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How Safe Are Your Savings?

The truth about structured products and why brokers promote them

Meanwhile, sales of structured products keep rising. In 2010, Wall Street firms and major banks sold a record-breaking $51.86 billon of the investments to U.S. consumers. Their pitch: low risk to principal, and high yield. Their favorite customers: older Americans who are scared of outliving their money if it remains parked in low-yielding CDs and bonds — and are often desperate to find a safe, better-paying alternative.

"Clearly, Wall Street is targeting fixed-income investors, most of whom are retirees seeking a steady source of income while guarding against any material loss of principal," says Chris Vernon, a Naples, Florida – based attorney who has represented hundreds of older investors who have been burned, including Replogle. And they're being targeted, says Vernon, for the same reason Willie Sutton robbed banks: " 'Cause that's where the money is.' "

Structured products are extremely profitable for sellers. For buyers, not so much. At best, you pay high fees for an illiquid investment with limited potential gain. At worst, you can lose everything. To date, investors have lost an estimated $164 billion in structured products and similarly risky investments. And regulators expect the losses to grow dramatically — along with investor complaints. Americans who have bought these investments since 2008 are increasingly filing claims as the size of their losses becomes apparent. "The big wave is yet to come — most people don't know what they have yet," said Joseph P. Borg, director of the Alabama Securities Commission, who is investigating a number of claims.

Many investors have stories similar to Replogle's. Rob Brunhild, 49, of West Bloomfield, Michigan, for example, invested in Lehman notes through UBS for his family trusts and his 80-year-old mother. He expected "a good solid return with minimal risk. The broker implied that the notes were like U.S. Treasuries."

His family lost $275,000.

Tricia Flanagan, 58, invested $200,000 in principal-protected notes for her retirement in 2008. A real-estate agent in Kiawah Island, South Carolina, Flanagan had second thoughts when Lehman's financial woes made headlines, but her broker convinced her not to sell. She lost her entire savings. "I was vulnerable," she says. "I felt I was targeted. There were people who knew we were sitting ducks."

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