What is a structured note?

A structured note is a debt security whose payoff is linked to an underlying asset, index, or other reference. Its terms can change the way gains, losses, income, or downside protection work compared with owning the underlying asset directly.

The terms matter.

Two notes can both be called “structured notes” while having very different payoff structures. Before considering one, understand the underlying reference, maturity, participation or cap features, downside protection or buffer, issuer credit risk, liquidity, fees and tax treatment.

The question I would ask next

“What problem is this note actually solving in the portfolio, and what are we giving up in exchange?”