Animal Spirits Podcast - Talk Your Book: Defined Outcome Strategies with Jason Barsema of Halo Investing

Episode Date: November 18, 2019

On this edition of Talk Your Book we had Jason Barsema from Halo Investing on to discuss the structured products market, how they're trying to make them more transparent, the pros and cons of structured products, best use cases for advisors and much more. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Halo investing is not a broker-dealer and does not receive compensation for securities-based transactions. Halo investing is affiliated with Halo Securities LLC, a FINRA member firm. Halo Securities receives compensation from market participants that are involved with this purchase of structured notes. Today's Animal Spirits Talk Your Book is brought to you by Halo Investing. Go to Haloinvesting.com and request a free demo for their services. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Battenham and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Batnik and Ben Carlson work for Ritt Holt's Wealth Management.

All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritthold's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Ritthold's wealth management may maintain positions in the securities discussed in this podcast. So we are admittedly somewhat new. whales on the structured product market. Is that a fair assumption? That is fair.

Let me back that up. You're a new whale. I have used structured products in the past in the endowment world. And my problem with them was that they were always very opaque, kind of hard to understand. The fees were hard to figure out there was a kind of a lack of transparency. Is that because you were buying the structured products from the manufacturer? Yes. So we were buying them straight from the banks. A lot of times we were going to them with ideas or their company with their own ideas of products to build for us. And they were trying to make them specifically for us. But I always got the sense that they were more products that were meant to be sold, not bought. The appeal of these products are pretty obvious in that it gives you a defined risk.

Yeah. So these are the kind of products that, and we'll get into this in our interview in a moment, but they give you a defined risk in terms of here's how much downside you can. expect and here's so much upside you can expect using different options to sort of have those buffers on each side. So to me, one of the big takeaways, because when we were talking to them prior to the recording, I was like, I just don't understand. It sounds like a free lunch. Who's on the other side of the trade? And Jason made it clear when we were talking to him that actually these products are sold and then the bank immediately offloads the risk. So it's not necessarily they're winning, you're losing, you're winning, they're losing type of thing.

Exactly. And a lot of it, frankly, depends on what the market outcomes are. Just because you have this range that you can fit within, you don't know how things are going to play out. So we talked to Jason Barsima of Halo investing. And I like the way that they came at this because he was, first of all, in the banking world and he decided, I want to be more of an independent company and make it so these products more transparent, easy and understand. The fees are easier to see. It's more of a liquid marketplace. And so essentially, they are a middleman, if you will, between the client and or advisor and the banks that are creating these products and potentially corporations that are creating these products. But in a very good way,

I think middleman can be pejorative. But what they're doing is they're, instead of going to the manufacturer, they're having the manufacturers go on the platform and bid against each other because ultimately a lot of these products are commodities. And I think, structure products gets a bad rap because there's some where the commissions are extremely high and the products are so opaque and they're so easy to sell. But effectively, let's say that you're buying a structured product on the S&P 500 and you're getting the terms of the contract. This should be a commoditized product. So if Bank A and Bank B are going to issue commodities, there should be competition. So that's what he's doing. He's creating a competitive marketplace. They're creating

a competitive marketplace. So I think that this was an idea that really took to us. Let me ask you a question. do you think that because apparently structured products are huge in Europe and they're big here way bigger than I thought but but they're not ubiquitous far from it. Do you think that this will be a much bigger market in five and ten years from now? Yes. I think that especially as people retire, they're going to want to have these. If these are available, I think the pitch for these things is pretty clear as long as they're done correctly. And I think we're getting to that point where it's going to be easier and more efficient for people to invest in this stuff where they have more of a defined range of what their potential outcomes could be. Because I view this

as being in the bucket of between stocks and bonds. And that's a place that has been really, really hard to find something that you can wrap your head around, explain, and do so in sort of an efficient, low-cost manner. And these things certainly still have some fees and the liquidity is not quite there. You have to understand exactly what you're getting yourself into. But I think these can provide, especially for people who are retired and want some downside protection, I think these things are just going to continue to grow. And I think there's going to be more product people out there that are going to put these out in the future that are going to make them even easier to access. Yes, I would say, go to haloinvestin.com, see what they're doing.

But as always, please do your own due diligence on these products, especially if you're new to them like we were. They have a lot of potential, but also a lot of potential for confusion. So I think that is, yeah, but especially those advisors and potentially brokers that have used these in the past, I think you're going to be really interested to see what they do because I think for those people that do have them. And frankly, there's also advisors that get these coming into them in legacy portfolios that have a hard time offloading them or knowing what to do or it can potentially be onerous in terms of getting rid of them too. So I think there's a lot of different ways that they could potentially help advisors. And I think the fact that

they're trying to make this more of a marketplace for independent advisors and RAs, I think is great. That seems to be the way that they're approaching this. Yep. So with that, let's go to the conversation with Jason Barcima from Halo Investing. We are sitting here with Jason Barcima, president and co-founder of Halo investing. So this is a fairly, at least initially sort of a complicated product to understand. What is the 90-second elevator pitch? Yeah, so structured products are a way for investors to get a level of downside

investment protection from market declines while still allowing them to participate in the upside of the market. What I always used to tell advisors, I used to run a private banking practice at Credit Suisse and I oversee my own family's money is it's really about insurance around your investment. And so what I like about structured products is it can be simple insurance. Instead of having to buy total portfolio insurance around your portfolio, you can, if you are interested in buying the stock of Facebook or the S&P 500 or gold or name your underlying, you can put a level of downside investment protection around it, again, to help buffer against those market declines without having to sacrifice too much on the up. So we're going to get into some of the specifics on that

in a minute, but we were talking about this before we hit record. What does the structured product market look like? What does it entail? What's the size and why did you guys decide to get into this market? Structured products are actually one of the biggest markets that you've never heard of. So globally, there's about $3 trillion of outstanding issuance in structured products, and about a trillion dollars are issued every single year. And how many issuers? Is it concentrated or is it spread out? It's more concentrated around 20 or so issuers globally. So think of the big French banks, the big Swiss banks, the big American banks are the major issuers. And those are all on my platform and that's part of our marketplace.

But what's interesting is that there's actually over 4,000 issuers globally. Now, the other 3,980 issuers, they'll issue the credit, so the bond component of a structured note. And then they outsource the option to be able to give you that payoff. So remember, a structure note is just a candy wrapper. And inside that candy wrapper is a bond and an option. Maybe this is backwards. I probably should have loved with this. But what is Halo investing? I think that's a good way to back up. So Halo is a financial technology company centered around structure products. So think of my company kind of like Uber, where my drivers are these structure note issuers, as I mentioned, the French, the Canadians, the Americans. Really, every major structure note issuer out there is on my platform.

And I connect these drivers to writers, which are financial advisors. So Halo's original market was the independent advisor market. So the RIA, who's custody at Schwab or a fidelity, they can go on my platform. They can get, for the first time, a full level of pre-trade analytics, suitability, portfolio, fit tools. They can click to trade to buy a structure note, which they were never able to do prior to Halo. And then we provide the full life cycle management. And so basically, in sum, as we provide a portal for advice. to go in and access these products in a very simple and safe way.

So Uber disrupted the medallion service. Who is that equivalent on your end? From our perspective and very much like Uber started is Uber started going to taxi cabs, and those were the first drivers because they were the only ones who legally could drive a passenger. So that's what Halo did, and those taxi cabs are still prevalent on Uber, as we all know. And so we went to the issuers, which I kind of call my taxi cab drivers. In the future, now we're going more towards non-bank assurance. So think of insurance companies. Think of corporations like an Apple or an IBM or a Pfizer or is that to underwrite or to that will be the issuers. So just like Apple goes out and hires an investment banker to issue debt and fund a $2.5 billion debt offering, they can go on to Halo. They can offer that debt in a cheap manner. So cheaper than they could when going out to market, plus they save the investment banking fees. And then we bring in option market makers to be able to do actually the hedge or the option part of the structured note. So make a lot.

Long story short, if you guys were advisors on my platform, you would be able to buy a structure note either from J.P. Morgan and compare J.P. Morgan's pricing, or take the counterparty risk of Apple and compare the pricing that you would get as Apple the counterparty risk. So how did it work previously? In other words, what problem are you solving? Again, kind of backing up, when you look at the structure note industry, it's a very niche market. So while it's a huge market globally, very prevalent in Europe, as we were talking about before the show, it's very retail. And pretty much everybody, whether you're in Asia or Europe, knows what a structured product is. In America, that's definitely not the case. 99.9% don't know what a

structure product is. So I asked you, just to compare, the average American on the street probably doesn't know what an ETF is. They might. I asked you would somebody, would the average person in Europe know what a structure product is? And your answer was... The newspaper lady would. Yeah, it's amazing. It's one of the most popular products out there because they can add when done in the right way, which is a whole mandate of my company, when done in the right way in an independent and unbiased way. They can be one of the most elegant solutions in your portfolio. So what are the wrong ways and what are you guys trying to solve? So obviously people, especially in the area community, I think some people use them, some don't, but some have

these preconceptions of high fees and hard to understand. So what are you guys? Complexity. And so really the whole genesis of Halo was twofold. One was to disrupt it through technology solving the problems that you guys are referencing. And in my humble opinion, those problems were the really high fees, the lack of liquidity, meaning if I want to sell my structure product prior to maturity because every structure note's got a maturity date. And we can walk through how a structure product works and where it goes in the portfolio after this. But if you'd like to sell a structure product back to maturity, you have to sell it back to the issuer. And I don't know about you, but it's the old economics joke. If there's one apple cart in your town and you want to

buy an apple, it's probably not going to be the most efficient price. Third was there's no transparency in the product. Fourth is you have concentrated issuer risk, which as advisors, you only have available a handful of different issuers to choose from. It's kind of like a boys club, all the pricing is relatively the same. And then kind of the six is, it's just hard to buy. Advisors don't have access to this product because they'd either have to go to a wholesaler, which has got even more fees in it, or they would have to go and onboard all of these banks directly, and the banks say, hey, sorry, you're a little too small for me. I'm not going to onboard you directly. You've got to go through the wholesaler, which in my mind is kind of BS,

especially in this world of technology and democratization. So that's what Halo solves, is that we reduce a significant number of the fees. We increase transparency. know what you're paying and know what you're buying. We bring in 27 issuers on the platform globally, and I make them compete. I intentionally do not accept payment for order flow for my issuers, which the issuers always try to give out, because I want to be independent and unbiased. And moreover, through technology and our analytics, we make their product really simple to understand and more importantly understand the value of where it goes in a portfolio. So can we talk about a few example use cases of where advisors would find some benefits here?

walk us through one or two examples of advisors that come to you and say, we have some of these in portfolio or we want to buy them, or what would they do when they come to you? So while we work with advisors across five different continents, let's talk about what I do in my own portfolio because I like to be relatively simple and clean in my own asset allocation. I don't get overly complex. And I always say that there's three primary ways you can use structure notes in your portfolio. One is core, which is the predominant way that I use them in my portfolio. So every structured note to kind of back up has got four components.

are four variables. And if you can understand these four variables, you can understand any structure note. The first one is the maturity. So how long is the duration of the note? That can be from six months out to 10 years. In America, typically two to three years. Second is the underlying asset. So what is the performance of the structure note linked to? It could be the SMP 500, gold, currency, a stock, an ETF, whatever you fancy. The third is the payoff, meaning what do you get? You either get a percentage of the upside of the market or a fixed return, kind of like a bond. So I'll give you a fixed return, pay. out quarterly. And then the fourth, which is why we all buy this, is the level of downside investment

protection. And so getting back to our example of core products, one that I literally just bought in my family's portfolio about three weeks ago when volatility spiked a little bit, was a very simple five-year note linked to the SMP 500. I got 120% of the upside of the S&P 500, 120% of the price appreciation of the S&P 500 because you do not get a dividend. It goes back to the transparency of what we do. Everyone forgets to mention that little detail, but you do not get a dividend. And so I get 1.2 times the price appreciation of the S&P. And then I had 25% hard protection on the downside. So let me give you a couple examples at maturity. If the S&P is up, say, 100% in five years, my note is up 120%. Again, linked to the price appreciation. If the SMP 500 is down

zero to 25, I'm down nothing because I had the heart protection of 25%. S&P down 30, I'm only down five. I'm buffered for that first 25. So I asked you this on the phone because I'm having trouble wrapping my head around this idea of a free lunch. So if you're getting 125% of the episode or whatever number you mentioned, I would imagine that the 125 roughly offset some of the dividends. Absolutely. But you have a 25% buffer. So this sounds too good to be true. Who is, like, Why would anybody issue this? How does the product underneath in this candy wrapper work? So inside the candy wrapper, again, is a zero coupon bond issued by the bank and then an OTC options package. So one fallacy of structure notes giving my issuers some credit for once is that they are not taking the opposite side of your trade.

Right. So that's what I misunderstood. This is not necessarily zero sum. Exactly. And so as soon as the Barsima family goes and buys this SMP 500 note and say Credit Suisse, my former home bank is the issuer, credit Suisse is laying off that risk. in the market, so they're completely hedged. So they get paid at product origination? Exactly. And the other reason why they do it is that it's a very cheap form of deposits. The interest rate that they give on that zero coupon bond is typically less than what they would offer if they went out to market for that exact same bond. And it's counted positively towards their tier one capital, not to get too wonky on the podcast, but it's very capital friendly for a bank to issue structure products because it's positive towards tier one capital plus they get the fee in cheap debt. And so that's why banks issue

these products. We were explaining some of these structured notes to our advisors earlier, and the question is always like, okay, what's the catch? Is it lockup fees? Is it the fee you pay for it? So you have this sort of upside participation and downside protection. What is the catch in most cases that maybe people aren't aware of? And you already mentioned the dividend thing is one, obviously. I guess because the what's the catch is like these are not asymmetrical. So you're getting 125% of the upside. Sounds too good to be true. That was the number one question I always had to answer at credit sues because I managed portfolios for ultra high net worth individuals and institutions, some of the wealthiest families in this country. And ironically, going back to what we were saying,

none of them have ever heard of a structured product before. And my argument or my conversation with them was not about what a structured product is. Yeah, we're all relatively intelligent. We can understand how it works. It was more like, why wouldn't all my portfolio be in this type of product? And there's three opportunity costs. There is no free lunch in anything. Number one, as we mentioned, the dividend. SMP 500, it's got about a 1.85 percent per annum dividend. Over five years, I just gave up roughly 10% of my returns. To your point is you can make up for that for the enhanced upside, but what happens if the S&P was only up 10% over those five years? I would have been better off owning SPY. Moreover, is that while there's liquidity on the product, you're not participating one

for one in the terms of the note until you get to maturity. The terms only matter at maturity. So there is this liquidity cost, right? I always advise people to hold their structure products to maturity, unless your thesis and the only time I sell my structure products early in my own family office is, okay, I was really right, and I was right a lot earlier than I thought I was going to be right, and let's take the gains. These are typically products that you would recommend, you want to hold these for the term. I always recommend that. And while Halo has completely reinvented the game of liquidity, we bring in six independent market makers, which doesn't exist anywhere in the world, and now we're launching a full-blown electronic

exchange for the product. So think of it as like the New York Stock Exchange for Structure Notes. you're still going to pay a discount. And on our platform, you're paying around 35 basis points as the spread to sell your structure note far different than two to three points. So how does the price change in between issuance and maturity? Is that a potential downside? You get a discount, but how does that work? Yeah.

And so when you look at it in the account and what's kind of nice about structured products or what's nice about Halo, I should say, is that we remove a lot of those fees. So you don't get kind of the discount that you would normally get if you got a structure product. And that can be a performance drag in the portfolio. but just like if you own an option, it accretes into the options expiration, and so you're not getting the full benefit of the upside until the option actually expires. Same thing with structured products, but it's going back to kind of the opportunity costs. The third major opportunity cost is you're taking

counterparty risk, whether it's the counterparty risk of Apple or JP Morgan or anybody else. We all live through 2008 and 2009. Are these things insured at all? No. It's an obligation of the bank. So let me ask you, going back to a point you raised early, I just want to be clear. You gave example of how it might lose to SPY. Can you just say that again? Yeah. And so at the end of the day is SPY is one for one on in the up and one for one on the down on the SMP 500 and you're getting your dividend. There is a break even of saying, okay, well, if the SMP 500 is up 10% over the span of five years, well, my note would have been up 12%. Because I get 120% of the upside. But my SPY, it might have been up 20% because of the dividends. Okay, I understand. Now, the way that we look at it and the way

that I look at at my portfolios is insurance in my portfolio. So getting back to our question, there's no free lunch. And so the way I use this is in these S&P 500 products is that I'm not, and this is just my own humble opinion, I don't represent Halo or anybody else in their opinions on this, but I don't believe in active management in U.S. large cap core. Find me a U.S. large cap core manager that can outperform the S&P 500. Very difficult. And so for my family, let's say we had a 10% allocation to U.S. large cap core. I would have 6% allocated to, a tax loss harvesting manager, just tracking the S&P 500, do my tax loss harvesting, and then I would layer this note as of the other 4% right on top of that tax loss harvesting manager.

And that way I get some enhanced upside on the S&P 500, potentially, but if the S&P is down, I have that level of downside protection. And I do that in every asset class, whether it's U.S. large cap growth, where I'll buy a structure note linked to the Russell 1,000 growth, large cap value, small cap international. I do this layering approach every single point in my portfolio. And because active management has struggled over the last 10 years, that's why I had the conversation with my clients. They see the upside of the note and the downside protection.

They see the underperformance of the manager. They're like, let's just put it all in the structure note. And that's where I say no, because the three opportunity costs that we discussed. So we haven't hit on the fees yet because I guess you spoke early about a wholesaler. In my mind, these things are sold, not bought. And one of the reasons why is because they were pretty lucrative for the people selling them. So what are the fees involved? Yeah.

And so getting back to that point, because I think it's really important is the same thing my problems with the insurance industry. All these annuity products are sold and not bought. And that's exactly the same thing with structured products. And I think that we don't want to underestimate the importance of the analytics and the portfolio tools that we have because not every structure note is beneficial for your portfolio. You have to understand your level of risk and your time horizon and all that other good stuff.

And I think that that's really important when deciding which product to buy. getting to your question on the fees, there's really two different layers of fees. One is from the bank. And they should make money. They're packaging a product and they're taking risk because you can never perfectly lay off the risk of a structure note into the market. They try to do it as best as they can. But there's a fee for that. And usually back in the day, it could have been three to four points from these issuers now with Halo in our competitive auction process where we make all of our issuers compete. And banks have gotten more streamlined and automated through Halo's technology where we automate. a lot of the manufacturing process and removing a lot of those costs, which they can pass on to the customer in regards to better terms and lower fees. The issuer is making anywhere from 50 to 100 basis points depending on the maturity of the note. And keep in mind, all the terms of the notes, and this is structured notes in general, this is not just Halo, but all the terms of structured notes are net of fees.

My problem with structured products was you try to ask the question that you just ask and you get the humana, humana, you know, like, oh, well, it's complicated. I'm like, try to watch my language on your podcast, but what the F is so complicated about fees. Like, you know what you're making on your hedging. You know what you're making on the credit component. And the distributor knows what they're making. I don't have a problem with family office paying money. I have no problem paying a good hedge fund manager, a private equity manager, one and a half and 15, as long as they're making me money. But it's when they don't disclose those fees and that carry is what, frankly, pisses me off.

So a big benefit of this to advisors is obviously transparency, which is where the industry has been going for the last 10, 15 years. And simple protection in the portfolio. Think about where we're at in the market. And we were talking offline about this. Don't say cap ratio. No, but we were talking about the Morgan Stanley note that came out yesterday. This is a very, one of the most challenging invest, and again, my personal opinion, one of the most challenging investment environments I've ever seen from my family. I don't think you're alone there. Yeah, well, because even though we have a family office, my parents still have a mandate. My parents want to make 6%. And my dad is a technology entrepreneur and venture capitalist, but he is not a professional investor. That's

what I was for. And it's like, he doesn't care. Six percent hell or high water make it. If you make it, we talk about the Cubs. If you don't, it's a very lousy Thanksgiving. And so, and that's where I found, and again, I've been doing this for 15 years of structured products. That's where I loved structured products, especially those ones that provide that fixed return I was talking about. Those can hit my parents target returns in the portfolio with reasonable certainty and allows us to hit that 6% gold. Now, when you have stocks that literally all time highs and yields at all time Loz? What do you do? And that's the benefit. Forget about Halo. That's the benefit of the product. And that's why the other part of Halo was not just disrupting from a technology standpoint, but democratizing it to the

retail and democratizing it to the independent investor because they're left with stocks and bonds and nothing in between. So obviously you're very passionate about this, but you just said that you've been doing this for 15 years. And I think one of the reasons why this hasn't taken off in the United States is potentially a lack of education. We weren't aware of the fact that this is a $3 trillion market. So how do advisors educate themselves on it? And how do they even begin to bring this conversation to their clients? How does that work? What I say about, and I have every incentive to say technology is going to eat the world

and you're not going to need humans anymore, I think that is a big benefit of our business model. And again, I'm not trying to eat our own pudding on this show. But we bring in humans and we have relationship managers at Hilo. So we have a full educational suite that's non-biased, that's independent on our platform where people can learn about structure products. They actually have to take quizzes and suitability on structure products. Is this the advisor or the client?

The advisor, but we will talk to the end client as well. And so it all depends on the advisor. As a former advisor, you know, I'm sensitive of people talking to my clients. And then we have a full team of relationship managers that will also educate the advisor and handhold through their first trades and where they go in the portfolio. Similar of what we just talked about. So we didn't really talk about this yet because it's hard to sort of convey this on a podcast. But one of the big benefits at your company is the technology.

absolutely so again it's a new gap in a potential client's education so you have to educate them there and then you have to educate them on the platform of the technology that just seems like a lot of work so how do you guys make it simple i think the development part is simple so i just got back from switzerland and we were talking about my around the world trip and switzerland is the mecca of structured products literally and so our kind of the way that we've been built in switzerland which i think was pretty cool is the apple of structure notes so it's one thing about educating the advisors and we do that through i think really good content we partner with outside law firms and outside industry groups to be able to make sure that it's, again,

independent and unbiased and transparent. But moreover, is when we build the technology, it's a very clean and simple user experience. And my belief is you can't make something that's complex, more complex by very, I guess, clunky workflow and a clunky user experience. And so we've tried to build this apple of structured products where when you go on, it's pretty self-driving. And just from our perspective, have you ever called anyone when you bought something on eBay or Amazon. I haven't. You can buy a house on eBay. So don't tell me it's like, oh, because this is financial products. I can buy a million dollar house on eBay or a million dollar car. And so that's exactly what we've tried to do is you put an important question,

which is the importance of technology. And why does technology matter? Does technology matter because it makes it simple or does it make the product more efficient? And I think that why I like Halo and my angle of starting Halo was to make the product more efficient, meaning structure products are complex because you have all these crap features within the product of what riders and stuff like that exactly we don't call them riders in the structure note world but exactly riders and they put those writers on because of all the fees that came in the product you have to goose up the returns and make them really complex but again i think simplicity is really underrated and what i love about our technology and its technology in general is that you can make the product so much more

efficient that you don't have to have all those crap features that you would find if you are working and other parts of the world outside of the independent space. And that's what's cool about the independent space. That is my market. And they have no incentive to buy a structure note. So if you're sick with the independent space and the advising that might be listening to this, how does your platform integrate with TD Ameritrade and Schwab and companies like that? We are partnered with every major independent custodium, whether it's TD, Schwab,

Pershing, and obviously fidelity. And so you can actually, they have their own trade desks at each one of these firms and you can call and you can work with their trade desk and they'll be using Halo. Halo is like ESPN.com. Just go and sign up on haloinvesting.com. Again, not a plug, but that's what you would do. That's what you're here for. Yeah, you would sign up, select your custodian, and boom, I have full straight through processing into every major independent custodian. From a portfolio management perspective, what does the reinvestment risk look like for these? So you talk about, all, you got a three-year note and you hold it to maturity. Is there a risk that things look different then,

or what you guys are trying to do is make it so you have more options so you can kind of get something similar. So will the terms change the next time you want to roll over a product and something new? Or say you want to rebalance out of something into something else. How does that reinvestment risk look like if you're trying to rebalance and diversify and all these things in a portfolio? Obviously, the terms of a structure note are dictated by the market. And so you'll have 25% downside protection from three years ago is obviously a lot different than 25% downside protection today. And of course, the upside, the participation rate that I got on my structured product is a function of the interest rate that the bond is paying

in underlying volatility. Those are the two primary drivers of a structured note. Now, the way that I look at it again in my portfolio is that it's exposure that I constantly have. So I don't get overly tactical in my portfolio of, oh, I'm going to do like one-year trades and six-month trades because I'm trying to time the market. I buy this five-year product because I'm getting substantially better terms on the five-year than I am the one. And I'm always going to have exposure to the S&P 500 in my portfolio. I'm never going to be easy. 0% weight. And so that's the way that I look at it is you just constantly roll these products within the portfolio at an allocation of whatever you feel comfortable. I think the benefit of

our liquidity mechanisms is that you don't get your freaking face ripped off when you actually want to sell a structured product. And that was kind of where my beef was. It's BS when you pay this bank, a fee to buy the product and say it's a five-year product. I sell it in two years because thank goodness I was right. My market call was correct. And then I'm going to pay another the two to three points when I sell it early, even though you already got my two to three points. And so I think that that's the power of liquidity in any market. So what sort of volume were you guys doing in terms of transactions? Where are you today?

Yeah. So on an annualized basis, when you look around the world, we're roughly at just over $4 billion in annual notional volumes based on deal signs that we're rolling out substantially more than that. But volumes sound great. No two ways about it. It's been a blessing for our company in our valuation. No two ways about it.

But it's a trillion-dollar market, so don't pat me on the back too much. There's a lot of turf to take, and most product is still traded off platform. And moreover, which is the important part, and I think the important part of this podcast is Halo is built for the people by the people. And 90% of the world doesn't have access to structured products. Outside of some pockets in Europe, it's a accredited investor product. It can be an institutional product. It's hard to access the product. And I think that that's the opportunity when, again, done correctly, this shouldn't be a one- trillion a year product. There should be a five trillion a year product, if not more. And that's what

we're here for. So what is coming next for HILA? So for us, and we touched a little pit up on it, is launching a full-blown secondary exchange for the product, which will completely revolutionize. And all we're doing is even the playing field, which is, again, why I think we all get along so well, is I'm not here, and I want to make myself crystal clear, I'm not here to push out any Wall Street bank, because they are my issuers, and they do serve a purpose. I'm just saying that I want competition. And I don't think that that's anything unreasonable to ask. And so who else can make markets in a structured note? Well, option market makers like a Citadel, a Wolverina, Susquehontana can make markets in a structured note. And his income, fixed income market makers can make markets in a

structure note. It's just a bond in an option. That ain't that hard. And so now you're evening the playing field for everybody in regards to liquidity and the transparency that they're getting on their product and completely compressing spreads. It's about the non-bank issuers. And then it's also about the product where Halo is building a marketplace of different product. Today, it's structured notes because I like to call it my equivalent of Amazon's books. Super clunky, super niche. Again, part of my language, but super bullshit market where people are getting ripped off. We've changed that. And now we're going into the insurance space and the annuity space. And I'd like to give kudos to the issuers and the insurance companies that work with us who've kind of woken up and saying,

look, we need technology in this. We realize we're not the best technologists. If you've ever worked at a bank before, you'd understand that the technology teams at these banks aren't exactly the best. What about non-traded REITs? Is that something that you're looking to tackle potentially? Not at this time. I mean, on a personal side, I think it's a very interesting space. From a halo perspective, we're not really focused on the non-traded REITs. We're more focused on protective investing product. And so us is really about building a protective investing portal or marketplace. I mean, the demand is just going to continue to rise from here, obviously, with the amount of people retiring. Absolutely. And the Exodus.

of coming, and I think that it's important to talk about this on the show, too, is the exit of people leaving my former homes of the Credit Suisse's and the Goldman's and the broker dealers and going independent. My family fired the private bank because we weren't getting really the service that we were looking for in the transparency, and now we're independent. And honestly, I don't care if I paid more money to an independent. And this is coming from a family office. It's because I know what I'm getting, and I know that you guys are sitting on the right table or right side of the table as me. I never have to worry about, why are you pitching me this private equity fund? Is it because you want to make a two-point rip on it? Or is it because it's the right thing for my

portfolio? And I never, as a client, now putting myself on the by side, as a client, which I sit here today as a client, is that I never want to have that feeling in my head of thinking about why are you pitching this product? Well, is there anything that we miss that you want to? I think the one thing that I'd like to just kind of circle back on quickly is the other ways to use them in the portfolio. So I touched upon the core part, which is, I think of that as passive with protection. So the note that I bought is passive with protection. And whether I do that to the S&P 500 or the MSCI, IFA, it doesn't really matter. Passive with protection. The other kind of cool ways that you can use structure products are more tactical. So let's say, for example,

Uber stock has been getting killed. There was a really interesting note that actually just got treated a couple days ago that caught my eye, which was a one and a half year note linked to the stock price of Uber, it had a 50% downside protection already from the depressed levels that it had. It was providing a fixed return of about 14.5% per annum. Hold on a minute. How is that possible? Because, again, it's a function of a zero coupon bond and volatility. So ironically, if Uber gets cut in half, you're good. Yep. And you get a fixed 14%. Can I have one of these? Call it haloinvesting.com. But this is what's cool about it. Well, that's a hedge for someone who works in one of these firms has a huge equity allocation, right?

Yeah, it could be. Or if you're an Uber employee. Or what about the advisor, right? And any advisor listening to the show will attest, like at Credit Suisse, yes, I banked the world's wealthiest clients, but they all wanted their mad money accounts. So I'd carve out 5% because I'm not going to tell one of my billionaire clients. It's their money, right? At the end of the day, and everyone wants to go talk about their buddies, the stock pick. The other way I use structured products, okay, you like Uber, you like Baba or whatever. Let's buy it with some protection. Just in case you're wrong, we had that comfort of the cushion because the client never remembers that that was their stock.

You know what we didn't get into? What sort of minimums are on the platform? And that was the second thing I want to cover. Perfect. So before Halo at Credit Suisse, my home bank, it was $3 million to customize a structure note. In most of these banks, it's $1 million to $3 million to customize the structure note. On Halo, it's $250,000, but you can break that down for the first time to $1,000 minimum investment sizes within customer accounts. Could you explain that? So the total order size of this Uber trade for someone to put this trade has to be 250,000.

So what was really cool about this specific trade, and this is another way you can buy Structure Notes at Halo, is that we had a lead order, someone put 250, and they sent it out to auction and all the banks were competing. While those banks compete, we send out an alert on our platform to advisors all around the world that they can tack on for $1,000 minimums. And that $250,000 turned in to be like a $3.5 or $4 million trade because everyone was like, oh, wow, I can tack on for $20,000 and $50,000 and whatever have you. And that's kind of the cool part about this Uber network effect.

No pun intended, because we're talking about an Uber note. But it's about the community effect that we have and all the advisors that we have around the world is that you can tack on at $1,000. And even for my own PA, I love it. And so now what's cool. And so the things that are coming up next is we're launching some really cool technology on the issuance automation side to make a long story short. People will be able to customize structure notes at $500 minimums.

Now, to manage expectations, I'll probably be 18 months from now. but you'll be able to customize your own note for $500 minimums, which I think is really neat. Wow. This is great. Anything else? I could talk for hours with you guys. Yeah, it's great. For us and the thing that I want to at least say to advisors that are listening to this coming from a former advisor is the world is about providing unbiased advice, whether you run a fintech platform like Halo or you manage my family's money.

It's about independent and unbiased advice. And I think that that's really underrated in this country right now. And I think that's the biggest trend. Forget FinTech. I think the biggest trend in this country is the move to go independent. I work with broker-dealer, so I'm not here to poo-poo anybody. But in my own personal opinion, I love the independent way. And the best way that you can add value to someone like my family and others is be an advisor. Don't be a product pusher. The accessibility to product, those are days of the past. That's Bud Fox. This day is about providing solutions. And that's what I always used to train people at Credit Suisse. And I think that that's

a really important mandate because when you go up against the private banker that Jason Barsimus when I was at Credit Suisse, with your fee structure and your advice and your independence and your unbiased and unconstrained access to product, you can smoke the competition. And I think that that's a really important lesson for all advisors listening. All right. Great. We'll leave it there. Thank you so much, Jason, for coming on. Thanks, guys, for having me.