Plan to trade that structured product? You're not alone. A recent SEC report indicates that many investors are reselling structured products, often to their disadvantage and at a loss.Generally speaking, structured products are designed to be "buy and hold" investments, which means they weren't designed to be resold or traded. In fact, according to an article on SmartMoney.com, the majority of the products can only be sold back to the issuing bank, typically at a price much lower than what the investor initially paid. (For more information, read the SmartMoney.com article here.) Joseph Borg, the director of the Alabama Securities Commission, says the products' illiquidity should be a factor in determining suitability for investors. "There's an obligation on behalf of a sales person to advise clients that they may be restricted when they try to liquidate on secondary markets and they may have some serious costs," said Borg in the SmartMoney.com article. The SEC is concerned that many investors are trading the securities at inopportune times (either just after they are issued or just before they mature) and suffering because they don't understand that trading increases the cost of the complicated, risky securities. In addition, the SEC's report indicates that broker-dealers often omit material facts about structured products when offering them to investors and tend to recommend the products regardless of suitability. (To learn more, click here.)
