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Below is a lightly edited transcript of the conversation between Chris and Biju.
Chris: Welcome to the K1 podcast today, I’m excited to have our next guest on the line. I have Biju Kulathakal from Halo Investing, who is based out of Chicago. Biju welcome to the call, I’m going to give you a few minutes to introduce Halo for those who do not know or could become a little bit more familiar about the history of the company, why you started it and the main premise of Halo.
Biju: Thanks Chris, great to be on your podcast and thank you for the opportunity. Halo investing was started by me and my co-founder, Jason Barsema, about four and a half, close to five years ago and we wanted to create a better platform for protective investing. Protective investing and defined outcome, we felt the way the market moves, people needed access to products, easier access to products, that gave them protection against the market. These products existed out there in the market but people didn't have the right sort of platform to analyze them, to see how it affects their portfolio, and how to make different decisions on buying them, or whether to sell it later, and pre and post trade analysis on these products.
We started off with structured products because you know Jason saw structured products from his background working at a bank, and I saw structured products with my background in the options and listed derivatives market. So we felt like structured products are a huge $3 trillion market globally, but few people know about it, and from a retail perspective very few people know about it in the US. It was mostly sold to high-net-worth individuals at big private banks. But it's increasingly becoming more of a retail product. We felt to make this product more retail, we needed, the market needed somebody who advocated for this product from the buy side.
So we wanted to create a platform that really gave the buy side, the right data, right tools, to make these decisions. So, we launched the platform about 4 years ago, but in that short period of time, we have become one of the largest platforms in the advisor space in the US, largest independent platform in the advisor space in the US, and one of the largest in the world. We operate in about 8 or 10 different countries and the majority fall from outside the US, but we are a large and a growing presence in the United States. We started off with structured products and now we do buffered ETFs and we will soon have annuities on the platform. We have a few annuities right now, but annuities will be a bigger part of a launch in Q3 of this year.
Chris: That's great and I appreciate the background there and you and I met a number of years ago, two years ago now, at a bank conference from a structured product manufacturer. That was really when I was entering the structured products space or at least entertaining it. I had an annuity background but you know the types of products that we were representing and marketing and really believed, were the same.
Like you said - buffered, protective, market participation, and I think that the overall belief and promise from where we came from is that there was a client demand for this type of thing. You know the products that we represented, were just entering into the broker dealers space. Being the indexed annuity things and now we're seeing with the structure annuities starting to take off.
But you always knew if you can get this kind of story in front of the actual investor, that there had to be a demand there. It's something that fits in people's portfolios and is what they're looking for. As you said, you guys started on the structured products and started annuities, and now I guess the newest wave, and I'm no expert on this but you are, is really that it's hitting the ETF market.
So I guess, correct me if I'm wrong, that's an easier buy for the same type of strategy as the structured product. I would assume that's why I just saw on LinkedIn and my conversations with your colleague Sean, I have heard that you guys are adding the buffer ETFs to your platform. So being that that's a new initiative for you guys, can you talk a little bit about that?
Biju: Absolutely and you know before I touch on that I'll just talk about something you just said. You know your annuities background and why annuities are so popular with retail investors, because very often retail investors have other jobs, they're not professionals. Their goals are basically that they care about what's going to happen to their portfolio years out and sometimes decades out. That's what they are aiming for and what they are shooting for. Annuities really help them do that.
Structured products actually help them do that as well. So you know we joke sometimes about Structured products, we say structured products and annuities are the same product, different wrapper. So you know the kind that offers them some of the same benefit ,some of the same payoffs, some of the same protection, the same defined outcome, but the wrapper is different from an annuity.
Annuities have insurance wrapper, structured products have a corporate bond wrapper and that kind of leads into the buffered ETFs. Similar payoffs in some ways to structured products and annuities, but it has an ETF or a trust wrapper. So we find these buffered ETFs advantageous because it's the easiest product to trade. You can easily trade it in the market, it’s listed, you have more direct access to the liquidity, the settlement is a lot easier. So you have all these advantages in this buffer ETF product and it's going to be one of three things available on the Halo platform.
But we see a market, especially the market you saw in March, the market we saw a couple years ago. We see these big moves in the market and advisers need something to protect them from those from the downside exposure. So we launched this buffered ETF platform with our partner right now, we have the Allianz buffer outcome ETFs on the platform. We're seeing some tremendous interest in the product and we think this is just the beginning of big things to come. We think there's going to be a lot of interest in these buffered ETFs in both the US and internationally.
Chris: So what does the platform provide for the buffered ETFs? You know, and I'm not familiar with Allianz’ or the competitor’s buffered ETFs out there, at least in terms of what their websites look like, or some of the analysis that they provide. What does Halo provide further for an advisor or an investor on the buffered ETF side that they would not get from the actual manufacturer?
Biju: Yeah, so the thing with any product like a buffered ETF or a structured product or an annuity for that matter right, these aren’t that easy to analyze because they don't have a very linear relationship with the marker. If you just say if you were to buy like a SPDR ETF - when the market moves up the ETF moves up, when the market moves down, the ETF moves down very linearly. When you have something with a buffer it moves at a different pace than the market, either up or down movement, and it does that by design. That's one of the reasons you're buying it, but you need some sort of tool to analyze how this is going to be affected. You need some for analytics, to know what is the sensitivity to your portfolio when this when the ETF goes up and down. How much exposure do you have to one underlying or different underlying when this ETF goes up or down. There are a lot of metrics you need to look at before you buy, and when you buy, you want to see these metrics and data afterwards. What are some different life cycle events happening with the ETF? If you were to take that ETF off right now and roll into some other ETF, or some other product like an annuity or structured note, how will that affect your portfolio. These are things that are not easy to do in Excel. You need some sort of tool to analyze, that's really the role that Halo plays in the market.
Chris: That’s putting it into a much more user-friendly format that you can understand. Since any platform, I know that when I've seen some of the structured product analysis, you know through various platforms, and in Halo and there is a few of you guys out there, but yeah that was tremendously helpful to me and I think that is so key for these product lines is to see how they actually perform in different marketplaces.
We know a ton of literature and brochures and you know past analysis and things like that are very difficult to understand. I mean even if you're in the industry there's just so much information that to be able to see it actually perform, like you said prior to purchase and then after the purchase and some visuals of how this really affects your portfolio is a game-changer.
When people stay away from the unknown and when it's not traditional investing and they can at least conceptually understand, it's easier to walk away and say there's too many moving parts. That’s why a platform like this is so great, it helps people understand the complexities in a simpler format. They may want the product, it’s just too hard to understand, but platforms like this help out tremendously.
Will the platform day one be as functional as it will be a few years from now and not necessarily because the platform is going to grow, but do these ETFs need to be around longer to gather more data before the platform is actually performing to its full capability? Did you understand what I'm asking there?
Biju: I do, and I’ll say that’s not as much of an issue. The ETFs are new, but the platform is not as dependent on past information for certain ETFs listed because most of these ETFs are just being driven by metrics from the underlying they are tied to, like the SP500, the Russell or whatever index or single stock that they're tied to. So that information exists, the platform isn’t depending on that as much.
But what else I’ll tell you is that no one should be buying these products without a platform to help. Because it's sort of like driving at night without headlights. You can't see and you shouldn't be doing that, you're just going to be guessing. You can’t just buy this product and just let it sit in your custodian’s account and have no analytics around it.
How people got around this in the past was that there would be a wholesaler or someone as a sales function talking you through all this. It would take a lot of time and you're very dependent on when you meet this person, when the person comes to your office or calls you on the phone. Now you have, I mean we have people help our clients from the sales function, but we give the power to our clients on the platform. Our platform gives these clients, which is the advisor the ability to get this information on their own directly on the platform.
That’s our goal, we want to empower the clients to make decisions on their own. To make the decision to analyze, and say this is going to be better or worse for me by buying this product. They can only do that with analytics and such a platform.
Chris: Yeah I know it makes sense and I would couple that with what you guys have done, whether it's in the broker-dealer or RIA space. I think we all know that the front lines of that are the new investment advisors or the actual financial advisors themselves and with a vast number of options that are out there, the platform advisors can become comfortable with different products. First they can understand and then they can communicate effectively. You know their clients are obviously very important to them, and very important to our industry. So I love what you guys are doing, I love the space. I think the whole industry is headed that way.
Adding annuities to these platforms is fantastic to see you know how they've performed historically. Now that we're getting into people calling structured annuities, registered linked annuities (RILA), which are now performing or starting to look a lot more like structured products in an annuity wrapper. So it's kind of funny as we went this route of pure variable as you mentioned before, people's expectations and just how products change and now they're all kind of merging together. Not in terms of products, but with the same type of strategies being used across the board. So I'll hand it over to you if you'd like to say anything and close.
Biju: I think you summed it up really well. I think the key point is something you said which is, a lot of these products have similar features and why is that? Because clients are asking for these features.
I think when I look at the market and my competition is not another structured note provider or another annuity provider. Our real competition is somebody who does not offer a product with a protection or defined outcome. What we are seeing is more and more of our clients are moving assets away from products that don’t offer protections or defined outcomes, to something that does. We're not telling clients what their allocation should be, what their view on the market should be, we're just telling clients, hey you have this view on the market, let's help you put some buffer, let's help you convert that to something with a defined outcome. We are seeing an increase in demand for that sort of stuff. So I think that's a sign of bigger things to come.
Chris: Yeah absolutely, well I look forward to talking to you again as you guys progress with the platform that you have and having your back on anytime as you guys launch new initiatives. I really appreciate you taking the time and be well.
Biju: Thanks so much for such a pleasure being a show.