Structured Note Lawyer: Worst-of Autocallable and Structured Product Losses

What Is a Structured Note?

A structured note is debt issued by a bank, with returns tied to one or more stocks, indexes or exchange-traded funds ("ETFs"). Instead of a simple interest rate, what you receive depends on a formula: how the underlying assets perform, whether they stay above set levels, and whether the bank decides or is required to end the note early. You also take on the credit risk of the issuing bank.

How Worst-of Autocallables Work

The worst-of autocallable is today's leading example. It pays a high coupon, but every payment depends on the worst performer in a basket of stocks, indexes or ETFs.

• Only the worst asset counts. Coupons and repayment are measured against the single weakest asset in the basket, no matter how well the others do.

• The barrier. If that one asset falls below a set "barrier," coupons can stop and, at maturity, you can take that asset's full loss, even if everything else in the basket went up.

• The "autocall." If all the assets are doing well, the note is often called early. That means you tend to keep the note only in the scenarios where it is going badly.

The result is a product that can sound conservative but expose you to losses as steep as a single stock's.

The Hidden Cost: The Loss Can Start the Day You Buy

Structured notes usually cost more than they appear to, because the fees are built into the price instead of shown on your statement. A study by Professors Brian Henderson and Neil Pearson, published in the Journal of Financial Economics in 2011, found that the structured notes they examined were priced, on average, about 8% above their fair value at issue.

Since 2013, following SEC staff guidance, structured note pricing supplements disclose the issuing bank's own estimated value of the note, which is typically lower than the price you pay. The gap between the two is a cost you bear from day one.

Record Results in Structured Note Cases

In 2025, a FINRA panel awarded $132.5 million in a structured note case, reported as the largest award to retail investors in FINRA history. Prior results do not guarantee a similar outcome, but the award shows that arbitrators take these cases seriously.

Your Financial Advisor's Obligations

Under the SEC's Regulation Best Interest ("Reg BI"), a brokerage firm and its financial advisors must act in your best interest when they recommend an investment, and may not put their own interests ahead of yours. That includes understanding the note's risks, rewards and costs, and having a reasonable basis to believe it is in your best interest given your age, goals, finances and risk tolerance. The SEC has made clear that cost must always be considered, and that a firm generally should consider reasonably available alternatives. If a cheaper, simpler investment could have done the same job, that question matters.

Common Claims in Structured Note Cases

• Reg BI violations: notes that were not in your best interest given your age, goals, risk tolerance, need for income, or their cost compared with reasonably available alternatives.

• Misrepresentation and omission: a note described as "safe," "protected" or "like a bond," or one whose barrier, worst-of feature or call terms were never explained. See fraud and misrepresentation.

• Overconcentration: too much of your money in structured notes, or in several notes tied to the same stocks or sectors.

• Failure to supervise: a firm that let repeat purchases, concentration alerts or informal "custom" deals by text go unchecked.

When many investors bought the same notes from the same financial advisor or firm, see group cases.

Warning Signs in Your Account

• You were sold on a high coupon, but were not told what could make the payments stop.

• You hold several structured notes tied to the same handful of stocks or sectors.

• You were told a note had "downside protection," without being told the limits.

• Your notes keep getting called and replaced with new ones.

• You are retired or nearing retirement, and a large share of your 401(k) and IRA savings went into structured notes. See poor retirement advice.

How Brokerage Firms Defend These Cases

Daren spent years on the defense side, so he knows the playbook:

• "The risks were in the pricing supplement." Written disclosures matter, but they do not automatically defeat a claim, especially when what your financial advisor told you was different.

• "You were a sophisticated investor." Being wealthy does not mean you understood a product built on option math, or that it was in your best interest.

• "The market caused the loss." The question is whether your loss came from a risk that was hidden, misstated or never right for you in the first place.

Documents That Help

• The pricing supplement and any term sheet or marketing piece for each note

• Account statements and trade confirmations

• Account opening forms and risk profiles

• Emails, texts and your notes of calls with your financial advisor

Deadlines

Under FINRA Rule 12206, a claim cannot be brought in FINRA arbitration once six years have passed since the event that gave rise to it. Other legal deadlines can be much shorter. If you suspect a problem, talk to a lawyer promptly.

Why Investors Choose Daren A. Luma

Daren has 26 years of experience in litigation, arbitration and regulatory matters involving the financial industry. He worked for 10 years at one of the largest defense law firms in the world, representing financial firms in litigation, arbitration and regulatory matters, and before that served as in-house counsel at one of the largest brokerage firms. He has seen how brokerage firms review customer complaints and build their defenses, and he now uses that experience for investors. Since founding the firm in 2018, he has represented over 400 clients and recovered over $130mm for investment victims. Prior results do not guarantee a similar outcome. He personally handles each case from start to finish.

• Strong Reputation — Over 26 years of practice specialized in the financial industry. I’ve achieved successful results in a wide variety of legal forums. Since 2018, I have represented over 400 investment victims and successfully recovered over $130 million for them.

• Individualized Attention — At my firm, unlike some securities litigation firms, you can trust that your case will be handled from start to finish by me instead of being handed off to a lower-level associate without the requisite knowledge or experience.

• Strategic Counsel — With experience as in-house counsel within a large brokerage firm and 10 years with one of the largest (defense) law firms in the world, I offer clients a well-rounded perspective on their investment loss issue. From there, my firm develops a comprehensive plan to achieve the best possible outcome.

More on Complex Products

Structured notes are one of several complex products we handle. See complex investment products for private placements, annuities, leveraged ETFs and more.