Structured products occupy an interesting space in the investment landscape. They are genuinely used by sophisticated institutional investors and large private banks; they can offer combinations of return and protection that are not available from conventional investment vehicles; and they are simultaneously among the most complex and least understood investments accessible to private clients.
This guide is written for internationally mobile investors who have encountered structured products — perhaps through a private bank or wealth management relationship — and want to understand them clearly before committing capital.
The core concept: defined outcomes
A structured product is an investment where the payoff — what you receive at the end — is determined by a pre-agreed formula based on the performance of an underlying asset or index. Unlike a direct investment in an equity or fund, where the outcome is open-ended, a structured product has a contractual formula.
This sounds complex but the basic logic is straightforward: you invest for a defined period, and you receive an outcome that depends on whether the market went up, went down, or stayed roughly flat. The exact relationship between market performance and your return is specified at the outset.
The underlying asset is typically a major stock market index: FTSE 100, S&P 500, Euro Stoxx 50, or a basket of these. Occasionally it is a basket of specific shares, a commodity index, or an interest rate. The term is typically 3–6 years.
The main types
Autocall (kick-out) notes
The autocall, or kick-out, is the most widely used structure in the UK retail and private client market. The mechanics work as follows:
- You invest for a potential term of, say, up to six years
- The index level at the start (the "strike") is recorded
- On each annual observation date, the level of the index is compared to the autocall barrier — typically 100% of the starting level
- If the index is at or above the barrier on an observation date, the product "autocalls": it matures early, returning your capital plus a coupon that has accrued for each year the product ran (for example, 8% per year × the number of years run)
- If the index has not triggered the autocall on any annual date, the product continues to the final date
- At the final date, if the index is above a capital protection barrier (often 60–70% of the starting level), your full capital is returned even without the coupon
- If the index has fallen below the capital protection barrier at the final date, capital is reduced proportionally to the fall from the starting level
Example: a six-year autocall paying 9% per year, with a 60% capital protection barrier. If the FTSE 100 is at or above its starting level on year 1, you receive your capital back plus 9%. If it first triggers in year 3, you receive capital plus 27% (9% × 3). If it never triggers autocall but the index finishes above 60% of the start level, you receive your capital with no return. If the FTSE 100 falls more than 40% over six years and never recovers, you participate in the full loss proportionally.
Capital-protected notes
Capital-protected products guarantee the return of your original investment at maturity, regardless of what the index does. In exchange, they provide only partial participation in any index gains — typically 80–120% of the index return (the participation rate), sometimes with a cap.
The capital protection is manufactured by allocating most of the investment to a zero-coupon bond maturing at the end of the term, which grows to return the full original investment. The remaining capital buys options that provide the index-linked upside. The cost of the zero-coupon bond and options determines what participation rate is achievable.
Note: the capital guarantee is only as strong as the issuing bank. If the bank fails, the guarantee fails with it.
Enhanced participation notes
Provide a multiple of the index return — for example, 150% of gains, sometimes with a cap (e.g. 40%). No capital protection; the capital is at risk if the index falls. These work well when you expect the market to rise but at a moderate pace — the enhanced participation boosts returns in that scenario.
Reverse convertibles
Pay a high fixed coupon (often 10–20% per year) but expose the investor to downside if the underlying falls significantly. At maturity, if the index has not fallen below a specified barrier, the original capital is returned with the coupon. If it has fallen below the barrier, the investor receives either the index's depreciation applied to their capital, or in some structures, actual shares in the basket. Higher yield; higher risk of capital loss.
Who issues structured products
Structured products are manufactured by major investment banks: Goldman Sachs, JP Morgan, Citi, Barclays, Deutsche Bank, BNP Paribas, Société Générale, and others. These banks have options and derivatives desks capable of engineering the defined payoffs at scale.
The important implication: when you invest in a structured product, you are a creditor of the issuing bank for the full investment period. If the bank becomes insolvent, the product's contractual terms — including capital protection and coupons — may not be honoured. This is called issuer credit risk. During the 2008–2009 financial crisis, investors in Lehman Brothers-issued structured products faced losses when Lehman defaulted.
Diversifying structured product exposure across multiple issuers — rather than concentrating with a single bank — reduces this risk.
The typical return profile
Autocall-type products in mainstream markets (FTSE 100, Euro Stoxx 50) in normal market conditions offer coupon rates broadly in the range of 7–12% per year as of 2026. These returns are significantly higher than money market rates or investment grade bonds — the premium reflects the market risk involved (the risk that the index falls more than 30–40% over the term and capital is at risk).
Products with capital protection or stronger capital barriers offer lower coupons, because better protection costs more (in option pricing terms).
Some more aggressive structures — higher coupon, more concentrated underlying, or weaker protection barriers — may advertise returns of 15–20% or higher. These involve commensurately higher risk.
The risks to understand clearly
Credit risk to the issuer: as above — you are dependent on the bank remaining solvent.
Illiquidity: structured products are not traded on an exchange. If you need to exit before maturity, you can typically sell back to the issuing bank at the prevailing market value — which may be significantly below the nominal value. In volatile markets, liquidity can be limited and prices unfavourable.
Complexity risk: if you do not fully understand the payoff formula, the barrier levels, and the specific circumstances under which capital is at risk, you should not invest. The product documentation — Key Information Document (KID) and the product terms — should be read in full.
Barrier event risk: in the autocall structure, if the index closes below the capital protection barrier at the final date, full capital protection is lost. This does not require the index to spend five years below the barrier — it only needs to be there on that specific final date. Index recoveries that fail to reach the barrier by maturity result in capital loss.
Opportunity cost: locking capital for 3–6 years in a structured product means it is not available for other investments. If equity markets rise strongly during the period, the structured product's capped or barrier-limited return may underperform a direct equity investment.
How structured products fit in a portfolio
Structured products are best thought of as satellite or tactical allocations rather than core holdings. They work well as:
- An income-oriented supplement for investors seeking defined yield above bond rates, willing to accept some equity risk exposure
- A defined-outcome allocation for investors who want a specific return profile — knowing in advance that they will receive X% if the market does roughly flat, rather than an uncertain equity-market return
- A way to access equity market exposure with partial downside protection, for investors approaching or in early retirement who want some growth but cannot afford large capital losses
They are less appropriate as a core holding or as a substitute for a broad equity allocation, where long-term compounding and low costs are the primary objectives.
Access for international investors
Structured products are primarily distributed through:
- Private banks and wealth managers (standard for clients above £500,000 or equivalent)
- Specialist structured product distributors (some operate directly; some via IFAs)
- Some investment platforms as a product category
For international investors, the key requirement is a relationship with a wealth manager or financial adviser who has access to a range of issuers and can negotiate terms — the headline terms available in a structured product are not fixed; volume and relationship can influence pricing, issuer selection, and barrier levels.
Structured products are complex investments. Returns are not guaranteed and capital is at risk. The value at maturity depends on the performance of the underlying index and the creditworthiness of the issuing bank. This article does not constitute personal financial advice. Always seek independent advice before investing in structured products.
How Global Investments can help
Our advisers work with clients on structured product allocations within the context of their overall portfolio — assessing suitability, comparing issuer terms, and ensuring the protection barriers and coupon levels are appropriate for each client's risk profile. Contact us to discuss whether structured products are appropriate for your situation.
This article is for general information only and does not constitute financial, legal or tax advice. Rules, prices and regulations change; verify current requirements with a qualified adviser before acting.