Animal Spirits Podcast - Talk Your Book: The Structured Marketplace

Episode Date: December 4, 2020

On today's show we talked with Jason Barsema, co-founder and CEO of Halo Investing, an online marketplace for structured products, annuities, and buffered ETFs. 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

Today's Animal Spirits Talk Your Book is brought to you by Halo Investing. Go to Haloinvesting.com to check out their platform for buying and selling structured notes and annuities and buffered ETFs. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt Holtz Wealth Management. All opinions expressed by Michael and Ben or any podcast guests are sold. their own opinions and do not reflect the opinion of Ritt Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rithold's wealth management may maintain positions in the securities discussed in this podcast. On today's Talk Your Book, we talked to Jason Barsima, who is the founder

of Halo investing. We actually had Jason on a year ago, I guess. Co-founder. We had him on a little over a year ago when life was still normal in New York and wanted to come and give us an update. Here's my initial reading after this talk with him. I think the decade of the 2020s is going to be the decade of customization for financial advisors. Concar. The 2000s and 2010s were simplify, take some costs out of the equation, ETFs, index funds, make things simpler. Now I think the era of customization with we had the direct indexing a few weeks ago we talked to and now this halo, the idea of customizing these different products for your clients, I think

that's where we're heading with this stuff. I think this is going to be the next step forward for financial advisors. Well, if your thesis is correct, that markets move faster these days and that bear markets last 60 to 90 days instead of 60 to 90 months, then maybe people are going to want more protection on the downside. His whole thing is that trying to fill in the gap between stocks and bonds, it wasn't really as important in the past when you had four or five percent bond yields. Trying to plug that gap didn't matter as much, but when you have 0% bond yields or 1% bond yields, people want something for that middle ground because there isn't much other choice these days. So I think this can fill that gap possibly. And the reason why I am

so bullish on Halo, the platform company, is because people need to be educated. And technology is a solution for this because these products are all different. They all have their own risk profiles. And so you need something to unpack it, to bring transparency to it. And that's exactly what Halo is doing. And it's not just the clients we're going to need education. It's going to be a lot of the advisors as well that don't understand this stuff. The advisors who never use this stuff, so they need education. Yep.

So, all right, we get into Halo, structured products, buffered ETFs, defining the upside, defining the downside. Enjoy our conversation with Jason Barsima. We are joined today by Jason Barsima, co-founder and president. of Halo investing. Jason, thank you for coming back on. Thank you guys for having me. I always enjoy it. All right. So you spoke to us, I think sometime last year. Why don't you give us an update on what Halo's been up to since the last time we spoke to you? There's been a lot of action. So through the whole COVID shutdown, we've nearly quadrupled our head count, which as I

joke, I haven't met three quarters of my company face to face. So certainly a new and an interesting environment for us. And it's not only really about the head count, which certainly has been a blessing, but it's been adding more products to the technology. So if you guys remember, we talked a lot about structured notes and we've really changed the game from a transparency and efficiency standpoint for structured notes. But now we've taken those efficiencies and delivered them to buffered ETFs, which is a product I'm very bullish on and that I find quite compelling. And then we're launching annuities actually in early January. I looked at the annuity market and I said, I'm part of my language, but shit, this is why we all get along so long so long. When you look at the

annuity market, they suffer from a lot of the same problems of bad optics. Transparency isn't there. The fees are really there. They're clunky. And it was just right for disruption through technology. And we've signed up 10 of the top carriers in the country already. And it's going to be a really exciting initiative for us. How have things gone through the volatility of the pandemic in people maybe looking ahead to the election and looking for volatility in these things? Has there just been a huge demand for these products this year? Sometimes when you get too much volatility, people just pull back in general from investing and kind of wait and see, which is obviously natural. Through the period that you saw in March and April of this year, our volumes grew exponentially. And that was actually

consistent with the structure note market in general. When you look at the U.S. market as a whole for structure products is up about 35 to 40%. So it was a great pickup in volume, especially when you compare that to other asset classes. As you may remember, we are an international company. So when you look at some of the international volumes, Europe actually saw a slight decline in structure, no volumes, and Asia was about flat, but you're certainly seeing the growth right here in the United States. And I think it's a reason, or a couple reasons, I should say, it's not just about volatility, which clearly the pricing and the terms on the product can get better during volatility. And everybody wants insurance on their homes, wants their homes on fire, as I say, and people wanted to

go in and get the protection. But moreover, you're seeing a huge disconnect in just capital markets in general and probably the largest disconnect I've ever seen in my career, which is given the state of stocks and bonds and equity evaluations of where they are at all-time highs and bond yields, you know, negative across most parts of the world. It's created this risk gap between stocks and bonds, the widest I've ever seen. And everybody, including myself personally, needs that product to kind of fit right in between that risk gap of stocks and bonds. And we've certainly benefited from that trend. So we're going to get into all this. But before we dive too deep, can you just, I hate take a step back. It sounds so cliche. I don't know what else to say. But let's talk about

structured notes in general. What are they? Yeah, so structured notes in general are a product that give investors a level of downside investment protection against market declines while still allowing them to participate in a percentage of the upside of the market. So while it's not insurance, technically speaking, I like to think of it as kind of insurance around your investment. It gives you that comfort of a cushion on the downside in case the market is down. Now, specifically speaking, structured notes are traditionally issued by major banks like Morgan Stanley, like a city group, like a Credit Suisse, which is my home bank. And they are obligations of the bank, which is one of the opportunity costs or one of the risks that investors should consider when buying structured notes is that they do come with counterparty risk. It's an obligation of the bank who issues it.

But in general, structured notes have four components. And if you can understand these four variables, you can understand any structure note out there, which is maturity. Every structure note's got a maturity like a bond. It can be six months to 10 years. Typical maturities are two to three years. The terms only matter on the maturity date. Every structure note is linked to the performance of an asset. And that asset can be an index like the S&P, a stock like Apple, or a commodity like gold. The payoff, meaning what do you get at maturity? And then, of course, the downside investment protection. How important is it for the people setting these up to understand that maturity and make sure

that they stay the length of the investment? I know that your platform is creating some liquidity if people wanted to get out, but how important is it to see it through for that entire two or three years or whatever it is? I always advise that advisors should hold these to maturity because that's why you bought it. The terms only matter of maturity. You bought the protection to hold it to maturity and that's what I always advise advisors and investors to do. Now, that being said, for all of us, sometimes our investment thesis play out faster than we thought. And maybe you saw a nice gain in the underlying asset like the S&P 500, like Apple, and it might be advantageous for you to sell prior to maturity. And that, then to your question is the importance

from, you know, a secondary liquidity perspective, because I didn't think it was fair that if my thesis came to fruition earlier than I expected and I wanted to sell, now I have to pay this penalty back to the issuer for me to sell my investment early when I already paid up front the fees of costs to buy the product in the first place. And that was the whole reason why we brought in the first independent secondary liquidity, which is compressed spreads to put that in perspective from two to three points of what it used to be, two to three percent to sell in secondary now down to about 35 to 50 basis points on average and in falling as we're launching a full blown secondary exchange next year. So Halo is a technology platform. Is that how you describe it?

Yeah, so we're a marketplace. Think of us like Amazon. Like Amazon, I connect manufacturers, which are structured note issuers and now insurance carriers for annuities that we're launching on the platform and buffered ETF manufacturers. But all of those are manufacturers at the end of the day of product. And I connect them to financial advisors across five different continents. And on this marketplace, it's not just about connectivity. It's about what I think was one of the most difficult challenges with the structure of note market, which is what the hell are these things? first and foremost, as you just asked. So the education is a very critical and important part of our platform. The pre-trade analytics, when I was at Credit Suisse, and if I was their financial advisor,

I would tell you, hey, there's this great structured note on the S&P that gives you some protection on the downside. I'd convince you until I'm blue in the face of how good the product is and then I'd send you an 80-page term sheet that you won't understand. And I had a problem with that. For us, it's not rocket science. I just want to know information and kind of the risks that I'm taking on this product. So we introduced the first full suite of pre-trade analytics. So you understand the risk of these products, understand where they go in the portfolio, how they impact the portfolio, the lifecycle management of these products. And then we introduced the point to click execution in a competitive auction process, which really changed the game and how you buy these

products and the competition of buying these products, if that makes sense. You're performing a premortem where you're saying, giving some different scenario analysis. If the markets do this, here's what your return is going to look like. That's basically what you're trying to show people. Yeah, at the end of the day is, think of us as like a think or swim, if you will, for structured products where we want to provide you all the risk tools in the analytics and the portfolio tools for you to make an informed investment decision. And more importantly, being able to simplify the products so you can explain it to your advisors and client because that's 90% of the battle. And what I think is so beautiful about technology

in general, whether it's structured products, capital markets or cars, is that technology can make the complex simple. Just holding up my eye. phone, what's more complex than this? I don't think anything. Yet my 93-year-old grandmother texts me every single day. So that's the benefit of technology is that they can make something super complex into being really, really simple that we can all use it and all understand. And that's exactly what we've done to the protective investing market, which includes structure notes, annuities, and buffered ETFs. So you said that there's ETFs on the platform. Now, Halo is a platform. It's a marketplace. Is that how you would describe it? Exactly. That's exactly right. If we're talking about

ETFs. Ben and I have been very bullish on the space. Obviously, all of these products are different. All of them contain their own idiosocratic risks, do your own due diligence. But the idea of delivering these sort of solutions to clients, we were very bullish that this would explode. And it has. We spoke with Bruce Bond from Innovator ETFs, I think a year ago, and then we just had him back on a month or two ago. They went from 300 million to like four billion, something crazy. We spoke to Paul Kim from Simplify. There are a lot of products on the market, coming to market. And it sounds like, now these products, they're not necessarily rocket signs, but there are a lot of moving parts. And so having a place like Halo is a place where you can go look under the hood because

unlike structured products, if you buy one of these buffered ETFs, for example, a week or two weeks after it's been listed, then the buffers are moving. Like, you got to understand what's going on. Spot on. And that's why I go back to we are a marketplace where I'm rapper agnostic as at least my vision and our vision of being rappro agnostic is nobody wakes up the morning and says, shit, I need an annuity or I need a structured note in my portfolio. It's I need to add exposure to U.S. large cap core, if you will, and within my portfolio. And I think about, okay, well, now what's the best way for me to do that? Is it a mutual fund? Is it a structure note? Is it an ETF? Is it an ETF? Is it up off for ETF? And that's really where we've come in,

is it allows advisors who have this fiduciary responsibility and our brokers do too, with Reg B.I to go in and analyze these wrappers side by side. So taking a step back is when an advisor comes on to Halo, they can dictate what their investment objectives are, what's the thesis that they want to have within their portfolio and what they're trying to accomplish. And then it serves up the most appropriate wrapper and allows you to compare those wrappers side by side by side.

And I think that that's really important in this fiduciary environment because nowadays you have to compare when you buy a structure, you know, why did you buy that over the annuity or why did you buy that over the buffered ETF or over the S&P 500 index fund. And our advisors have loved the ability to not only get the analytics, but also kind of have that peace of mind that they're satisfying their fiduciary responsibility. Now, getting back to the Buffett ETF, this is where I think technology is really important because we've partnered with Alianz in regards to the Buffer ETFs on our platform. You can compare Alianz's ETF side by side to the other buffer ETF side on the market. So you understand what's the

tradeoffs between caps and all the other good stuff, which again, I think is important. important for fiduciate responsibility. Hang on a sec, Jason, sorry to interrupt, but just so I'm clear, an advisor or somebody on your platform can actually search by, they want this much protection, they're willing to give up this much on the upside. They could do that on your platform. Exactly. That goes back to kind of starting about the thesis, right? It's like we all have our own individual investment objectives, whether it's about return, whether it's about liquidity, whether it's about maturity or duration. Like, that's your prerogative. That's not my prerogative. And just like you go on Amazon or Netflix, you can tailor it.

And actually, we've built many complex algorithms within our platform that kind of serve up most relevant ideas based on your specific needs, individualized user by user by user, which I think is really neat. But getting back to your point, which I love to adjust on the ETF side, right, of the complexities, because I do think it's a great starter product for protective investing. You can buy a share for 25 bucks. They're liquid. They're exchange traded.

They're pretty vanilla. Easy to understand. But you hit the nail on the head. Unlike a structured note where if you want to buy that S&P 500 product and you want to buy it right now, your protection is based on when you click the buy button. Or a Buffford ETF, you might be buying it three weeks after it's launched and the market's moved. This is an important point for advisors and investors to understand is like what happens when the S&P 500 buffered ETF was launched, say, October 1st, and now it's December 1st and the market is up 15%.

Okay, you're going to buy that because how much upside do you have left if the market pulls back? a little bit, the protection amount hasn't kicked in because it's still up from when it was initially launched. That's where technology comes in is that you can analyze the different scenarios and on our platform real time. So it's not just hypothetical scenarios of market up 15%. No, it's like spot on real time. So you know exactly where you're entering and exactly how this product works, which I think is critical. I think that there's going to be advisors who get burned here because they misunderstand the buffers where the levels are at and don't do their property due diligence or they overpromise that the losses are protected and then they buy the

wrong thing. So I think that's coming. And I think Halo is a perfect solution to that. So let me ask you this. There's no free lunch. You're giving up something. And that's fine as long as you understand what you're giving up. But here's an example of a use case. So Ben and I get this question all the time. I'm buying a house in three years. What do I do with my money? And the standard answer is, well, three years, that's not much time. Like if you're buying stocks, all bets are off. So you don't have great options. Bonds are not giving you much. But you need it. For example, you can do some sort of structured product, whether it's an ETF or a structured note

where you go to the marketplace and you say, okay, January, 24, I need my money. Exactly. That is the elegance that I think that structured nodes have, right, is that it allows you to define to the day of what your maturity is. So maybe your desired maturity date is December 3rd of 2023 and mine is December 4th. great. Yours is December 3rd and mine's December 4th. I can define that right on our platform and all with a click of a button. What I also love about structured notes is, again, you're dealing with what I think is one of the biggest investment challenges I've seen, which is this risk gap that we

talked about at the beginning of the show. Plowing money and cash into equities at this point in time is really nervy, just given valuations and froth in the market. And part of that froth is because of the Federal Reserve and the central bank has just kept interest rates at zero for a long time. And what's really interesting about this point is that you need a product to kind of bridge that risk gap. And where is one of the world's largest markets for structured notes? It's Japan. And Japan has been one of the world's largest markets for structured notes trading over $300 billion a year in structured notes compared to the United States of $60 to $70 billion a year. And they've been in a zero interest rate environment for the last 35 years. And there's not a lot

of other investments in savings tools as people go to retirement. they've done better on their structured notes than their stocks and they're over 30 years probably. Exactly. And so what is the big structure that they trade, which is what we've seen a lot of demand for for our advisors today. And even what I use within my own personal family office right now are the fixed return structure notes. So instead of giving you that participation rate in the upside of the market, you get a fixed return. No more, no less. And so that's kind of the opportunity cost. And so I'll give you an example of a product that I buy in my portfolio. I'm not giving investment advice. I'm just giving you an example.

of what I buy in my own portfolio. I put my compliance disclaimer hat on. A staple of my portfolio and has been for over 12 years is a three-year product. It's linked to the worst performing of the S&P, the Russell 2000, the Eurostocks 50.

This is global equity in my portfolio. So when I buy this, I'm shaving a little bit off my international developed and I'm shaving a little bit off my U.S. And this is the product that I buy. And what I get with that three-year product linked to those three indices, I get protection.

And my typical protection is 30% downside. So I'm protected against a 30% decline in any of those three. Right. And along the way, I get a fixed return on average of around 9 to 10%. How? How is that basically the way that it's constructed is that it's a bond and it's an option. And remember, you're linked to the worst performing of those three. So if at maturity, which is in three years, if any of those three are down by more than 30%, your principle is fully exposed the loss of the worst performing. That's the risk. That's the risk that I'm taking in my portfolio. So let's say the S&P is down 20, Russell's down 20, Eurostocks 50s down 35. Shit, Jason, you're out of luck, dude. It's down 35. My principal is now

down 35%. Now, I've collected that coupon along the way that I just said of 9 to 10%, but my principal is down 35%. That's a real risk that I'm taking. The way that I look at that is that I just shaved off my long international developed exposure. So if the Eurostock 50 is down 35%, the long exposure, I just sold the fund this note would be down 35%. So I'm taking no more risk. In fact, a lot less risk by buying this product, in my opinion, because I have the protection. And I'm locking in a fixed return along the way. But there is a risk. And that's that risk because you're linked to the worst performing of those three. Now, the other catch of the product is that there is counterparty risk. So you're taking counterparty risk of the product. You're betting that the bank that I bought it from, a Morgan

Stanley City Group, is going to be in business in three years. And that is a bet that I'm willing to take and certainly a risk of the product that advisors need to know. And then the last risk is, I do not get a dividend. When you buy the S&P 500, you're getting your 1.86% and change per annum dividend. I don't get that. I don't get that with any structure note. I sacrificed that in return for the fixed return and the downside protection. So there is an opportunity cost. Can you walk through some examples of that worst case scenario coming to fruition? Like, is that what happened with structured notes that layman issued in 2008? I look at the structure note market and there's really two primary risks of a structure note.

There's market risk, meaning your thesis doesn't come to fruition and you've lost money. You can't really blame the product that you've lost money because that was your thesis. And I always advise all advisors. If you're willing to buy a structure note link to Apple, for example, then you should be willing to buy Apple. You're just buying Apple with downside investment protection, their protection that come from the cushion on the downside. So that is certainly a risk of the product. again, I'm not taking any more risk than owning the underlying outright. Now, the risk is the counterparty risk, which is Lehman Brothers.

And Lehman Brothers was a big issuer. Lehman Brothers went bunk in 2008, as we all know. And Lehman Brothers, anybody who owned a Lehman Brothers structure, no, to this day, recruit 33 cents on the dollar. And that's because it's an obligation of the bank. While it's debt, you're in line with the rest of the debt holders. And that's like where I think the importance of technology and independence, which is what Halo is, is that you can't have any bullshit around these products, right?

Everyone always tries to tell you the flashing 9 to 10% yield. And wow, that sounds great, but they don't tell you the risks. And that is a risk. And some people may disagree if it's different this time and the Fed's never going to allow a bank to go under. Well, maybe, maybe not. That's where just the last point on this is that's really Halo 2.0, right? As I see that this is a major challenge within the market, within the structured note market. And we've developed some technology that later on in 2021 will bring the first non-bank issuers.

into the market. So still taking counterparty risk, but at least diversifying away from the banks, if that makes sense. Ben, are you thinking of what I'm thinking you want to launch one of these things? Animal spirits? Okay. So you talk a lot about the platform. Let's talk about that for a second. What is the education process like? How intuitive is this? Do you guys have like a call center? Like, how does all of this work if somebody wants to dive in? Me, for example, I don't know anything about the space. I want to learn. What do I do? Our volumes are up 600 percent this year. It's really been a blessing during COVID and we're just getting warmed up. And I think the best statistics

is not really just about the volumes. The best statistic for us is that nearly 50% of our customers in America, this is not true globally, but in America, nearly 50% of our customers, I've never bought a structure note before. That was the whole point of Halo was to, yes, disrupt this really bespoke inefficient marketplace with technology, but most importantly was democratize it to people who need access to this product the most. Who are those? Is that RIAs or warehouse? Who's coming to you that hasn't done on before? So about 70% of our business is in the RAA channel and about 30% is through the broker-dealer. So we have been and still are predominantly RAA-focused firm in the United States.

We do support broker-dealers, of course, but our primary channel is the RIA. And those are mostly RIAs. And that's because 92% of structured products, not to throw out a million statistics here, but 92% of structure products were always sold within private banks. The average Schwab advisor didn't have access to the product. unless they wanted to get their face ripped off by a wholesaler. That was kind of the whole genesis of, okay, let's bring this institutional pricing and institutional product to the people who actually need it, which is the retail and the mass of fluent.

And so getting back to your question about how intuitive is it is, yeah, I mean, we take pride in being we are a fintech company, but we joke we're more tech than fin. And so just like eBay, just like Google, just like Amazon, you shouldn't have to call us to be able to understand the product and be able to buy the product. Now, that being said, it's also someone's money. And whether it's a dollar or a million dollars, it's someone's money. We have a full team of relationship managers, 20 of them in the United States alone, that handhold the RIAs through the educational process if they need it,

handhold them through the buying process, where they fit in the portfolio. It all can be done through the platform. But I understand it's a new product. And I take that really seriously. And that's why we have the relationship management team that we do. So you kind of get the best of both worlds. Now, on average, after about three and a half trades, an advisor becomes self-driving, as I like to call it. You no longer really need to talk to us unless you just want to talk to us for the sake of talking to us.

I'm always looking for someone to talk to me about structured products. So my phone's always available. Can we talk about the impact of taxes on these things? Absolutely. How does that work? So you get a fixed payout. Talk about how those sort of distributions are taxed. And to put my compliance head on is that I do not give formal tax advice, but in consult your tax professional

about it. But from a general perspective is that when you are buying a growth product, which is a structured note that gives you a participation rate in the upside of the underlying asset, anything over one year is tax out long-term capital gains. And so you get the long-term capital gain treatment. You can put these in IRAs. I have, for my own family and my dad's got an IRA rollover, I put a lot of structure notes in his IRA rollover because it's part of the overall portfolio composition, and I get the deferred tax treatment, which is really nice. Now, on the income products, which is that fixed return, that's the staple one that I talk about. I think it's one of the futures of investing. That coupon is taxed as ordinary income,

and that's really important, right? So the IRS has said, kind of looks like a bond, smells like a bond, tax like a bond. And I don't necessarily agree with that, but I'm not the IRS. It is taxed that ordinary income. So you have to keep that in mind when you are buying those, again, nine to 10 percent for me, it still is a return that meets my family's investment objectives, which I like it. And those are the ones in particular, I put in my parents' IRAs because I get that deferred tax treatment, which is really nice. Do you find that advisors prefer certain counterparties to work with? Do they like working with the same banks and providers? Do people really care? So advisors, they don't tend to work with any one counterparty.

They always want to work who they feel comfortable with. And we take a strong position. in regards to the counterparties that we allow on our platform, because I like to say, Halo's kind of like the government. It's our duty to give the power to the people, but it's also my duty to protect the people. We take a pretty fine line of who is a counterparty on our platform. But that being said, our advisors usually take the approach that I give, which is diversify your counterparty exposure. So have no more than 2 to 3% of the portfolio allocated to any counterparty. I don't care if it's JP Morgan, Citigroup, Credit Suisse, that's always my rule of thumb. So if you can do the math, and about 25% of my family's portfolios and structure products

has been for the last 15 years, I have about five to six different counterparties within my portfolio. And I feel really comfortable about that. What's been the most active asset class lately? Does that ebb and flow, or is it usually stocks and bonds? When you look at, you know, especially during the COVID crisis, as I call it in March and April, you were just seeing gangbusters trading on those income products, those to find outcome products that I was talking about. Why? because if you look under the hood, it's a bond, and it's an options package, as we all discussed. How you're generating that income is that you are selling put options and binary put options. The bank is selling those to generate that premium.

And so obviously when volatility is a lot higher, you're basically selling volatility. That coupon is a lot higher. So people were wanting to lock in higher yields. Case in point, actually, it's a perfect example because I was just talking about it as the staple within my family's portfolio. in late March, I was buying that same product. And if you remember, I said I usually get a 9 to 10% per random yield on that product. I was literally buying the exact same product at the end of March, early April.

And I was getting a 20 plus percent yield on that product, double of what I usually get, just because VIX was at around 85. It was crazy. And for me, that was a layup because, you know, the S&P was up 20% last year. It's a no-brainer. And I'm getting another 30% downside protection when the market was already down 30%. Thanks for letting us know. well you know we're a platform we don't get formal investment advice but michael would have taken the

opposite side and taking the short of that book we would have taken the other side of your trade in march see that's why we need the animal spirits community club on the halo platform so we can all share these ideas but in case those were really popular products and people love those products and then once kind of the bottom fell out and people started to get a little bit more comfortable about where the market was at it was interesting they kind of switched into growth products and That's the cool thing about platform is we track all this from a data perspective, and it tells you a lot about investor sentiment. People were switching into growth product because they're saying they think the bottom's been called. Let's now capture that through high volatility, get enhanced upside on the S&P 500, and ride this thing up, which is what people are doing.

I know we went over this the first time, but just answer this again, if you will. Banks aren't stupid. So they're not just giving you 9% for free. How are they managing their risk? And that's a really important question because there is a big misconception out there that the bank is taking the opposite side of your trade. As much as I love to poo-poo all manufacturers because we are built for the buy side, by the buy side as well, the banks are not taking the opposite side of your trade. Let's just say, for example, that income note that I just bought. And I just told you that you're selling puts, the bank would be selling puts and selling binary puts to be able to derive that yield.

Now, as soon as you buy that product, the bank is going out into the listed market and hedging that. They're not taking the opposite side of your trade. They're going out and they're hedging it. Now, there's a spread between what they're selling that option to you at and what they're hedging it out in the market. And that's how they can make their money, right? But they're not taking the opposite side of the trade. They make their money through the spread that they get on the hedging and just offering the structure in general, which I think is fair. At the end of the day, there is a premium.

I'm on a Mac laptop right now. premium of buying the laptop, which is a pre-assembled product, versus going to Fry's Electronics, which might not mean nothing to you guys up in the Northeast, but a big electronics store in California, and that's where you go to assemble your own computer. Very popular. But you go to buy the motherboard and the hard drive and all that other good stuff. And yeah, if you bought all the components individually, it would be cheaper than going to Mac and buying it. But I think we all place a premium on the efficiency and the simplicity of buying the Mac because I cannot assemble my on computer. And that's really the way that you should look at structured notes. It's just a

pre-assembled options package. That's easier to understand, in my humble opinion. I really think that when you look at this product, and again, and this is for all protective investing product, because even my eyes were open with annuities. Aliens likes to joke because they are such a close partner of ours. I never bought an annuity in my life. I would never buy an annuity. And because I thought that the fees were really high, it wasn't applicable to my business. They weren't transparent. They're overly complex. And once I started to understand them and really once I saw where our technology could add value to that and add value the advisors, they could be really powerful products. Annuities had a worse reputation than structured notes when we talked the first time.

And that's saying a lot. Well, yeah. When we talked the first time, you talked about how you wanted to take away the complexity and how opaque they were and the high fees. I mean, annuities are the way people view them even worse. But like you said, underneath that, there is something people desire, which is a regular income. Correct. Exactly. And so, again, that's the benefit of technology. I always like to compare Halo to Henry Ford's assembly line. So when you look at any of these products, whether they're annuities or structured notes and how they were assembled, it was very much like how cars were assembled before Henry Ford's assembly line. Super time intensive, manual intensive, and thus cost intensive.

So there was a lot of crap in these products because the fixed cost to manufacture these things were so high. The fees naturally had to be really high for them to even make money in them. and they could be really complex. In complexity, I don't know about you and the rest of the advisor base, it turns me off. I don't like things that are overly complex. If I can't easily understand or explain to my parents, I ain't going to buy it. And that's where technology comes in is that HALO not only provides a marketplace to advisors to do everything that we talked about, but the other side of our business is

to insert technology into the manufacturing side for the carriers, for the structure note issuers, kind of like Henry Ford's assembly line. So not only do we remove a lot of those costs, up to 50% of the cost to manufacture this product, which can then be passed on to the customer in regards to better investment terms, is we can democratize the product down to $1,000, which is what we've done. At the end of the day, with Ford, the assembly line, everyone can now drive a car through Henry Ford's assembly line, through HALO, everyone can buy a structure note. Hey, Jason, last question, who are your customers?

Where does your business come from? Is it people that are buying the product? Is it companies that are listing? Is it the manufacturers? How do you guys get paid? We make money from the by side. We embed a small but transparent as we disclose all of our fees as everybody should. We embed a small spread into the terms of the note. And that's how we make our money. So when we go out, we look at who our customer is, is yes, we have customers from the issuance side. And we have customers from the RA side. Our primary market is the independent RIA, which is why we're so focused on the transparency, the efficiency, the education, not just about the product, but the fees, the main. manufacturing the whole kit. And I think that, you know, as Ben was talking about earlier, is that everyone kind of needs these products in some way, right? We have insurance on our homes.

We have insurance in our cars. We even have insurance on our dogs, for that matter. But we don't have insurance in our portfolios. And that never made any sense to me. And what's a really interesting statistic kind of to that is, you know, that 90% of people surveyed, advisors and individuals say that they can't afford to lose their money. 90%. Yet 92% in that same survey say their investing more into the market because they can't afford to retire. That doesn't make any sense to me. That reminds me. There's a survey in one of these presentations, which we'll link to in the show notes. This is not really relevant. I just, since we're an anti-severate podcast. Yeah, please. Okay, you asked a question, I would like to invest more. I would like to keep investing the same

or I would like to invest less. These were the three questions that investors were asked. And 8% said, I would like to invest less. Who's forcing you to invest? If you want to invest less, why wouldn't you just invest less? It's actually funny that you say that, right? Because at the cuff, you could see it kind of comical, but at the same point in time, right, is that given where the Federal Reserve has just kept interest rates and where interest rates would be,

what other choice do you have? That was, again, the foundation of Hilo was to be able to democratize this product of what other choice do you have if you are retiring in 15 years? That's cash on the sidelines, Michael. Yeah, but to that point is like, okay, when you turn 65 years old,

your portfolio flips from 60-40 equities to bonds to 40, 60 equities to bonds. And you're going to rotate all of that into bonds at negative interest rates. You can't. You absolutely can't. That's where, like, I think that it is interesting of that 8% prefer to invest less. I think they just misunderstood the question. Maybe. Maybe.

But it's just from what I talk about and what I hear from the market on a different point is like we're faced with a very difficult challenge. At the end of the day, what HALO does and what I'm so passionate about, as you can tell, is allowing advisors and even more importantly, the end of their end investors to have protection within the portfolio to protect against the unforeseen because COVID was the definition of a black swan. No one can ever predict the pandemic. It's literally impossible. And so you need to have that insurance just as we can't predict our house catching on fire or us getting in a car accident. And you need to have that. And if you're going to have that, you need a marketplace and a platform that cuts out all the

bullshit. And that gives you the transparency and the efficiency straight up. So you actually know what you own. And you know what you're getting and where it goes in the portfolio. And that's what we do. Okay. So where should we send advisors to come check out your platform? Haloinvesting.com. If you go to haloinvesting.com, you can read all about structured products. You can sign up for the platform. You can watch educational videos and all the content that we post. Case in point, a big award that we just posted that you'll see going on there is actually the biggest award you can receive in technology, which is why I'm so excited about it. But Red Herring named Halo to the top 100 in North America, which is an award that you cannot buy, requires three months of due diligence. They've been doing it since 93, like Google, YouTube, Twitter, PayPal have all been on it.

80% going to become unicorns. Yeah, it was really, it's the biggest honor you can receive. And so huge thanks to the company, like kind of shows the power of the technology for sure. Awesome. Jason, thank you as much for coming on. This is great. We really appreciate it. I love it, guys. As you know, I can talk structured products for hours. So I appreciate you having me on. And I'm always here as a resource for any advisors out there who want to learn more. All right. Thanks to Jason and Halo Investing. Again, go to haloinvesting.com to check it out. Send us an email, Animal SpiritsPod at gmail.com. It'll talk you next time.