Do you own complicated investments?


Structured products, payout profiles and downside protection, oh my.

In recent years Wall Street has introduced various types of engineered products to retail and institutional clients. Broadly labeled “structured products,” these offer investors access to derivatives to meet specific return and risk objectives. Structured products are designed to deliver the performance of one or more underlying assets. Each offers a payout profile that essentially says if the return on the underlying asset is X, then the product will pay out Y. Structured products attempt to increase downside protection, enhance speculation or increase certainty for specific returns.

Well, that was easy.

We see little need for structured products and other complicated investments. At the very least, investors need to look under the hood and understand the risks and costs of these products, including liquidity risk, credit risk and high fees.

Investors—big and small, individual and institutional—can meet their objectives without engineered products from Wall Street. Remember, these products are not bought; they are sold.