold a structured note by my private bank. Now what?

Being sold a structured note by a private bank does not necessarily mean you made a bad investment. However, you need to understand what determines your returns, how much capital you could lose, and what happens if you want to exit before maturity.

The priority is to assess the note you actually own. An attractive coupon, a reassuring description of downside protection or the reputation of the distributing bank cannot establish whether the investment still suits you.

Start with the contract, a realistic selling price and your current financial needs. These provide the basis for deciding whether to keep the note, reduce the exposure or sell it.

Key Takeaways

• A downside barrier can still leave you exposed to the full underlying loss.
• Coupons received can mask a larger capital loss.
• Holding should reflect the remaining opportunity, not a desire to break even.
• Several notes can concentrate the same risks rather than diversify them.

My contact details are hello@adamfayed.com and WhatsApp +44-7393-450-837 if you have any questions.

The information in this article is for general guidance only. It does not constitute financial, legal, or tax advice, and is not a recommendation or solicitation to invest. Some facts may have changed since the time of writing. 

What to do after buying a structured note?

Obtain the final terms, identify the conditions affecting repayment and ask the bank what you would receive if you sold the note today.

Request the following:

• Final terms and the relevant prospectus or product disclosure
• Details of the underlying assets and their initial reference levels
• Coupon conditions, observation dates and early redemption provisions
• Capital repayment formula and any barrier or buffer conditions
• Maturity date and whether settlement can involve shares instead of cash
• Identity of the issuer and any guarantor
• Current selling quote and applicable transaction costs

The bank distributing your note may be different from the institution responsible for repaying it. Establish which legal entity owes you the money and whether a separate guarantee applies.

Ask the bank to illustrate what your particular note would pay under favorable, flat and adverse market outcomes. Include an example where the worst-performing underlying falls sharply.

You should also know the next relevant date. A coupon observation, autocall assessment or final valuation may affect your payments or end the investment before its scheduled maturity.

If a verbal explanation conflicts with the documents, ask the bank to identify the contractual provision supporting its interpretation. Keep that explanation in writing.

How much is your structured note worth today?

Your structured note’s current selling value may differ from both the amount you invested and the repayment you could receive at maturity.

The account valuation is not necessarily your exit price

Suppose you invested US$200,000 and your statement now shows US$170,000. Establish whether that figure is an indicative valuation or a price at which someone will actually buy your holding.

An executable bid confirms what a buyer is currently willing to pay.

Why might the value have fallen?

A structured note can fall in value because of changes in its underlying assets, volatility, interest rates, issuer credit risk and the time remaining before maturity.

Its value can also be affected by embedded costs and the price a dealer is willing to pay. Some notes have an initial estimated value below their purchase price because selling, structuring and hedging costs are included in the issue price.

A lower account valuation does not automatically mean the underlying investment has fallen by the same percentage. Ask the bank to explain the main factors behind any decline and whether the risk of capital loss has increased.

The exit price is not the maturity payout

If you hold the note, repayment follows the contractual formula. It could be higher or lower than today's selling price.

The current valuation reflects market conditions and the remaining contractual exposure.

The maturity payout follows the note’s repayment rules, including any capital barrier conditions. Understanding those conditions is the next step in assessing how much you could recover.

What happens if a structured note breaches its barrier?

Breaching a barrier can change coupon payments or capital repayment, but the consequence varies based on the type of barrier and when it is observed.

A coupon barrier and a capital barrier can serve different purposes. Falling below one does not automatically establish what happens under the other.

Some capital barriers are assessed only on a specified final observation date. Others are monitored during the investment term. A temporary fall can have different consequences across otherwise similar-looking notes.

A barrier does not necessarily limit your loss

Consider this hypothetical worst-of note:

Assume the note remains outstanding until maturity and its terms require repayment in proportion to the worst-performing share if that share finishes below the barrier.

If the worst-performing share ends at 45% of its initial price, principal repayment would be US$90,000. The capital loss would be US$110,000 before accounting for coupons received.

The 60% barrier does not mean losses are capped at 40%. In this example, once the repayment condition fails, the loss reflects the full 55% decline in the worst-performing share.

A buffer that absorbs a specified initial portion of losses works differently. Check which mechanism your note uses.

Also check whether repayment is in cash or through delivery of shares. Receiving shares worth less than your original investment does not restore the missing capital.

Can you sell a structured note before maturity?

You may be able to sell before maturity, but a buyer is not always available and the price may be substantially below your original investment.

Many structured notes have limited secondary market trading. The issuer, an affiliated dealer or the distributing bank may be the main potential buyer, without an obligation to provide continuous liquidity.

Request a firm selling quote showing the net proceeds after transaction costs.

Confirm whether it covers your entire holding, how long it remains valid and when the proceeds would become available. Where possible, ask the bank to obtain another dealer’s bid for comparison.

A listing on an exchange does not establish that there is active trading or a competitive selling price.

Partial sales may be possible, but minimum denominations and dealing rules can restrict them. Check the minimum amount you can sell and any required remaining balance.

If there is no bid, ask whether the issuer offers any contractual early redemption mechanism. Closing the banking account does not itself create a right to repayment at the note’s original value.

How do you decide whether to hold, sell or restructure a structured note?

Compare the net proceeds available today with the remaining contractual outcomes, then assess whether you can afford the risk and wait involved in holding.

The original purchase price helps measure your result, but it should not be the sole reason for continuing. Waiting to get back to even may involve accepting further losses that no longer suit your finances.

When holding may be reasonable

Holding can be appropriate if you understand the remaining exposure, can tolerate the potential loss and do not need the money before repayment.

The possible payout must also justify retaining the note instead of using the available sale proceeds elsewhere.

A recovery in the underlying shares does not necessarily translate into equivalent gains on the note. Coupons may be conditional, upside may be limited and an autocall can end the investment early.

When selling may be reasonable

Selling can be appropriate where the position is too concentrated, further losses would be unacceptable or access to the capital has become more important.

For expats, an upcoming move, changed retirement plans or a different spending currency may alter the investment's usefulness. Obtain local tax advice where a sale or residency change could affect taxation.

Compare the alternatives using today's net sale proceeds. If you can recover US$170,000, assess what that US$170,000 could realistically do elsewhere, including the risks and costs of reinvesting it.

When reducing or restructuring may be reasonable

A partial sale, where available, can release cash or reduce an oversized position. Adjusting other holdings may also reduce overlapping exposure without selling the entire note.

Restructuring does not necessarily mean the original contract can be changed. Ask exactly what transaction is proposed and what costs it creates.

If the bank proposes selling your note and buying another, compare the sale proceeds, new charges, maturity date and downside exposure. A higher coupon does not recover the original loss or establish that the replacement is more suitable.

Include coupons in the overall result

Coupons received do not establish that the investment has been profitable. Add them to the net sale proceeds or eventual repayment, then compare the total with the amount invested. Account for payment timing when assessing the annualized return.

Likewise, missed coupons may or may not be recoverable under a memory feature. Check the conditions rather than assuming future payments will make up the shortfall.

Review the wider portfolio too. Several notes linked to the same technology shares or issued by the same institution can create overlapping exposure, even if their names and coupons differ.

What are the alternatives to structured notes?

Alternatives include conventional bonds, diversified funds and deposits, with the appropriate comparison determined by what your existing note was intended to achieve.

These choices have different risks. A bond can default or fall in market value, an equity fund can suffer substantial losses, and deposit protection has eligibility rules and limits.

None necessarily reproduces your note's payoff. Compare the outcomes you need, access to the money and total costs. Base the comparison on the proceeds actually available from selling your existing holding.

Should you get a second opinion on a structured note?

A second opinion can help when you cannot explain the note's potential losses, the position represents substantial wealth or the bank's recommendation is unclear.

The distributing bank may provide useful analysis, but its commercial interests can include distribution revenue and your wider banking relationship. That does not establish that its advice is wrong.

Ask for the case for holding in writing, including adverse scenarios and the current executable selling price. Reassurance that you should wait until maturity is insufficient without those details.

An independent reviewer should examine the final terms, current pricing and the wider portfolio. The assessment should explain why holding, selling or reducing the position suits your circumstances, with its own fees and conflicts disclosed.

What can you do if your private bank mis-sold a structured note?

If you believe the recommendation was unsuitable or important risks were misrepresented, preserve the evidence and raise the concern through the bank's formal complaints process.

A loss alone does not establish mis-selling. Relevant questions include what the bank recommended, what it knew about your circumstances and how it explained the product.

Request the suitability assessment, recorded investment objectives, risk classification, product disclosures and sales communications.

Retain emails and messages describing the note as safe, liquid or capital-protected, particularly if those descriptions appear inconsistent with the contract.

Set out the specific discrepancy. For example, were you told the investment could be accessed without loss when early sale restrictions applied? Was conditional protection described as an unconditional guarantee?

The applicable duties and complaint routes depend on the jurisdiction, your client classification and whether the bank advised you or executed your instructions. Professional or accredited investor status can affect available protections.

If the response is unsatisfactory, check whether an ombudsman, dispute resolution scheme or legal route is available. Obtain qualified legal advice where appropriate, including on any deadlines.

Pursuing a complaint and deciding what to do with the investment are separate matters; both may need attention.

Conclusion

Your next step is to obtain a reliable exit quote and a clear account of the remaining repayment scenarios. These establish what you can recover now and what you would continue risking by holding.

Keep the note only if that exposure remains justified by your finances and objectives. Before accepting a replacement, compare its costs and possible outcomes with retaining the existing holding or using the sale proceeds elsewhere.

If the original recommendation appears inconsistent with the risks you agreed to take, request the supporting records and a formal explanation from the bank.

FAQs

Can I transfer a structured note to another bank?

Sometimes, but the receiving bank must accept the security and support its custody and settlement arrangements. Check transfer fees, minimum holdings and future dealing access.

A transfer does not change the note's contractual risks.

What happens if my structured note is called early?

The note ends and pays the amount specified by its early redemption terms. Future coupons normally stop. Check the payment calculation and settlement date before deciding how to reinvest the proceeds.

Are structured notes covered by deposit insurance?

Do not assume so. Structured notes are generally investment securities, not insured bank deposits. Check the legal product type and applicable protection arrangements in the relevant jurisdiction.

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