CNBC's Closing Bell: Structured Products and Retail Investors
Maria Bartiromo and guest Janet Tavakoli June 21, 2006 - Excerpt

Janet: ...in the stock market, we've seen structured products where a retail investor can buy a note, put up front investment let's say $1,000, and at maturity they will get either their original investment back or they will get back their principal plus a one for one, payout. For instance if the S&P declines by 5% they will get back their original investment plus a 5% payout at maturity. That's example of a structured product that is currently being marketed to retail investors.

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Janet: There are several issues, Maria. One example is, if you're buying an equity linked note and looking for the upside of an index, you won't getting any dividends. Another issue is that if you want to sell it before the maturity of the note, you won't get a very good price. That's what I mean by illiquidity. A third issue is that part of the reason you won't get a good price is that there can sometimes be very heavy fees embedded these notes.

You can find that you've bought a tricycle at Ferrari prices and the only person driving a Ferrari is your broker.

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Janet: It depends on the structure. That's why the National Association of Securities Dealers advised brokers to limit the sale of these products. Because while some products, don't have excessive fees, many of them really do. And, not only that, there are some products that are sold with substantial principal risk. At times investor can lose more than their original investment. As an example with viatical products I saw being marketed recently. Those investors are not aware that not only can they lose their original investment, they can lose even more and get a call saying: "We want further funds from you".