Talk Your Book: Custom Portfolio Protection

Episode Summary

Executive Summary: Michael and Ben speak with Halo CEO Matthew Ratgowski about the rise of customized, protected investing through structured notes, fee-based annuities, and now structured note SMAs. The conversation covers why defined-outcome products are gaining traction, how Halo’s platform simplifies access, how its new manager-run SMA models work, and how investors and advisors can use them for income, downside protection, and tactical market exposure.

Main Topics: Halo’s role in protective investing (Priority: 5/5): Ratgowski explains Halo as an investment technology and marketplace connecting advisors to structured notes, fee-based annuities, and other protective products, with the advisor as the end user. Structured notes vs. buffered ETFs (Priority: 5/5): The discussion compares structured notes and buffered ETFs, emphasizing the trade-off between ease/liquidity and customization/personalization. Why defined-outcome products are gaining popularity (Priority: 5/5): The hosts and guest discuss behavioral reasons investors want downside protection and income, especially older or nervous investors who dislike volatility. Structured note SMAs and manager selection (Priority: 5/5): Halo’s new separately managed account offering is described as a curated set of structured note strategies managed by outside experts, aimed at making implementation scalable. Market environment, rates, and volatility (Priority: 4/5): Ratgowski explains how interest rates, volatility, and market conditions affect note pricing, yield, and which types of strategies are most attractive. Portfolio integration and analytics via Aura (Priority: 4/5): Halo’s Aura tool is introduced as a way to model the impact of structured notes on portfolio risk, returns, and income so advisors can justify their role in a portfolio. Income strategies and issuer diversification (Priority: 4/5): The episode covers high-income note strategies, the role of underlying assets in boosting coupons, and the importance of diversifying issuer credit exposure.

Key Arguments: Structured notes are attractive because they let advisors tailor downside protection, upside participation, income, and duration to client needs. Buffered ETFs are useful, but structured notes offer more personalization and can be better suited when advisors want customized exposure. Defined-outcome products are increasingly relevant because not all investors can tolerate deep drawdowns, even if they theoretically should. The current higher-rate environment changes product mix and pricing, but structured notes remain valuable for both growth and income use cases. Structured note SMAs help advisors scale implementation by outsourcing manager selection, trading, and ongoing oversight to a professional manager. Halo’s platform is meant to be part of the core portfolio construction process, not an add-on that sits “off the side of the desk.” Aura will help advisors show clients why a structured note belongs in a portfolio by illustrating effects on risk, downside, and income. Issuer risk matters because notes are bank-issued; manager oversight can help diversify exposure across issuers. Income can be a behavioral anchor: regular coupon payments may help clients stay invested as much as downside protection does.

Data Points: Structured note SMA strategies available: 5 - Ratgowski says Halo currently offers five structured note strategies in its SMA lineup. Managers on platform: 3 - The five strategies are offered by three managers: New Edge, Piton, and WisdomTree. Typical advisory fee for SMA strategies: 40 to 80 basis points - Ratgowski gives a range for externally managed structured note SMA advisory fees. Private placement memorandum length: about 200 pages - The hosts note how cumbersome a direct structured note purchase could be from a bank. Example yield target: 10% - Ben asks whether structured note strategies can replicate a 10% yield; Ratgowski says that can be achievable depending on the structure and risk.

Pivotal Quotes: "Customization at scale." — Ben Carlson: Ben frames the industry trend toward personalized portfolios that can still be operationally efficient. "You insure your house, why wouldn't you insure your portfolio?" — Michael Batnick: Michael argues that downside protection is a rational extension of everyday risk management, though he acknowledges upside trade-offs. "We believe that the structured note is a great mousetrap." — Matthew Ratgowski: Ratgowski summarizes Halo’s conviction that structured notes are an effective investment wrapper if made easier to access and manage.

Implications: Defined-outcome strategies are moving from niche to mainstream. Advisors can use Halo-style platforms to deliver tailored protection, income, and tactical exposure at scale, while investors gain more ways to stay invested without taking full-market risk.