Custom Notes
Diversify and Complement Your Income with Custom Notes from Plan to Prosper Wealth Management
What are Custom Notes?
A Custom Note is a debt security engineered to provide defined outcomes through the performance of underlying stock combinations. By combining a fixed-income bond component with equity derivatives, Custom Notes allow for a tailored risk profile that can correspond to an investor’s expectations/risk tolerance—balancing potential principal protection with equity-linked income.
These structures allow investors to achieve specific goals, such as generating high income yields via periodic coupons as well as providing a 'buffer' against principal losses.
Since the possible strategies are virtually unlimited, we specialize in customizing these around well-known equity underliers to create high income potential.
A) What are Custom Notes?
- Underlying Linkage - Returns based on a formula tracking performance of individual stocks or market indices — not direct ownership
- Defined Outcomes - Potential payouts and scenarios are fully defined at the outset
- Held to Maturity - Generally illiquid - designed to be held until maturity (months to years)
- At Maturity - Final return of principle is calculated based on underlying asset performance versus the note's terms A structured note is a hybrid investment that combines a debt instrument with a derivative component - delivering defined outcomes based on the performance of underlying assets.
B) How it Works - Monthly Observations
*EACH MONTH - One of three scenarios could apply:
- Any or All stocks at or above initial trade price - Coupon is PAID
- Any or All stocks between the initial price and the stated coupon barrier - Coupon is PAID (downside protection in effect)
- Any stock falls below the coupon barrier - Coupon is MISSED for that monthly observation period *Each month is an independent observation from prior months
AT MATURITY - Final Observation:
- 1. Any or All stocks at or above initial trade price →100% of principal returned
2. Any or All stocks between the initial price and the stated maturity barrier→100% of principal returned
3. Any or All stocks below the maturity barrier → Principal reduced proportionally to worst performer
C) EXAMPLE NOTE - Issuer Callable Yield Note
Yield Note
META, PANW
Structured Note Example
Understanding the Underlying Mechanisms
- Trade Date = The underlying stocks are “marked” and defined. Initial price of each stock will be set into the contract for reference.
- Term = The defined length of the note as well as the amount of time whereby the note cannot be called by the issuer.
- Call/Coupon Frequency: The terms for the call period for the issuer once the non-callable period expires. The coupon frequency details how often the payments are made.
- Underlying(s) = The stocks that compose the note. The performance of the stocks will dictate if we receive coupon payments.
- Coupon Barrier = The percent that a stock must remain above its initial price as per the note.
- Per Annum Yield = The note’s yearly yield.
- Principal Barrier = The percent that a stock must remain above its initial price, at maturity, to receive our principal back.
D) Key Benefits - Why Choose Custom Notes? Three distinct advantages for the modern investor
E) Know Before You Invest - Understand these fully before committing capital
Disclosure Statement
We may recommend structured notes when appropriate based on your investment objectives, risk tolerance, financial circumstances, liquidity needs, and overall investment strategy. Custom notes are investments whose return is linked to the performance of an underlying asset, index, interest rate, commodity, currency, or other benchmark. They are generally issued by banks or other financial institutions and may be designed to provide income, enhanced yield, downside protection, or other investment outcomes. Custom notes involve risks that may be greater than those associated with traditional investments.
- Issuer Credit Risk. Custom notes are obligations of the issuing financial institution. If the issuer experiences financial difficulties or becomes insolvent, you could lose some or all of your investment, regardless of the performance of the underlying asset.
- Market Risk. The value of a structured note depends on the performance of the underlying asset or benchmark and may decline in value. You may lose some or all of your principal.
- Liquidity Risk. Custom notes are generally intended to be held until maturity. A secondary market may be limited or unavailable, and should you choose to sell before maturity may result in you receiving substantially less than the amount originally invested.
- Cost and Valuation Risk. Custom notes may include embedded costs, such as issuer compensation, hedging expenses, and distribution costs. Their value before maturity may be affected by factors other than the performance of the underlying asset, including interest rates, market volatility, time remaining until maturity, and changes in the issuer’s financial condition.
- Complexity and Limited Return Risk. Custom notes may contain features that limit gains, condition payments on certain events, permit early redemption by the issuer, or otherwise affect performance. As a result, you may not fully participate in gains of the underlying asset and may earn less than you would through other investments.
- Tax Risk. Custom notes may have complex tax consequences. You should consult your tax advisers regarding the tax treatment of these investments.
The Company performs due diligence before recommending structured notes and considers factors such as issuer creditworthiness, liquidity, costs, complexity, client suitability, and available alternatives. However, all investments involve risk, and there can be no assurance that any investment strategy will be successful.
Custom Notes
Frequently Asked Questions
The Basics
What are Custom Notes?
Custom Notes is our solution for the financial instrument known as a “structured note”. Custom notes are debt securities with a derivative component, issued by financial institutions. The performance of each note is linked to an underlying asset class.
How do Custom Notes work?
Custom Notes are designed to generate monthly income. Our strategy uses individual stocks as the underlying asset while incorporating downside protection to help manage risk.
What is an underlier?
Custom Notes provide a return that is linked to an underlier — the asset’s performance determines the note's outcome. Common underliers include individual equities, equity indexes, and ETFs (Exchange Traded Funds).
Which accounts can be used to fund Custom Notes?
Custom Notes can be funded through any account type such as brokerage accounts, Traditional/Roth IRAs or Trust accounts.
Can Custom Notes be used to diversify my investment portfolio?
Yes. Custom Notes are designed to complement an existing income strategy and can serve as a meaningful diversifier within a broader portfolio.
Maturity, Calls
Maturity, Calls & Coupons
What happens if Custom Notes are held to maturity?
If the Custom Note is held to maturity and all underliers are above the downside protection level, you will receive your full principal investment plus the final coupon payment. If any underlier finishes below the downside protection level, the amount of principal returned will be based on the performance of the worst-performing underlier at maturity.
What happens if Custom Notes are called before maturity?
If your Custom Note is called before maturity, you will typically receive your full principal investment plus the final coupon payment.
Can I sell my Custom Note?
As with any debt instrument, selling before maturity carries the risk of receiving less than the original principal. Plan to Prosper encourages clients to approach Custom Notes with a “hold-to-maturity” mindset to capture the full benefit of the structure.
Is it possible for a Custom Note to miss a coupon payment?
Yes. A monthly coupon payment may be missed if any of the underliers fall below the downside protection level on the monthly observation date.
Can a missed coupon payment be made up later?
Potentially. Custom Notes can include a feature called memory — if all underliers are above the downside protection level on a subsequent observation date, any previously missed coupon payments will be paid out at that time. There is a cost (typically built into the note) for this feature.
Issuers & Pricing
Which banks issue Custom Notes?
Plan to Prosper works with a broad range of leading global financial institutions to create Custom Notes. Such providers can include: J.P. Morgan, Goldman Sachs, Barclays, Morgan Stanley, Bank of America, BNP Paribas, Bank of Montreal, Societe Generale, HSBC, Credit Agricole, Citi, RBC and others.
Can the value of my Custom Notes fluctuate?
Yes. The primary driver of price fluctuation shown on account statements is due to the performance of the underlying assets.
Risks
What are the risks of investing in Custom Notes?
Custom Notes are structured notes and carry several categories of investment risk that clients should understand before investing:
- Market risk — The value of the underlying equity can fluctuate significantly, which directly impacts the note's return.
- Credit risk — If the issuing financial institution experiences financial difficulties, it may default, resulting in a potential loss of principal.
- Liquidity risk — Custom notes may not be easily tradable on a secondary market and selling them prior to maturity could result in a loss of value.
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