Q&A with Keith Singer of Singer Wealth Advisors

Structured notes are issued by banks and will provide either income or growth based on the underlying securities on the note. We like to use them in three ways. One to create a high level of current income. Secondly they can be used to create annual returns similar to the historical returns of stocks with less volatility and less risk. Finally they can be used for growth with a combination of both enhanced returns and less risk. Each investor can determine how much enhancement they want on their returns and how much risk reduction. The more risk reduction that is desired, the less the enhancement on the returns would be.

The main risk is the credit risk of the issuing bank. We use banks like Citibank, Morgan Stanley, Goldman Sachs, TD Bank and Barclay's so you would need to be comfortable that these types of banks aren't going out of business. Secondly you have investment risk of the underlying security usually with a barrier or buffer. This barrier protects you from investment losses up to the level of the barrier. So if your note has a 40% barrier against the S&P 500 index, one a two year note there would historically be a 1.77%% chance of the index being down over 40% after one year. On a four year note there would be a .09% chance or less than one in one thousand of the index being down more than 40% after four years.

Yes we just launched a 5 year note with a 40% barrier against the S&P 500 DOW JONES and Russel 2000 that is paying out an 8.5% coupon. This has very low investment risk. It was issued by the Bank of Montreal which is a 50 billion dollar bank that started in 1817. We also just issued a note that we call a Covid Recovery play. The underlying stock is Wynn Casino. Wynn was already down at the time 40% from its previous highs. We issued a two year note with a 50% barrier against the Wynn that is paying 15.5%. The stock would have to drop way below it's March lows before there would be principal at risk. Finally in March after the big drop we were looking for a way to participate in a rebound. So we moved clients from direct equity investments to a leveraged growth note that matures in 4 years and pays 163% of the gains of either the Dow Jones or S&P 500, whichever does worse. Additionally that note had a 30% barrier. Not that we will need the barrier as the indexes are already up 50% from the lows. At maturity our clients get an additional 63%.