Using Structured Notes for Enhanced Income, Protection, and Better Planning

We’ve recently started introducing structured notes to some client portfolios, specifically a category known as callable yield notes (basically just a fancy term for income notes).

These investments are designed to offer a mix of enhanced income potential and downside protection. And while they might sound complicated at first, once you understand how they work, they’re pretty straightforward — and in the right situations, they can be a practical addition to your long-term strategy.

**So, What Exactly Are Structured Notes?**

Think of structured notes as debt securities issued by large banks that offer higher yields than traditional bonds or CDs, and can provide a level of downside protection. The structured note’s performance is tied to the performance of an underlying asset — such as a stock index (e.g., the S&P 500), a basket of indices, or another benchmark.

Here’s what sets them apart:

Income Potential: They often offer attractive yields, which are most often higher than traditional bonds.
Defined Risk/Reward: The terms are clearly spelled out upfront.
Customization: We work directly with top-tier banks and intermediaries to tailor the features of each income note to specific goals and risk profiles.
Group Buying Power: By aggregating accounts for large trade blocks, we can negotiate better terms — essentially giving you access to income notes typically reserved for institutional investors.

Callable Yield Note Features

Here’s how they work:

Feature	What It Means
Coupon Payments	Pays income (often 8%–12% annually)* monthly or quarterly.
Market Link	Tied to an index (or basket of indices) like the S&P 500 — if it stays above a set level, you receive the income.
Downside Protection	Helps protect your original investment from market drops.
Callable	The bank can end (call) the note early if the market performs well. You get your principal back, plus any income earned, but the note ends.

* These rates are indicative of structured notes we have created in the past year.

Below is an example of a hypothetical structured note with a term of 18 months. The note pays 10% annually, with coupons paid quarterly. It is callable after six months, and has a principal protection and contingent coupon level of 30% – meaning the indices would have to fall more than 30% for the coupons to be missed or loss of principal.

A Personalized, Not One-Size-Fits-All Approach

This isn’t a blanket change to everyone’s portfolio. We evaluate structured notes on a case-by-case basis — only where they make sense for your financial plan and investment objectives.

Before we include them in any strategy, we conduct thorough research on:

Note structures and how they behave in different markets
Risk controls
Financial strength of issuing banks
How they fit into your broader financial plan

Deeper Dive: Why Structured Notes Are Worth Consideration

1. Higher Income Potential

Traditional fixed-income investments, like bonds or CDs, can sometimes fall short on yield. Structured notes help bridge that gap:

Investment Type	Typical Yield
Corporate Bond	3%–5%
Callable Yield Note	8%–12%*

* These rates are indicative of structured notes we have created in the past year.

That extra income is made possible by:

Taking on defined market conditions (e.g., only paid if the index holds up)
Committing to a fixed time period
Taking advantage of market volatility (which these notes can convert into income)

2. Downside Protection Built In

Unlike owning stocks outright, many structured notes include barrier protection. This shields your principal from market losses — up to a point.

Example:
If your note has a 30% barrier, and the index it’s tied to drops 25%, your investment is fully protected.
If the index drops more than 30%, your principal is at risk beyond that threshold.

3. Clear, Defined Outcomes

Terms spelled out on the front end:

How much income you might receive
What happens if markets drop
When your note could be called or mature

This helps us build more predictable strategies around your retirement, income needs, or risk tolerance — and gives you a better sense of what to expect.

4. Portfolio Diversification

Structured notes offer a way to diversify beyond traditional stocks and bonds — especially when markets are choppy or rates are uncertain. Because they’re tied to specific outcomes based on market conditions, they behave differently than most other investments.

Here’s how they can add balance to your portfolio:

Non-traditional return profile: Notes are designed to generate income or defined results based on preset triggers — not just market performance alone.
Complement to both equities and bonds: They can reduce reliance on one asset class and smooth out volatility over time.

Custom exposure: We can select underlying assets, barriers, and maturity timelines, giving more flexibility than standard investments.

How We’re Using Structured Notes in Portfolios

We’re not replacing traditional bonds or stocks — structured notes are a complement, used selectively to make portfolios more efficient, better protected, and potentially more rewarding.

Here’s how we may integrate them:

As a Bond Alternative

If it fits your strategy, we may shift a portion of your bond allocation into structured notes. These offer the potential for higher yield and built-in downside protection, especially in low-interest-rate or inflationary environments.

To Manage Risk

Structured notes can play a key role in balancing income needs with risk exposure — especially important if you’re nearing retirement or already drawing from your portfolio.

Through Laddering

In some instances, we may choose to spread allocations across multiple structured notes with different terms and maturity dates. This helps to smooth out income over time and reduce reinvestment timing risk.

To Enhance Returns

Structured notes give us another lever to pursue risk-adjusted growth. By turning market volatility into a potential income stream, they offer a way to enhance returns without taking on traditional equity risk.

Final Thoughts

Structured notes aren’t a fit for everyone — and that’s exactly why we’re taking a thoughtful, case-by-case approach. Used strategically, they can offer a powerful combination of income, protection, diversification, and return potential. If they align with your goals, they may become a valuable part of your overall plan. As always, we’re here to walk you through the details and make sure every decision supports your long-term success.

Common Questions

1. What are structured notes, in simple terms?

They’re debt securities issued by big banks that combine bond features (like coupon payments and maturity dates) with stock-market-linked returns and income.

2. What’s a callable yield note?

It pays income if the market holds up. If markets do really well, the bank may end (call) the note early and return your money plus the income earned so far.

3. Why do these notes pay more than traditional bonds?

They offer higher yield because you agree to:

Tie your returns to market conditions
Leave your investment in place for a set period
Let the bank end it early if things go well

4. How does downside protection work?

Notes often include a downside barrier — like 20% to 50% — that shields your principal from loss.
If the market falls beyond that point, your principal starts taking losses as well.
Every note has different terms — we’ll walk you through the specifics.

5. What are the risks I should know?

Issuer credit risk: Your return depends on the strength of the issuing bank
Call risk: Strong performance may end the note early
Liquidity: Best to hold until maturity — selling early may result in a discount
Complexity: Not every note works the same way — we do the legwork to sort through the details

6. Where might these fit in my portfolio?

They’re usually used as:

A partial replacement for bonds
A way to generate retirement income
A way to enhance risk-adjusted returns
A tool for laddering cash flows across different terms

7. Why consider them now?

Structured notes have been used by institutions for decades. But thanks to better platforms and technology, they’re now more available — and more customizable — for individual investors through firms like ours.

Concerns or questions about how your investment portfolio will hold up in the current market environment? Contact Financial Synergies today.

We are a boutique, financial advisory and total wealth management firm with over 35 years helping clients navigate turbulent markets. To learn more about our approach to investment management please reach out to us. One of our seasoned advisors would be happy to help you build a custom financial plan to help ensure you accomplish your financial goals and objectives. Schedule a conversation with us today.

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Using Structured Notes for Enhanced Income, Protection, and Better Planning