Talk Your Book: Customizing Your Assets

Episode Summary

Executive Summary: The episode explores how structured notes can serve as customizable, defined-outcome tools for advisors and investors, especially in an environment where stocks and bonds no longer reliably hedge each other. Halo CEO Matt Radkowski explains how the platform connects issuers with advisors, why structured notes are more common abroad, and how rising rates have shifted demand from income notes toward growth and absolute-return structures.

Main Topics: Halo’s marketplace model for structured products (Priority: 5/5): Halo is positioned as a two-sided marketplace connecting issuers of structured notes and annuity products with advisors and enterprises, aiming to improve access, operational efficiency, and adoption of protective investment solutions. Why structured notes are more common outside the U.S. (Priority: 5/5): Radkowski argues adoption is higher in Europe and similar markets because investors there are more accustomed to disciplined accumulation, pension-like income needs, and protection-oriented solutions, while U.S. investors have historically been more speculative and return-seeking. ETF-defined outcomes vs. structured notes (Priority: 4/5): The discussion contrasts the ease and perpetual nature of ETFs with the customization, flexibility, and maturity/call structure of notes, emphasizing that structured notes can deliver more tailored risk-return profiles but require lifecycle management. Customization and personalization as a major investing trend (Priority: 5/5): The guests frame structured notes as aligned with broader consumer demand for personalization, arguing that notes can be tailored to specific underliers, protection levels, upside participation rates, and even reverse-inquiry custom CUSIPs. Interest rates and the shift from income notes to growth notes (Priority: 5/5): Rising rates have changed note economics: lower volumes hurt income-note demand, but growth notes with downside buffers are gaining traction as investors seek equity exposure with protection and advisors look for portfolio hedges. Absolute notes and bearish hedging structures (Priority: 4/5): Radkowski describes a customized absolute note tied to the S&P 500 that can effectively pay inverse performance at maturity, illustrating how structured products can be designed for investors with a negative or cautious market view. Advisor-led adoption and the case against direct-to-consumer access (Priority: 3/5): Halo believes the complexity of structured products still favors advisor distribution, though direct-to-consumer access may eventually grow as investor sophistication and market infrastructure improve.

Key Arguments: Structured notes are underused in the U.S. not because they lack utility, but because U.S. investors have historically favored speculation and upside chasing over protection. The key value proposition of notes is explicit tradeoff design: investors can choose how much upside they give up in exchange for defined downside protection or income. Compared with ETFs, structured notes offer far more customization, but they are less simple to implement and require active management of maturity and call features. In the current higher-rate environment, income notes are less attractive, while growth notes have become more compelling as core equity allocations with built-in buffers. Notes can help keep investors invested through volatility by offering a protection framework that reduces the urge to time markets. The downside protection in a note is real but only fully realized at maturity, so notes are not a liquid hedge or tail-risk insurance substitute. A sleeve of structured notes can be used systematically across market cycles, with protection levels adjusted over time as retirement nears or market valuations change. Advisor guidance remains important because the product complexity, parameters, and lifecycle management still make structured products difficult to use directly by most retail investors.

Data Points: Structured-note market issuance: $100 billion - Referenced by Radkowski as the scale of issuance in 2022 Absolute note horizon: 18 months - Example note tied to the S&P 500 with absolute-return features Down market trigger for immediate call: More than 25% decline - If the S&P 500 falls more than 25% during the note term, principal is returned Negative-return payout structure: Pays the absolute value of losses - If the S&P 500 is down between 0% and 25% at maturity, the note pays that loss amount as a positive return Upside cap on absolute note: About 6% to 8% - The bearish note has limited upside participation when the market rises Growth-note downside protection examples: 10%, 20%, 30%, 40%, 50% - Examples of protection levels that can be built into growth notes Growth-note participation rate example: 120% to 150% - Illustrative upside participation rates for an S&P 500 growth note

Pivotal Quotes: "what could be more personalized than your own QSIP?" — Matt Radkowski: On the appeal of customization and reverse-inquiry note construction "the note, again, to me, is a very beautiful structure" — Matt Radkowski: Describing why structured notes fit his view of portfolio design and defined outcomes "It's not like a liquid hedge. It's not as if the market falls 40 percent and you could then, like, cash out" — Ben Carlson: Clarifying that protection in notes only matters at maturity, not intraday as a tradable hedge

Implications: Structured notes may grow as advisors seek customizable downside protection and equity participation, especially in volatile or high-rate regimes. But their complexity and maturity dependence mean advisor education and portfolio discipline will remain essential.