Halo President, Jason Barsema, joins What the Halo to discuss how advisors can make the most of ready-made, Structured Notes often called calendars. We also discuss how custom Structured Notes work and when a calendar might be preferred to a custom. Other topics include, tack-on opportunities, as well as new fixed income options.

0:00 Introduction
1:08 What is a calendar structured note?
3:29 How to purchase a calendar note
6:22 What is a custom structured note?
13:06 What is a tack-on opportunity?
14:55 ‘24 second-half predictions
16:21 Fixed income sneak peek

Read the full episode transcript below:

David Townsend, CFA: Welcome back to the What the Halo podcast. I’m Dave Townsend, joined today by Jason Barsima, president and co founder of Halo Investing. Jason, it’s always good to get in the studio. I don’t know if you saw the other episode. We were talking about converting your office into a green room.

Jason Barsema: Don’t do that. Okay.

David: We haven’t got there yet.

Jason: I need that.

David: Yeah. So, always appreciate you finding time for us. So today we’re talking structured notes, some of the basics. Sometimes it’s easy to get caught up in all the fancy stuff, but sometimes it’s just easy to go back to the basics.

And I know it’s sort of like why you created the company to start with was to make it accessible for everyone regardless of protfolio size, sophistication or you know essentially.

Jason: Everybody should have protective investing.

David: Like I’ve told you before, I got a phone call from, from a recruiter and he said, hey. They’re doing structured product for retail investors. I remember thinking to myself, what what you know, this was only several years ago, but I was like, wow, it’s really come a long way since I was doing it at the institutional level. But anyway, let’s jump into it today. So, one of the questions we often get, and we’re seeing a lot more interest in calendar offerings for structured notes. So can you just walk us through the basics? What is a calendar?

Why does it it matter? What are the implications? How do calendars work for structured notes?

Jason: Yeah, it’s a great question. And calendars were actually the original way to buy structured notes in the United States. So when structured notes first became prevalent in this country in the nineteen nineties, ultimately, the calendar was introduced.

So what is a calendar? A calendar at the end of the day is a menu of offerings. I like to call them subscription products. So it’s a preset menu just as you walk into your deli and you see the little deli board and all the menu of different sandwiches.

Calendars are no different. Right? And so these are products that issuers put together that are available on a monthly basis. Most calendars close at the end of the month, but many calendars nowadays are closing every two weeks, especially for the most popular ones. So for financial advisors out there, that’s relatively new and things part into a lot of the innovations Halo has brought to the market to be able to close these calendars so quickly, is that advisors wanna pay attention to the closing date.

So what types of products are on calendars? All types of products. This month alone, we have over five hundred and fifty offerings.

David: Okay.

Jason: When we first launched our calendar pages about five or calendar pages about five or six years ago, we had about thirty offerings to put that in perspective. Now we have five fifty offerings. Thanks to the Halo team for making that possible, by the way.

And so with that, you know, calendars offer a wide variety of different choices. You have growth products, you have income products, you you have snowball products, you have absolute returns, you have catapults, really anything that you can think of. But what I really like about the Halo interface is that we make it easy to search. Back in my day, not to sound like a grandpa, but we used to have to print out our Excel spreadsheets, and we would go through all these different offerings. Again, typically twenty to thirty a month when I was at Credit Suisse. But we built a really nice interactive and intuitive search for advisors to cleanly search through exactly what they want for so they can get on with their day in managing their business.

David: Yeah. Mary Murph and her team is doing a great great job getting the calendars up as quickly as possible. So definitely a shout out to the customer service team. Okay. So then, it sounds like essentially a calendar is an off off the shelf ready made structured note.

I mean like a stupid question here is like how do you get started with it? I mean how do you purchase it? Is there anything special that needs to happen? If say, an advisor is interested, how do they get started right away?

Jason: Well, I really like calendars because they can be a great starter product. For those advisors who are new to structured notes or clients who are new to structured notes, you can subscribe or buy a calendar offering for as little as a thousand dollars. Again, that’s a big novelty through Halo where it used to be a hundred million dollars to to subscribe to a Shondra offering at Credit Suisse. So all those five hundred and fifty plus offerings I was just talking about, thousand dollar minimums on the platform So really good way for advisors to kind of test out protective investing within within their portfolios.

So that’s number one. Number two is an advisor will wanna go into halo. And of course, take the education. We have a wide variety of education on the platform. So advisors know what they’re doing. They can easily explain them to clients. And as I always say, allow fiduciaries to be fiduciaries.

But once you have a good handle on, you know, what are structured notes, where do they go in the portfolios, you’ve taken the education, you may have even talked to one of the Halo, you know, sales teams or sales reps on the line to be able to help you understand these products even more deeply. It’s really as simple as subscribing, David. So again, not to date myself, but back in the day after we printed out these huge Excel spreadsheets and PDFs, we used to have to type up on our Excel all of our allocations. We’d have to double check those with our rulers.

We’d have to send them over to the desk for the desk to manually input all those. It was a really painstaking process. And to put this in perspective, it used to take my team at Credit Suisse about two weeks to put in all of our calendar orders. Literally.

Now with the Halo platform, you can easily search and find whatever you like. You just hit the subscribe or indicate interest button. Your allocations are right there. If they’re not there, just upload your allocations in the platform. And and that’s it. I wish there was more to say about it. But it’s literally just clicking a button and submitting your allocation electronically, and you’re done.

David: Yeah. So the point is is it’s relatively simple and it isn’t nearly as complex as most people.

Jason: Well, the other point too is that Halo is not just a technology platform. Yes. We’re a world class technology platform being named in the top ten world’s most innovative fintechs for two years in a row, which was awesome. However, we’re also humans. Right? So we have a full team of regional vice presidents who can handhold you through, you know, your first orders of calendars notes if that’s what you decide to do.

David: Yeah. Yeah. And so for viewers, please hit that like and subscribe button. It always helps us with with the YouTube algorithm.

The one thing I would if you’re interested in learning about calendars, we have a growing mailing list, email list, list, where we send out weekly trade ideas, that are just sort of like gets people’s what’s the appetite for how to use calendars, and so you’re encouraged to get in touch with us and we’re happy to add you to the list if you’re interested.

So just as a contrast, obviously a lot of people when we hear about structured notes, the customization and the way to to tailor them. So obviously, a custom is this is another type of note. And then the auction process. Just some compare and contrast there the calendar versus the custom.

Jason: Yeah. So, you know, again with the calendar side, it’s a great way to get started, low minimum cost. And it’s relatively easy to subscribe. You see something you like, you click a button, and you buy it. Now the custom side, which is actually the majority of Halo’s business, and really the, you know, the innovation that we have pioneered through the market is bringing the structured note market from a off the rack offering of of calendars ultimately into making your own sandwich to continue my my deli metaphor.

On our platform, you have over three billion combinations. Three billion. And so you can really customize anything that you want. And what’s also nice about about the customized side is that you can ultimately run a competitive auction right so you can choose the issuers that you feel comfortable with with the calendar offering. It’s got a preset issuer like a JPMorgan or a Citigroup or a BMO.

With a custom, you define the terms that you want, right, and the parameters that you feel are most appropriate for you and your clients. And then ultimately you choose the issuers that participate in the auction that you feel comfortable with, Right?

So it’s truly custom. Some of us just buy a car, you know, right off of, you know, the showroom floor, and some of us customize our own car. Yeah. There’s pros and cons to each, right?

With the custom side, what I think is really interesting is that it puts the power in your hands, right? So if you have clients who want a specific set of protection, they want a specific exposure, they want specific maturities, you can do that with the Halo tools. You can go on onto our platform. You can click create custom note.

You can see all the different fields available for you to play around and toggle.

And almost instantly, you get indicative pricing to see if you like the product or not. Again, when I was at Credit Suisse, I used to have to call my desk. They used to have to get indicative pricing. My client would ask, you know, that’s really interesting.

What does that look like with twenty five percent protection now? I’m like, oh, gosh. I got to call my desk again. And that process would take hours. We have taken that, I would say, you know, indicative interest process or or price discovery process from hours literally down to seconds, which is really nice because a lot of times, I just wanna play around and see what pricing looks like. I don’t necessarily wanna buy. And so the beauty of the custom is it gives the power in your hands.

It creates a competitive auction process. And just as important is that you get to execute same day if you like. So if volatility is high, you can take advantage of that volatility that we’re seeing during the day and being able to create your own custom note. Because when volatility is higher, you’re getting better pricing on the terms of the note. Right? So those are the kind of the major takeaways of custom versus calendars. But, again, I think you’ll find whatever you like, whether it’s a calendar or a custom on the platform.

David: Sure, sure. So the Vowel story, we’ll have to save that for another day, but it does make me wonder. So from a calendar, and we get this question a lot, calendar versus customs, how does the pricing work?

Like so if so, if an advisor was on a Halo and they saw a calendar, how might the pricing work relative if they did it through a custom note or something like that?

Jason: It’s a great question because there’s a biz big misconception out there that custom notes are always better than calendars in regards to pricing.

David: Okay. And many times that can be true, but it also many times it’s not true.Why?

It’s because when a calendar is ultimately issued, what is happening? The manufacturer like a Citi, like a JPMorgan, like a like a BMO, you know, name your issuer on our platform. Right? We’ve got seventeen issuers on the platform.

When they’re going creating their monthly calendar offerings, they’re doing that at the beginning of the month. So they’re actually starting to hedge that product at the beginning of the month. Moreover, is that when when they’re sending out these calendar offerings to, you know, the platforms like Halo out there is that you’re aggregating a large dollar dollar amount. So pricing can actually be quite aggressive given the large dollar sizes that are going into these calendars.

Now the important take away is banks are issuing and hedging these products with calendars at the beginning of the month. If volatility is really high at the beginning of the month you’re actually locking into nice and attractive pricing which actually happened many times, one recent memory was during the COVID crisis of March of twenty twenty. So of recent memory was during the COVID crisis of March of twenty twenty. Vol was really high in the beginning of March. Calendars were pricing really, really nicely.

And when you compare that to doing a custom, say, the middle of March, the pricing wasn’t as good as the calendar. And I got all these questions saying, well, jeez, I thought customs were always better. Well, they can be, but not always. It depends on where volatility is at the beginning of the month.

So what I always encourage advisors to do is create your custom note and see what the pricing is. Go to the calendar page and see if you can find something similar and compare the pricing. You might be surprised. You might be getting better pricing on the calendar side than you are on the custom side. And as long as you’re comfortable with the issue and the terms, then that may be a better solution for you.

David: Yeah. Well, I know that’s one of the benefits to say working with Halo is that that our RVPs and customer service team can walk you through these things, but there’s there’s there’s pros and cons to each of them.

Jason: Yeah. And and, you know, I always tell advisors, just play around. Just bang around on the system. Right? We have a whole team of people here who can help you, but just bang around in the system so you can learn as you play.

It’s like a video game. Right? No one reads an instruction booklet anymore. Right? We pop the disc in, or now we download games on our Xbox, and you just start playing, and you learn as you’re playing. It’s the same thing with structured notes, is play around with the platform, play around with the education, but play around with the auto price or the custom note side of the platform because I like to kinda twist and turn all the different dials to see how that impacts pricing. Whether it’s maturity, whether it’s call features, other things to say, okay. Well, now I’m really starting to get an understanding of how call features work and how much they can add to the yield of a certain product.

And so I think the biggest takeaway for advisors is don’t believe the misconceptions that customs are always better than calendars. That’s unequivocally not true. Go and create your custom note. Look at the calendar page to compare pricing. However, if all spikes and let’s say the VIX, which is at around thirteen right now as we’re recording, spikes to say twenty by the end of the week, well, now you wanna start going to look at a custom because the VIX at the beginning of the month was around twelve and a half. So you’re probably gonna get better pricing on the custom.

David: Okay. One other main feature, and we work with one of our top sort of benefits or features with working with Halo is the idea of a tack on opportunity.

What is a tack on? Walk us through tack ons, how they work, and why would why would an advisor wanna get interested in a tack on?

Jason: Tack ons are kinda like your corner office approach. Right? And so ultimately, what does that mean? It means another advisor on our platform is doing a custom note.

And that advisor is holding it open for the course of a day or two days. They’re locking in pricing now, but they’re, they and the issuer are willing to hold it open for one to three days for other advisors to come on and tack on for as little as a thousand dollars. So think of it as a custom meets a calendar. Right? That is why I like to call calendars subscription products becasue im just subscribing. A tack on is a subscription product. I’m subscribing to someone else’s idea.

For example, let’s say I was still in wealth management and I go and I create a four year custom note on the EuroStox fifty with forty percent buffer. Right? And, ultimately, people say, wow.

That’s a really interesting note. It’s not on the calendar. I wanna buy it, and I wanna buy it right now because the pricing looks really good. Well, you know, Chicago Wealth Partners, the proverbial Chicago Wealth Partners can see that.

They’ll get alerted through email and on the platform.

And they can just go right in and tack on for a thousand dollars. And so it’s really this nice community effect where there’s no monopoly on good ideas, as I always say.

So you get to take advantage of other advisors, So you get to take advantage of other advisors’ good ideas, which I do all the time because, again, there’s no monopoly on good ideas.

Which I do all the time because again there is no monopoly on good ideas. I like to see what other people are doing. And and, heck, if I can subscribe for a hundred grand, two hundred grand, and not have to go through the customization process, awesome.

David: Yep. Okay. So the economy is a scale. It really helps, you know, what it sounds like with the tack ons.

Okay. Off the script, Jason, I know I like to keep you on your your toes. Last question and, Jason didn’t know this one was coming, but he’s always a good pro. As we head into the second half of the year, any anticipations?

What might we expect here heading into the second half of twenty twenty four?

Jason: Well, we’ve been seeing a lot that interest rates are gonna stay higher for longer. You know, going into this year, you had some houses at seven cuts this year, and now the Fed is looking at, you know, maybe two or the street, I should say, is looking at two, three cuts. I think you’re gonna see one cut, maybe two.

And if it was an election year, I would say you’re gonna see no cuts at all. I mean, the economy is doing really well. The consumer’s in really good shape. Consumer balance sheets are in really good shape.

GDP’s in really good shape. And we have to remember that Europe and England right now are lowering interest rates. And so as they’re lowering interest rates, that’ll obviously stimulate demand within the eurozone and in the UK, which ultimately will put more price pressure in the United States. So don’t be surprised if inflation and interest rates stay higher for longer, but that’s good for structured notes.

Why is that good? Because it’ll likely create more volatility. The VIX at thirteen is abnormal. And so, ultimately, I think vol is gonna continue to creep higher with all the different global macro variables out there, plus higher interest rates. That makes for a really compelling environment for structured notes.

David: Okay. I said one last question but see you went there and, this is a little preview for some new material, new, something we introduced fixed income, expanded our offerings for fixed income products. And one of those main products is a floating rate notes, fix the floating rate. Essentially a better way in our opinion to maybe take advantage or to play the idea that it’s gonna be rates higher for longer, if you will now.

So, what’s the thinking? What were you hearing? Why did we expand the offering? And, what is the case for, you know, sort of floating rate or fix to floating products?

Jason: Yeah. I’m really excited about the new fixed income offerings we have. Why did we offer it? It’s because of client demand.

And so I take great pride when we built our company and as we continue to build our company now and and into the future is that we feed off of what our clients want. Right? So we are for the buy side by the buy side, and the people spoke. They they loved our interface.

They loved structured notes. They loved working with our teams, so they wanted more offerings. And and they wanted fixed income given the current rate environment. So we offered it.

If you wanna go find the fixed income, just log in to the Halo Investing platform. You’ll see under products, you’ll see fixed income. And it looks just like the calendar page where where we have a wide variety of different bonds. To your point, David, about, you know, these fixed to floats, I really like them in this type of environment for two reasons.

A, interest rates are really high right now. We’re at four forty four on the ten year treasury.

And so you’re seeing some really interesting fixed to floats, from some of the banks out there where and I saw one the other day. It was a five year note. It was paying a six percent interest rate for the first year, and then it floats, to one hundred basis points plus, one hundred basis points over SOFR, which can be really nice. Why is that nice?

Well, if interest rates stay where they are, you’re still getting a really nice interest rate in that product. If interest rates go up, it’s a great bond. It can be a great bond and inflation hedge within your portfolio because obviously as interest rates are going up, you know, the prices of your bonds are going down. So it could be a really nice hedge to that corporate bond portfolio or muni bond portfolio that you may have.

But moreover is what I like about it is typically to get floating rates. Right? These fix the floats. To get floating rate coupons, you usually have to go lower within the credit spectrum, meaning most fix the floats are called senior loans.

Senior loans are from non investment grade companies.

And if you look at credit spreads right now of non investment grade companies, they’re not very attractive. They’re at one of the lowest points we’ve seen over the last twenty years, actually. And so I don’t wanna pick up pennies in front of a steamroller to be able to get those fixed with floats.

So I like being able to have these investment grade banks on the Halo platform offering attractive yields that actually float if interest rates go up. If interest rates go down, you’re still getting an attractive yield. And, oh, by the way, the rest of your bond portfolio is doing great. And if interest rates stay where they are, which is kinda my thesis, ultimately, again, you’re still getting a nice rate.

Now, one other product that I saw, which actually surprised me. I didn’t know that we were offering it, but I saw it yesterday, was a floating rate note ultimately linked to CPI.

So as an advisor, I always used to get a lot of questions from my clients of how do we play inflation? And it’s like, okay. There’s gold and there’s stocks and other things that we can do within our portfolios, but there was never any pure play way to ultimately hedge against higher inflation. And so we’re actually offering a fixed afloat note linked to CPI.

So you get a spread over CPI that’s capped at the seven percent annualized yield. And it’s really, really interesting for advisors and their clients who ultimately wanna have that hedge against inflation within the portfolio. So this is one of many things now that you can do on the Halo platform. We’re not just structured notes.

We’re structured notes. We’re bonds. We’re annuities. And we’re structured at SMAs. So come check out the platform if you haven’t done so in a while.

David: Yeah, yeah. Frank Madilone and team has done a great job expanding the offerings.

There’s a lot of platforms out there today for investments. And certainly Halo is up there for for the for unique products here. They’re, like you said, they’re just in demand by clientele.

Jason: Well, and the last thing thing I’ll say about the bonds is what I really like about our bond offering is that ultimately you’re buying bonds direct.

David: Mhmm.

Jason: And so what does that mean? Most advisors are forced to use mutual funds for their bonds. So when you’re using mutual funds, you’re just taking interest rate and duration risk, and there’s a lot of unintended tax consequences with mutual funds as when other people are redeeming, they can kick out capital gains that you have to pay on even if you didn’t redeem. And I I lived that in two thousand eight and two thousand nine where your portfolio is getting crushed and then you gotta pay taxes on something that you didn’t even redeem.

And so what’s nice about owning outright bonds is, yes, you could take some NAV risk, but you own the bond. You own the coupon. These are primary offerings. And so it can greatly reduce that interest rate and duration risk within the portfolios and ultimately giving you that institutional capability no matter what the size of your practice is.

David: Yep. Well, Jason, we really appreciate your time again today. Thanks for coming in. We look forward to doing this again.

Jason: Yeah. Thanks for having me.

David: Alright. Please hit that like and subscribe button, and thanks for watching.