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Structured notes are complex investment products that combine a bond with a derivative component tied to an underlying asset. While brokers often market these products as offering “downside protection” with attractive yields, structured notes expose investors to significant risks that many do not fully understand at the time of purchase.
If you lost money on structured notes, you may be entitled to recover your losses. Call The Frankowski Firm at 888-741-7503 for a free, confidential consultation. You pay nothing unless we win your case.
If you lost money on structured notes due to your broker’s recommendation, you may have legal options. Investors across the country have recovered substantial amounts through FINRA arbitration by proving that their broker or brokerage firm failed to meet its obligations.
This guide explains how structured notes work, why investors lose money on them, and what steps you can take to pursue a recovery.
Structured notes are unsecured debt securities issued by major investment banks such as J.P. Morgan, Goldman Sachs, Morgan Stanley, Citigroup, and UBS. Unlike traditional bonds that pay a fixed interest rate, structured notes tie their returns to the performance of an underlying reference asset. That asset might be a stock index like the S&P 500, individual stocks, interest rates, or commodities.
The U.S. structured notes market reached a record $149.4 billion in 2024, a 46% increase over the prior year. This rapid growth has brought increased scrutiny from regulators and a rise in investor complaints.
Investors lose money on structured notes in several ways, and the losses can be severe.
Many structured notes include a “knock-in” barrier, typically set at 60% to 70% of the initial price of the underlying asset. If the reference asset falls below this barrier at any point during the note’s term, the investor’s principal is no longer protected. At maturity, the investor absorbs losses dollar for dollar based on the decline of the underlying asset.
“Worst-of” structured notes are linked to multiple stocks or indices. All payoff conditions, including coupon payments and barrier protections, are determined by the single worst-performing asset in the basket. An investor could hold a note linked to three strong performers and one that declines sharply, and still lose a substantial portion of their investment.
Structured notes are only as safe as the bank that issues them. They are not covered by FDIC insurance or SIPC protection. If the issuing bank fails, investors become unsecured creditors with no guarantee of recovering their principal.
Investors who hold structured notes to maturity may miss better opportunities elsewhere. Those who attempt to sell before maturity often find no active secondary market, or they must accept a significant discount to the note’s original value.
Autocallable notes automatically redeem when an underlying asset reaches a specified price on a predetermined observation date. They typically offer contingent coupons marketed at 7% to 12%. However, if the note is never called and the barrier is breached, the investor faces full downside exposure.
Reverse convertibles pay above-market interest but give the issuer the right to repay the investor in shares of the underlying stock instead of cash if the stock price falls below a certain level. Investors can receive shares worth far less than their original investment.
These notes explicitly place the investor’s principal at risk based on the performance of the underlying asset. Despite the name, some investors report that their brokers downplayed the risk of loss when recommending these products.
Range accrual notes pay interest only when a reference rate stays within a defined range. If the rate moves outside that range, the investor earns nothing for that period. Investors can go years receiving little to no income while their principal remains locked up.
Not every investment loss is grounds for a legal claim. However, brokers and brokerage firms have specific obligations under FINRA rules and federal securities laws. When they fail to meet those obligations, they may be held liable for the resulting losses.
Under FINRA’s suitability rules and Regulation Best Interest (Reg BI), brokers must have a reasonable basis for believing that a recommended investment is suitable for the specific investor. Factors include the investor’s age, risk tolerance, investment objectives, financial situation, and liquidity needs.
Structured notes are generally considered complex, high-risk products. They are often unsuitable for conservative investors, retirees living on fixed income, or anyone who may need access to their funds before the note matures.
Brokers have a duty to explain the material risks of any investment they recommend. With structured notes, this includes the risk of total principal loss, issuer credit risk, limited liquidity, capped returns, and the conditions under which the “protection” barrier can fail. Many investors report that their brokers emphasized the attractive coupon rate while minimizing or omitting these risks.
Investment advisors who hold themselves out as fiduciaries have an even higher standard of care. They must act in the client’s best interest, not merely recommend a “suitable” product. Recommending structured notes that generate higher commissions for the advisor, while exposing the client to unnecessary risk, can constitute a breach of fiduciary duty.
Placing too large a percentage of an investor’s portfolio in structured notes, or in any single asset class, violates basic diversification principles. Overconcentration in structured products amplifies risk and can result in devastating losses if the market turns.
Most brokerage account agreements contain a mandatory arbitration clause, which means disputes are resolved through FINRA arbitration rather than in court. While this may sound like a limitation, FINRA arbitration has proven to be an effective forum for investors seeking to recover structured note losses.
In a February 2026 FINRA arbitration decision, a three-person panel ordered a major brokerage firm to pay nearly $1.29 million in compensatory damages to investors who suffered losses in structured products. One group of investors was awarded $843,000, while another group recovered $445,000. These awards involved allegations of negligence and breach of fiduciary duty related to structured note investments.
FINRA arbitration claims must generally be filed within six years of the event giving rise to the dispute. However, waiting too long can weaken your case as evidence fades and witnesses become harder to locate. If you believe you have suffered losses from structured notes, it is important to consult with an attorney as soon as possible.
Structured note cases are among the most complex in securities arbitration. Successfully recovering losses requires:
The Frankowski Firm represents investors nationwide in FINRA arbitration claims involving structured notes and other complex investment products. With over 25 years of experience in securities law and a track record of recovering millions for defrauded investors, the firm provides free, confidential consultations to help investors understand their options.
If you lost money on structured notes, call The Frankowski Firm at 888-741-7503 for a free consultation. There are no upfront costs, and you only pay if we recover your losses.
Most brokerage agreements require disputes to be resolved through FINRA arbitration rather than a traditional lawsuit. However, FINRA arbitration is a proven path for recovering losses. If your broker recommended structured notes that were unsuitable for your situation, failed to disclose material risks, or placed too much of your portfolio in these products, you may have a valid claim.
The Frankowski Firm handles structured note cases on a contingency fee basis. This means there are no upfront costs, no hourly fees, and no out-of-pocket expenses. You only pay if the firm successfully recovers your losses.
Through FINRA arbitration, investors may recover compensatory damages (the actual losses suffered), interest on those losses, and in some cases, attorney fees and costs. The arbitration panel has broad discretion to award appropriate relief.
Most FINRA arbitration cases are resolved within 12 to 18 months of filing, though complex cases may take longer. This is generally faster than traditional litigation in court.
No. Structured notes are not eligible for SIPC protection because they are unsecured debt obligations of the issuing bank, not securities held in custody. If the issuer defaults, SIPC will not cover your losses.
Useful evidence includes brokerage account statements, trade confirmations, the structured note offering documents, any communications with your broker about the investment, and records showing your investment objectives and risk tolerance. An experienced attorney can help you gather and organize the necessary documentation.