Investors lost an average of 2 percent on the 180 reverse convertibles issued by RBS last year that matured by Nov. 30, Bloomberg data show. The securities had a total face value of $69.3 million. Pholida Phengsomphone, an RBS spokeswoman, declined to comment.

"This isn't something that a retail investor calls up and asks for," said Marilyn Cohen, who oversees $250 million as chief executive officer of Envision Capital Management in Los Angeles. "Is it ever explained to them that you might end up with the stock and there's a large probability that will happen?"

Buyers profited on 75 percent of the notes analyzed by Bloomberg. The average return was negative because investors lost more on the unprofitable ones than they gained on those that made money. Investors also took on credit risk because the notes are unsecured debt.

SEC Examination

"There's no free lunch," Tongue said. "If you're going to get super-standard returns, that means you're taking super- standard risks."

Reverse convertibles aren't traded on exchanges and their performance isn't reported publicly. Investors lost $27 million on the $2.19 billion of securities compiled by Bloomberg. Banks also sold $4.56 billion of reverse convertibles whose returns weren't included because they didn't mature by Nov. 30.

Kenneth Lench, head of the SEC's structured products unit that investigated Goldman Sachs Group Inc.'s subprime-mortgage investments, said in a September interview that the agency was examining whether brokers overcharged investors for the notes. He declined to comment for this article. SEC Enforcement Director Robert Khuzami said at a Senate Judiciary Committee hearing the same month it has looked at reverse convertibles.

"The reason these are popular is they're kind of an easy sale," said Charlie O'Flaherty, who used to oversee U.S. structured products and derivatives at Bank of Ireland. The products are marketed as a way to earn higher yields during times when stock prices are stable and interest rates are low, he said. Buyers aren't told how they have performed in the past, he said.

Bank Fees

Banks charged fees that average 1.6 percent on a three- month reverse convertible, or about 6 percent a year, the data show. The average annual fee on stock mutual funds is 1 percent, according to the Investment Company Institute, a trade group in Washington.

The three-month reverse convertibles sold by Edinburgh- based RBS and linked to Kodak, a photography company founded more than 100 years ago, paid brokers a 2.75 percent commission.

David Fuller's view If you think about it, doesn't the very name - 'structured product' - sound like a rip-off?

Common sense should tell investors that if something sounds too good to be true… it probably is.