Structured notes have quietly moved from niche products to mainstream tools in South African wealth management. They appeal to investors who don’t want to be fully exposed to market swings, yet find the low returns of bonds or cash uninspiring. In many ways, they offer a middle ground: a blend of capital protection, enhanced yield, and tailored market exposure.
But while they sound attractive, structured notes aren’t a silver bullet. Too often, investors see a headline “12% coupon” or “capital protection” and jump in without unpacking the mechanics, the trade-offs, or the risks. At Henceforward, we believe understanding the “why” is just as important as the “what.”
In this guide, we’ll explain what structured notes are, how they’re built, when they make sense (and when they don’t), and the tax, estate, and planning implications you need to weigh before committing.
Think of a structured note as a wrapper that blends stability with potential growth. Banks create them by combining two parts:
1. A bond or deposit that grows back to your original investment at maturity. This forms the protective backbone.
2. A derivative contract (usually options) that links your return to a chosen market—like the JSE Top 40, the S&P 500, currencies, or commodities.
In simple terms, you’re lending money to a bank. In return, they promise to give you back your capital at the end of the term (if protection applies) and a payoff determined by how the market behaved.
South Africans can access structured notes both locally and offshore.
· Local notes are issued by banks like Investec, RMB, or Standard Bank. They are rand-denominated, often linked to the JSE or global indices, and straightforward to implement within local exchange control.
· Offshore notes are created by international banks such as JP Morgan, Goldman Sachs, or Barclays. They are denominated in USD, GBP, or EUR, and typically linked to overseas indices or baskets. They provide global diversification, but with added currency risk.
In practice, many high-net-worth investors use both: local notes for rand stability and offshore notes for diversification.
Further Reading: How to Invest Offshore Effectively if You’re a South African Investor
Structured notes come in many flavours, but most South Africans will encounter four main types.
1. Capital Protected Notes Guarantee the return of your original capital and give you partial exposure to upside. For example, you might commit R1 million for five years and know you’ll get that capital back, plus 50% of any JSE Top 40 growth.
2. Yield or Income Notes Designed to pay attractive coupons—often 8–12% per annum—if certain conditions are met. For instance, 10% annually if the S&P 500 doesn’t fall more than 40%. These shine in sideways markets, where equities tread water but investors still want returns.
3. Participation Notes Simpler but riskier. If the Nasdaq rises 30%, you earn 30%. If it falls 20%, you lose 20%. No protection, full exposure.
4. Autocall Notes High coupons, with the possibility of early maturity. Example: 12% annually, but the note matures early if the Euro Stoxx hits its starting level in year three.
Most notes follow a familiar recipe:
At maturity, you get your capital back (if protection applies) plus the derivative payoff.
⚠️ The trade-off: you usually don’t receive dividends. In South Africa, where dividends are a large share of total equity returns, this can be significant.
Tracking, Not Investing
Structured notes don’t buy the index directly. The bank isn’t purchasing the JSE Top 40 or S&P 500 for you. Instead, it uses derivatives—options, swaps, or similar contracts—that are structured to track performance according to rules.
Because you don’t own the underlying assets:
In short: you’re exposed to both the market’s behaviour and the issuer’s credit risk.
Here’s how one real-world 5-year structured note was built:
👉 The result:
✅ Plainly put: most of your money buys back your capital, a slice goes to fees, and the rest is engineered into geared upside — but with a hard ceiling at +53%.
Options are the “engine” that create the unique payoff profile of a structured note:
Now that we’ve seen how structured notes are built — a large slice reserved for capital protection, a deduction for fees, and the rest allocated to options — it becomes clearer why their results look so different from direct share investing. The next section shows how this plays out in practice, comparing structured notes to straightforward equity investments.
Example 1: Capital Protected Note vs JSE Top 40
If you had invested R1 million for five years:
Takeaway: Peace of mind, but at the cost of dividends and capped upside.
Example 2: Autocall in Sideways Markets
In 2019, a note tied to the S&P 500 and FTSE 100 promised 12% annually if both indices stayed above 60%.
Result: Strong returns in a stagnant market, but would have lagged in a bull run.
Always peel back the layers:
When you invest in a structured note, you’re not only exposed to market performance, but also to the creditworthiness of the issuer (the bank issuing the note). The repayment promise is only as good as the balance sheet standing behind it.
But in some cases, structured notes are also linked to credit reference entities through what are called Credit-Linked Notes (CLNs).
Bank Capital Structure Matters
Not all obligations of a bank carry the same risk. Structured notes are generally issued as senior unsecured debt, meaning you rank above subordinated creditors but behind depositors and secured lenders if the bank defaults.
One CLN in the market was linked to subordinated Tier 2 debt of three global banks: Barclays PLC, Standard Chartered PLC, and NatWest Group PLC, with equal exposure (33.3% each).
👉 In other words, even if the market exposure (e.g., to the S&P 500) performed well, an unrelated default by one of these reference banks could trigger a capital loss.
The position of a structured note within a bank’s capital structure is critical to understanding its risk. In a default, creditors are repaid in order of priority:
Equity → Ordinary shareholders, always last in line.
👉 The key point:
Structured notes can feel safe, but history tells another story.
👉 The harsh reality: structured notes tend to fail during market stress, precisely when investors expect them to protect.
Investor Takeaway: Structured notes protect capital conditionally. When markets plunge or issuers falter, that protection may not hold. Always test scenarios where barriers are breached.
Unlike unit trusts with a clear TER, fees here are hidden in the design. The bank keeps a margin by adjusting participation or coupon terms.
Example: two banks issue the same 5-year JSE Top 40 capital-protected note. One offers 60% upside participation, another 50%. That 10% gap is the bank’s margin.
Rule of thumb: If two otherwise similar notes offer different participation rates, the one with the lower rate usually carries higher embedded fees
Questions to ask providers:
👉 Transparency may be low, but the right questions can protect your returns.
Always compare after-tax returns, not just headline coupons.
Wrappers and trusts help reduce these risks.
This is where structuring matters: wrappers and trusts are often the tools that turn a complex note into an estate- and tax-efficient solution.
Wrappers are particularly powerful for structured notes because they solve three big challenges at once: estate taxes, reporting, and liquidity.
👉 For structured notes specifically, wrappers are not just nice-to-haves. They’re often the difference between an elegant solution and a messy, tax-heavy estate headache.
Structured notes should be a sleeve, not the whole portfolio. Align maturity with your life goals, document holdings in wills or trust deeds, and prepare executors for their complexity.
Rolling Over a Structured Note
At maturity, providers often suggest rolling into a new note. This can be attractive, but beware of locking in funds again without reassessing your needs.
Rolling over can make sense if volatility is high (improving coupons) and your horizon still fits. But it should never be automatic.
When to Consider Structured Notes
👉 In strong bull markets, low-cost ETFs often outperform structured notes, since they capture full upside and dividends. Structured notes should be seen as complements, not replacements.
At Henceforward, we don’t see structured notes as products in isolation … we see them as strategic building blocks in a family’s wealth journey. For larger portfolios (above R5 million locally or USD 500,000 offshore), we can help build and shape customised structured notes – often at lower fees than off-the-shelf options – that slot seamlessly into a well-diversified strategy.
💡 If you’d like to explore whether structured notes could add value to your portfolio, book a consultation with us. We’ll evaluate opportunities through the lens of tax, estate planning, and long-term family wealth goals.
Steven is a Certified Financial Planner® and co-founder of Henceforward. With over 20 years of experience in wealth management and financial planning, Steven specialises in helping families and business owners structure and grow their wealth across generations. His expertise spans investment strategy, estate planning, and building customised solutions such as structured notes that align with clients’ long-term goals.
