4 ideas
When a product's payoff depends on embedded options, leverage, or formulas the buyer cannot independently model, the buyer cannot compare its price to anything. The dealer can then build a far wider margin into it than a plain bond or swap would bear. Complexity is added less to meet a client need than to make the markup invisible.
A highly rated issuer's note can be wrapped around a leveraged derivative bet. An investor limited by rule or charter to safe, investment-grade debt can then legally take speculative risk that looks like a conservative bond on paper. The same repackaging can move or delay losses so they stay off a client's reported books. The product's real job is to make risk appear to be something it is not to regulators, boards, and auditors.
Robert Citron, the Orange County, California treasurer, loaded the county investment pool with leveraged bets, including structured notes and inverse floaters bought from Wall Street dealers, that paid well as long as interest rates stayed low. When the Federal Reserve raised rates through 1994, the pool lost about $1.7 billion and the county filed for bankruptcy in December 1994. It remains the canonical case of a public official buying 'safe' securities whose risk he did not understand.
Ask how much more the seller knows about the product than the buyer, and whether the seller is paid on the spread they capture rather than on how the client fares. When both are true, the sales culture treats the client's confusion as the source of profit.