Securities Investigation: BofA Contingent Income Issuer Callable Yield Notes Linked to the Least Performing of the ARK Innovation ETF, the Russell 2000® Index and the SPDR® S&P ® Biotech ETF
The White Law Group is investigating potential securities claims involving broker dealers who may have improperly recommended BofA ARK Innovation ETF Callable Yield Notes to investors.
Complex Investment Product – BofA ARK Innovation ETF Callable Yield Notes
According to the prospectus, the BofA ARK Innovation ETF Callable Yield Notes is a complex investment product. The notes have a 4-year term if not called prior to maturity. The payments on the Notes will depend on the individual performance of the ARK Innovation ETF, the Russell 2000® Index and the SPDR® S&P® Biotech ETF. These are considered the “Underlying”. Assuming the Notes are not called prior to maturity, if any Underlying declines by more than 40% from its starting value, at maturity your investment will be subject to 1:1 downside exposure to decreases in the value of the least performing underlying, with up to 100% of the principal at risk; otherwise, at maturity you will receive the principal amount. Further, the Notes are not listed any securities exchange.
Understanding the Risks
Callable yield notes are a specific type of financial instrument that combines features of both callable notes and yield-enhancement strategies. These notes offer investors the opportunity to earn a higher yield compared to traditional fixed-income investments while incorporating a call option for the issuer.
Callable yield notes typically have a fixed maturity date and pay a coupon or interest rate higher than prevailing market rates. They are structured in a way that allows the issuer to redeem the notes before maturity if certain conditions are met. This call option gives the issuer the right to repay the investor’s principal and stop making coupon payments.
The call feature in callable yield notes provides flexibility for the issuer. If interest rates decrease, the issuer can choose to call the notes and refinance the debt at a lower cost. This allows them to benefit from potential interest rate savings. However, from the investor’s perspective, this introduces the risk of early redemption, potentially leading to missed interest payments and limiting the overall yield potential.
Callable yield notes are different from auto callable notes. While both have call features, the key distinction lies in the conditions triggering the call option. Auto callable notes are tied to the performance of an underlying asset or index, where reaching a predetermined level can result in automatic redemption. Callable yield notes, on the other hand, may have call features triggered by changes in prevailing interest rates or other specified conditions agreed upon in the note’s terms.
Additional Risks fo Callable Yield Notes
There are additional risks associated with investing in BofA ARK Innovation ETF Callable Yield Notes :
- Reinvestment Risk: If callable yield notes are called early by the issuer, investors face the challenge of reinvesting their funds in a potentially lower interest rate environment. This may result in a reduced yield on their subsequent investments compared to the original yield of the callable yield notes.
- Yield Volatility Risk: They often provide a higher yield compared to traditional fixed-income investments. However, the actual yield received by investors may fluctuate if interest rates change or if the notes are called early. This volatility in yield can impact the overall return and may make it more difficult to accurately forecast the expected yield.
- Market Risk: Callable yield notes can be influenced by changes in market conditions, including interest rate movements, credit spreads, and market liquidity. Fluctuations in these factors can affect the value of the notes in the secondary market and may result in capital gains or losses if sold before maturity.
- Credit Risk: They are also are subject to the credit risk of the issuer. If the issuer experiences financial distress or defaults, investors may face a loss of their principal investment and any outstanding interest payments.
- Liquidity Risk: They may have limited liquidity in the secondary market, making it potentially challenging to sell the notes before maturity. This lack of liquidity may be due to the specific terms and conditions of the notes, limited demand, or restrictions on resale.
- Call Risk: The issuer’s ability to call the notes introduces the risk of early redemption. If the issuer exercises the call option, investors may experience the loss of future interest payments that they would have otherwise received if the notes had remained outstanding until maturity.
- Complexity Risk: Callable yield notes can be complex financial instruments, and the terms and conditions may involve various features and provisions. The complexity can make it challenging for investors to fully understand the risks and potential outcomes associated with these notes.
Investment Loss Recovery
The White Law Group is investigating the liability that brokerage firms may have for recommending complex, often extremely high-risk, structured notes such as BofA ARK Innovation ETF Callable Yield Notes
With the market in turmoil, many investors who purchased such investments believing they provided downside protection or were akin to bonds because of the dividend component are instead finding that these products can indeed suffer enormous losses.
Brokers often pitch structured products, as providing “downside protection” against losses to a related index while allowing modest upside gain potential. Of course, this is only true if the value of the index doesn’t fall below a predetermined price. If the price falls below that point, the losses in structured notes can still be huge.
These products typically pay a high fee to the financial advisors that sell them.
Brokerage firms have two main duties in recommending structured callable notes linked to equity investments or indexes. First, brokerage firms are required to perform adequate due diligence on any product they recommend. Second, brokerage firms are required to ensure that all recommendations made are suitable for their client in light of the client’s age, investment experience, net worth, income, and investment objectives.
If a brokerage firm fails to do either of these things, the firm can be held responsible in a FINRA arbitration claim.
Hiring a FINRA Attorney
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm dedicated to helping investors in claims in all 50 states against their financial professional or brokerage firm. Since the firm launched in 2010, it has handled over 700 FINRA arbitration cases.
Our firm represents investors in all types of securities related claims, including claims involving stock fraud, broker misrepresentation, churning, unsuitable investments, selling away, and unauthorized trading, among many others.
With over 30 years of securities law experience, The White Law Group has the expertise to help investors defrauded in securities attempt to recover their investment losses. The firm reviews securities fraud cases throughout the country.
If you have suffered losses investing in BofA ARK Innovation ETF Callable Yield Notes , the securities attorneys of The White Law Group may be able to help. For a free consultation, call the firm’s office at 888-637-5510.
For more information on The White Law Group, please visit our website at https://whitesecuritieslaw.com.
Tags: Ark Innovation ETF, BofA ARK Innovation ETF Callable Yield Notes, callable yield notes, structured products Last modified: July 12, 2023