Brad Johnson: Jason, welcome to the show. Excited to dive in today.
Jason Barsema: Yeah. Thanks for having me, Brad. Excited to be on
Brad Johnson: Well, this one’s fun. This one was an intro from Britt, our CIO. He’s like, “I got a guy, Jason.” We’re obviously working together in partnership with what you’re doing at Halo with the structured notes. But as we dove into your background, and you grew up as an advisor at Credit Suisse and then climbed the high net worth ladder, and your dad did pretty well for himself during the dot-com days and took a company public. So, I just knew there was a lot we could get into today that was going to be awesome for the audience here to be able to help them out. So, now the question is: where do we start? So, maybe we go back to Jason, the financial advisor. Was it straight out of college? Fell into it? How did that come to be?
Jason Barsema: Well, I think it started in first grade, when my dad put a Wall Street Journal in my hand.
Brad Johnson: There you go.
Jason Barsema: And so, I was always raised to manage wealth. That was kind of the purpose and the role within my family. As you alluded to, my father had some success in Silicon Valley, running companies and then being a venture partner at Benchmark Capital. But from that perspective, it was just something I really fell in love with and something that I understood. I don’t understand a lot about a lot, as you know, and you’ll find out, but I do understand economics and finance. And so, I bought my first stock in first grade. I bought IBM. My parents allowed me to start managing a small portion of our portfolio in middle school, where I was a big Benjamin Graham disciple.
But, yeah, from professional wealth management, it really started during college when I did my first internship my freshman year at Smith Barney, and learned the ropes of operations, portfolio allocation, manager selection. But then, yeah, right out of college, I went straight into Credit Suisse as the lowest-rung analyst you could possibly be, and cut my teeth during the GFC, and ultimately made a pretty good career for myself and built a pretty successful practice.
Brad Johnson: So, GFC, the financial crisis, I’m assuming it.
Jason Barsema: The Great Financial Crisis, yes.
Brad Johnson: How was that? Because right as I was diving in, I was on the insurance side of this table, but ’07 was my first year, right, as things were starting to hit the fan in ’08, ’09. So, as an advisor, especially a young advisor back then, what’d you learn?
Jason Barsema: Well, I learned a lot. I learned how to deal with adversity. I graduated in December of 2007. And so, I was off cycle, and it was ironic because I’ve spent my whole life as I was alluding to learning about wealth management, learning about the markets, and now, like, I’m finally going to get paid for it. And then Dick Fuld comes out, who’s the former CEO of Lehman Brothers, in the fall of 2007, and starts to put a couple chinks in the armor of credit quality and liquidity, and all of a sudden, the job market really just froze up. And so, I think literally and metaphorically had to kick the door down to get my first job, and I did. And my very first day of work, Bear Stearns collapsed in March of 2008.
And it was a really interesting experience for me. I have one of the stories I’ll remember for the rest of my life from that day. I was washing my hands, actually in the restroom, as weird as that sounds, and this person walks up to me at the sink right next to me. And he said, “Are you new here?” And I said, “Yes, sir, I am. This is my first day.” And he said, “You are the luckiest SOB that’s in this office.” And I said, “Why is that?” And he said, “Because you’re about to witness the most epic financial collapse in history and you did nothing to create it.” And that literally gave me goosebumps. And from that day, I kept a diary of every single day during the GFC of what went on, what went right, what went wrong.
Much to my demise, I did not do that after I founded my company, Halo, which I wish I would’ve created a diary. But I learned a lot, and most importantly, I learned the importance of behavioral finance being an advisor, where it doesn’t matter how smart you are and how right you are, in regards to market calls. If a client doesn’t feel comfortable, then they’re not going to do it. And if a client doesn’t feel comfortable, they’re not going to stay with you. And so, the biggest lesson I learned was really about investment behavior. Make clients feel comfortable, make clients have rational thoughts, and ultimately, those rational thoughts lead to rational decisions. And that’s something that I used to talk to a lot of new financial advisors that are starting at Credit Suisse.
You could be the smartest person in the room, but if you don’t know how to manage investment behavior and the psychology of wealth management, it will be very difficult for you to grow and build your practice.
Brad Johnson: Couldn’t agree more. Did you see this nice piece here? I don’t know if you can see it on the camera very well, but you know Carl Richards? He was a behavioral finance guy in The New York Times, but basically, for those listening on audio, it’s a print of his that’s basically the rollercoaster of the market. It says, “Greed buy,” and then, “Fear sell.” Except the problem is they’re at the buy at the top and sell at the bottom.
Jason Barsema: Well, and the problem is no one’s got the green or red flag waving, right? And that’s ultimately how I fell in love with structured notes, which I’m sure we’ll get into. But they literally made my practice because during the depths of the GFC, no matter if you were right or wrong, which I think we were all right if we wanted to buy during the depths of the GFC, calling a client and saying, “Hey, Brad, I know the portfolio’s down 40% to 50%, but the cash that we’ve got on the books right now, we should invest that long into the stock market.” Easiest way to lose a client because they were scared. And I had one client who had about 50. He was a prospect at the time that ultimately became a client. But he had about $50 million, $55 million liquid.
And he wanted to sell his entire portfolio and go to cash. And this was October-November of 2008. And not only did he want to go to cash, he wanted to take that cash and literally put it in a safe in his house because he thought all the banks were going to collapse. I said, “Brother,” I said, “if you think all of the banks and FDIC insurance and everything is going away, then what’s the point of your dollars, right? Use them as wallpaper. You’ll be better off doing that.
Brad Johnson: Use them to go buy guns because you’re going to need them.
Jason Barsema: It’s funny you said that. I told him, I said, “If that is your thesis, buy three things.” He said, “What’s that?” I said, “Buy guns and bullets, buy salt, and buy seed.” And he said, “Why should I do that?” I said, “Well, you want the guns and bullets to be able to hunt. You want the salt to pack your meat and be able to bury it, and you want to be able to have seed to grow, and then you can barter your harvest.” And he was really thinking about this. I was like, “I’m joking,” right? And I was like, “If we ever get to that world, I don’t want to live on this planet.” And I said, “These are the depths that we all go to when we’re scared. And it’s natural because you spent your whole life or your family spent their whole life accumulating the wealth that you have,” right?
We all work really hard for our wealth. And ultimately, when that wealth is at risk, we make really irrational decisions. And that’s what I loved about structured products was I, at least, allowed to go to my clients to say, “Look, if I’m early, we’ve got the downside protection. If I was wrong, it wouldn’t matter anyways.” The market, it was over by that point if we were down another 50%. And if I’m right, I’m going to be really right because structured notes give you that enhanced upside. And that’s really the types of products that I led with during the GFC. No one was talking about them. They’re still underutilized in portfolios in this country today, and kind of the rest was history.
Brad Johnson: Well, so while we’re on memory lane here, this is fun since we both got into the business about the same time.
Jason Barsema: Now, looking back, that’s so fun in the middle of it.
Brad Johnson: Well, it means we’re starting to become some of the older guys. Maybe not the oldest, but we’re somewhere in the middle there. It’s funny, I remember my mom calling me back in those days. I was an IT major, did that for three years out of college, corporate, then kind of fell accidentally into the insurance brokerage side of the world. And I remember her calling me and saying, “Brad, are you okay? Are you going to have a job?” And I was like, “Mom, we just had our record year by like 3X.” This was like ’08. Because, like I just referenced back there, people were like your clients. The market had dropped. They just fled to safety and fear. And now the worlds have all converged, where at Triad, we have an insurance brokerage arm, we have a wealth management arm.
And I feel like structured notes were similar to some of the indexed annuities, where you’ve got the downside protection and a portion of the upside. And especially with the retirees, where the timeline is shorter to where they might need to access that money for income, I just see it being a beautiful middle ground hybrid, really between the growth and the safety worlds is really where it’s settling in. So, how have you seen it evolve since back then to now funding a company that’s what you do with Halo?
Jason Barsema: You said it perfectly. In fact, you should come work with Halo, Brad. You’re our best sales guy. No, because you’re spot on. You know the irony of these protective investing products, right? Whether it’s annuities, whether it’s insurance, whether it’s structured notes or other tools to be able to hedge your portfolio, the irony is people want insurance when the house is already on fire. And we want insurance before the house is on fire, right? But when the market’s going up, no one ever wants to hear about protection. And I always like to remind my clients that we’ve got insurance on our cars, we have insurance on our homes, on our watch, our dogs, on everything in our lives besides one of the most important things in our life, which is our wealth, right?
Because our wealth allows us to live and allows us to pass forward to future generations and do some good things for society. And so, for me, my investment thesis is that every investment within your portfolio, every asset class within your portfolio, is going to have a level of protection. Not just your stocks, but also your bonds, as we’ve seen the 60/40 portfolio during the GFC, during COVID, during 2022. That 60/40 portfolio is like insurance against a rainstorm. Like, yeah, it’s great to have that. It makes me feel good during a rainstorm, but it really doesn’t do anything for me during a hurricane. That’s where you need that defined protection like structured notes can give you, like annuities can give you, and like other hedging tools.
Because ultimately, the beauty of these products and what I have found both back then and today, I mean, look at the valuations that we have in the market today. They’re nosebleed levels, right? And we’re convincing ourselves of why we should be paying these nosebleed levels, whether it’s the administration, whether it’s the future of AI, et cetera, et cetera, et cetera. We’re all convincing ourselves why some of these chip makers are trading at 100 times earnings, right? It’s really wild. And so, none of us naturally want to miss out on potential upside, because they may grow into those multiples, right? But they also may not.
And so, for people or advisors with cash in the portfolios, or what I had a challenge with is the money in motion in markets like these, someone who just sold their business, whether they come out with a million dollars or $100 million, it’s like, “Great. Brad, God bless. Congratulations. You’ve got $100 million liquid or a million dollars liquid. Now, what do we do with it?” Deploying that cash in this market is very challenging. It’s challenging because you don’t want to miss out because you’re just starting the relationship. It’s challenging because you don’t want to invest too early because the market goes down, and first thing Brad’s going to say is, “Great. Spent the last 20 years becoming a millionaire, and now I’m already down 20%. Thanks a lot.”
Brad Johnson: Yeah. Just took all my new windfall, threw it in the market, and the market corrected 30%.
Jason Barsema: Right. And so, some people ladder into the market. That makes sense. But why not consider products like structured notes that can protect you from the first 20% to 30% of declines all the way up to fully capital-protected products, while still being able to benefit in the majority of the upside? And what I have found, whether you’re a firefighter or a family office, the three things we all need in our portfolios is we need to grow our wealth at a reasonable rate of return. We need to preserve our wealth because we all worked really hard for it, as I mentioned before. And we need to generate a level of income. At a very high level, those are the only three things you need to do in my portfolio outside of trust and estate planning.
And a lot of advisors forget that. And a lot of advisors forget that when you’re talking to the Barsema family or any other high-net-worth or ultra-high-net-worth client, we’re all humans, right? We all have the same hopes, dreams, and also fears. And the biggest fear for us is, are we going to outlive our wealth, or is our wealth going to outlive us? And clearly, we want our wealth to outlive us. So, how do we preserve it? Versus a lot of advisors are like, “Ah, I got these great new investment solutions, and the correlations and the Sharpes and the Sortinos.” No. At the end of the day, we need our basic needs accounted for, which is how are you going to grow my wealth at a reasonable rate of return, certain percentage over inflation, make sure I don’t lose my money, and generate it some income to pay the bills, and pay the taxes, and buy some fun things.
And that’s where structured products have really grown in this country. When I founded Halo, $40 billion a year in structured products were purchased primarily by ultra, ultra-high net worth individuals because you needed a million dollars to buy one product. My technology democratized that. Now you only need a thousand. But still, $40 billion were bought in this country, which sounds like a lot, but over the last two years, 200 billion were bought each year, last year and the year before. But compare that to Europe, which is 400 billion a year, and APAC, which is 750 billion per year. And so, I think that you’re just starting to see that trend of protective investing in the United States.
Brad Johnson: Love it. Being an insurance guy, I’ve been on the safety train for a long time. So, I want to get your take on this thesis. So, we kind of started on two separate… The analogy I make is almost like in finance. You grow up inside of a religion. Our religion was fee-based wealth management. This religion was insurance-based. And I will say back in ’07 when I first got in, they were kind of warring. It’s like, “Oh, those are the insurance guys. Oh, those are the wealth management guys.” I’ve seen this convergence, and here’s my thesis. So, shoot me straight, Jason. You could say, “No, I’m not on board with that,” or “I am on board with that.”
My thesis is fiduciary, if you’re truly operating under the definition, not the marketing term, because I see fee-based and fiduciary used interchangeably, which they’re not. But fiduciary, here’s my thesis: more financial tools in the toolbox is better than less. Obviously, disclaimer, used appropriately to serve the need for the client in the most efficient way. And so, my approach to a fiduciary approach is vet the tools in the toolbox and then put them all in there. And now, when you’re dealing with all different types of clients, net worths, needs, all of the things, when you build a CFP standard plan, cool, I can reach in and get the tool. So, question number one: do you align with that definition of fiduciary as more tools as opposed to less in the financial toolbox?
Jason Barsema: Yeah, I think my definition of fiduciary is just do the right thing and do for your clients what you would want done for yourself, right? The golden rule. And that’s how I always manage portfolios is what is my family doing and using that as a base to then tweak and tailor to Brad’s goals and objectives. So, that’s number one. Being a fiduciary, it’s not about being fee-based or a commissionable broker. There’s reasons why you want to pay commissions, and there’s reasons why you want a fee-based account. It all depends, right? Like, I laugh at some of the trends where it’s like, “Oh, it’s fee-based only.” And I’m like, “Well, if I’m buying 7 to 10-year muni portfolios that it’s kind of set it and forget it, should I really be paying a fee on that? Or would I rather pay a commission?”
So, it’s all dependent on what is the best for your client and how would you serve yourself. So, that’s number one. Number two is absolutely, it’s all about solutions and not products. I always used to talk about this at Credit Suisse, which is, I don’t sell products, right? Structured products, annuities have always been sold and not bought. I sold solutions. And even more so, a core component of my technology platform, Halo, is that we built a portfolio modeling tool and engine called Aura, which takes an agnostic look to a wide variety of different solutions, investment solutions. So, you can ultimately build and design the right portfolio based on your and your client’s needs. And it takes an agnostic way.
Like, for example, structured notes. Not every structured note is appropriate for every single client, just like not every stock is appropriate for every single client. How much protection? What’s the maturity? What’s the liquidity profile? All these things are really important. So, I laugh when we kind of look at our efficient frontiers, right? Ultimately, it’s about risk and reward, but what about liquidity? What about risk tolerance, all of these other things that are really important? So, I always kind of look at this matrix when I look at the solutions aspect. But we need to be able to not only have the right tools in the toolbox, but we also need to have the right modeling software. So, I not only know the what is Brad trying to show me or inform me about, I need to know the why, at least from my family, right?
I need to know what does this do to my liquidity profile, what does this do to my risk profile, my return profile, and my income profile, right? And how does it align with my family’s needs and objectives? And again, whether you are a family office or a firefighter, that should be important to everybody. I don’t care what your wallet size is.
Brad Johnson: Yeah. Well, a couple of thoughts there. Number one, you’re helping lead the democratization of something that used to only be available to high net worth through family offices to the firefighter in your example, right, which is awesome. The other thing I’m seeing right now, you referenced the 60/40, the standard stocks, bonds, equities, traditional portfolio. What I’m seeing now is an explosion of options in what I would call the fixed income sleeve of a traditional portfolio, bond alts, whatever you want to title them
Jason Barsema: Private credit, you’re referring to or something similar?
Brad Johnson: Yeah. And like, I mean, many would argue a fixed or an indexed annuity, depending on the need, the income riders, how it’s structured, can fit in a fixed income sleeve. I would say depending on how you use a structured note, obviously, because there’s downside protection. You said it earlier, can use it to produce income. I’m really seeing what used to be kind of a vanilla portfolio, this expansion, explosion of options inside of the typical asset allocation models, and I’m seeing that in a ton on both the insurance and the wealth management side when it comes to fixed income specifically.
So, if we just look at that piece of the pie, what are themes you’re seeing? You referenced kind of the structured note in Europe being a much larger market compared to the U.S. What themes are you seeing, maybe U.S. and worldwide, in the fixed income space?
Jason Barsema: Yeah. It’s a great question. I think ultimately this trend and explosive trend that we’ve seen in private credit is not necessarily bad, but it’s worrying, right? In my family, we’ve done senior loans, which we used to call private credit senior loans back in the day, and special situations, and distressed credit. All of that kind of falls in this private credit arena. But the problem is there’s been so much capital that’s flood into these private credit funds and the democratization of these funds that there’s not enough supply of loans out there. So, we’ve been getting really kind of loosey-goosey in regards to the credit due diligence and analysis that’s being done in a lot.
I’m not saying all, but a lot of these private credit funds where people don’t really know what they own. They just look and say, “Wow, I can get a 10% yield or a 12% yield.” Well, I can go to the random person on the street and give him some money, and he might give me a 30% interest rate. But if I’m not going to get paid back, he could give me a 5% interest rate or 100%. It doesn’t matter, right? And that’s what we need to be thinking about and taking a much deeper level of due diligence, because when liquidity dries up, as we saw in 2007 and 2008 in the senior loan market, these asset-backed securities of really high-quality companies, we heard all the same pitches in 2006 and 2007.
Those bonds, those notes ultimately went from $0.99 on the dollar to $0,20 on the dollar almost overnight. Now, was that a great time to buy senior loans in 2008? Heck yeah, it was. One of the best trades I ever made in my life was buying senior loans.
Brad Johnson: In the discount bins?
Jason Barsema: Yeah. But that’s because I was buying at $0,20 on the dollar, right? And what I really worry about is a lot of the families who are piling into private credit just for that yield, but they don’t really know what they own, and it’s locked up, right, as we’re seeing with all these different funds throwing up the gates. Similar to your point, Brad, there are a lot of annuity products that you can use to be able to replicate and get close to those yields with a lot higher form of capital preservation, in my opinion. And I use income-oriented structured products, I have been for 20 years, to really build the same thing. So, I build for myself, our clients do this as well, and we’ve even got professional third-party managers on the Halo platform that will do this for you, that build liquid portfolios that yield anywhere from 10% to 13% per annum.
No K-1. It’s a 1099 held directly on your custodial statement at Schwab, Fidelity, Pershing, wherever you like. And I go and beg the question of why wouldn’t I do that versus holding my nose and saying, “Gosh, I hope this 10%, 12% private credit fund is going to be around to even pay me out.” So, I think you’re going to see a big shift, actually, back from the illiquid space, more back to the liquid space. Everyone, and you’ve been hearing this from Apollo, BlackRock, and again, nothing against them at all. They’re great institutions. But you’re hearing a lot of conversation about, “Oh, it’s the illiquid bucket versus the liquid bucket, and actually, you should be more in the illiquid bucket because you’re going to get more alpha, maybe, but it depends on what cycle and what you’re paying for those assets.
We have lived that life in 2008, where you also saw private equity tick down from $0.95 on a high-quality portfolio in 2007, all the way down to some of these assets that we were buying in secondary private equity were at $0.10 on the dollar because people were puking them up for liquidity, like major endowments and foundations in 2008. So, you have to look, just like your chart in the background, you have to look at where you’re at in the cycle. And if we’re starting to get to nosebleed levels, you want to start thinking about, I don’t give financial advice, but you want to start thinking about more liquidity within your portfolio versus illiquid assets. Because in the illiquid space, when things start to crack, there is a flood of redemptions, and when there’s a flood of redemption, there’s no way out on some of these really thinly traded products like private credit.
Brad Johnson: Yeah. Quick timestamp on when we’re recording this. So, June 15th, as I’m not sure exactly where it’s going to go live, but June 15th, 2026. Big IPO with SpaceX last week. Still a lot of AI-driven growth in the marketplace. You weren’t a financial advisor during the dot-com era, but your dad did take a company public in tech in 1999. You’ve also been through the great financial crisis. I would say P/E ratios are approaching, if not, some regards higher than the dot-com valuations. If you’re just giving a litmus test or a pulse check of the market right now, knowing that nobody can predict the future, what are you starting to think or feel?
Jason Barsema: Yeah, I think you have to really pick your spots. This time in 2026 is different than ’98, ’99, and 2000, not just because past performance is not indicative of future results, but it’s truly different, right? Back then, you had a lot of companies that weren’t generating positive cash flow, that didn’t have legacy businesses, and really important businesses like Meta has, and Google has, and Netflix has, and Amazon has, and Oracle has, etcetera, etcetera, etcetera, etcetera. SpaceX has, as you mentioned. These are legacy businesses, core businesses that are very good businesses that are investing in the future of AI. Now, what you’re going to see is what happened or what you may see, to put my compliance hat on, which is what happened in 2000, is you saw a big overbuild in regards to capacity and infrastructure during those times, especially in the days of dial-up and broadband.
And so, everyone thought the whole world was going broadband. It was, but we put out so much infrastructure out there that ultimately, there was no way that capacity was ever going to be utilized, and better technologies were coming out to make existing infrastructure more efficient.
That’s kind of what my dad also did for a living. The amount of billions and trillions, candidly, that we’re putting into the data center initiatives, you may see that same trend, right, that we’re overbuilding. And these large language models that are coming out that are used for the simplest types of Google queries, I think all of that is really going to change. So, are you going to get knocked around a little bit? Sure. Is that time over the next one year, two years, three years? I have no clue.
But that’s what I like about structured products is I will always have exposure to the S&P 500. I’m not a hedge fund manager. I’m never going to be 0% exposure to US equities. But what I like about structured products and annuities is that I can have that exposure with downside protection, and then I can dial down my long equity exposure if I’m starting to get nervous. The punchline is you’re going to see a lot of these big IPOs. You’re already seeing, with SpaceX, OpenAI. Anthropic’s going to be coming out.
You have nosebleed valuations. Are they real businesses? Are they generating billions of dollars in revenue already? Yes. Are they hemorrhaging money? Yes, they are. And so, as long as they can get their costs underneath them, I do think that this time is different than the Pets.com that didn’t even have a website when it came out, right? And so, you are dealing with these huge mega trends, whether it’s quantum computing, whether it’s AI, whether it’s agentic everything. Those are trends that are here to stay.
And so, I think this time it’s the internet at its early beginning. I think it’s got a lot longer tail than what we saw in 2000 or in 1998 through 2001, but you have to pick your spots and you have to be ready for some pretty serious volatility. So, try to manage and dampen that volatility the best you can through protective investing strategies would be my guidance.
Brad Johnson: Yeah. Well, the other thing that we haven’t talked about, many of Triad members, their clients, they’re retirees and pre-retirees. So, the also risk exposure should be dependent on your time horizon of how long until you need that money. Like back in ‘07 when I was a 20-something-year-old, I could mess around with buying options and lose 5 or 10 grand because I had no clue what I was doing, because guess what? I didn’t need that money for 40, 50 years, and I had plenty of earning years in front of me.
But what I see a lot, we see it a lot, you’ve got people that are approaching retirement or even in retirement where they need a certain allocation of those funds to drive income because guess what? They retired and their old job didn’t have a pension, and they’re not paying them anymore. So, now, you’ve got the chips still on the blackjack table, but they actually need some of them to pay their fixed expenses. And so, they haven’t shifted from their accumulation days to their distribution days. Their portfolio’s still stuck in accumulation days, which can get very dangerous if you’ve got 20%, 30% swings in the wrong direction.
So, how do you start to think about– let’s put your financial advisor hat back on, and I know you dealt with some really high net worth people, including your own family’s assets. The concept of people like, “Well, I’ve got enough money. I can just see this swing $2, $3, $4, $5 million in the portfolio, and I’ve got enough dry powder where it doesn’t matter.” How do you start to deal with psychology like that when they actually need a portion of that money for income?
Jason Barsema: Yeah, again, it doesn’t matter how big your wallet is. No one likes to lose money, and no one likes to lose money more than us. We hate losing money, and I think it’s always about wealth preservation. And so, I think about it in a number of different ways, and this is a really challenging environment because of inflation, right? So, the income that we’re collecting on our fixed income, portfolios, and allocations just doesn’t cut it compared to inflation and the returns that we’re getting on bonds, and that’s what makes this so tricky.
You said earlier, Brad, that structured products, annuities, some of these other protective investing solutions can be really powerful because they bridge that risk gap between stocks and bonds, and that’s how I always think about where these assets fit within the portfolio. Now, answering your specific question is, God bless, you have a lot of clients with highly appreciated stocks because they bought NVIDIA, maybe they owned SpaceX or some of these other high flyers. Just look at SMH, the chip ETF is more than double just year to date, right? So, you have some appreciations. That’s awesome. Congratulations. We should all be really happy about that.
The age-old question is now what do I do about it, especially if I want to generate income, but I don’t want to take the tax hit? And so, structured products aren’t typically relevant for people with concentrated stock positions, and that’s why we launched other types of solutions that can ultimately protect your concentrated stock position without having to sell it and take the tax hit. And what’s really interesting about these two, with these protective strategies, is that you can actually unlock income or yield from these concentrated stock positions. They’re called variable prepaid forwards. We don’t need to get into the technicalities of the nomenclature of a variable prepaid forward.
But what it does is ultimately, for a client who’s got a concentrated stock position, right, which just means it accounts for a large part of your portfolio because you’ve had a tremendous amount of appreciation. You can actually protect that, so you can put in like a 10% floor, so you’re exposed to the first 10% of losses, and that’s it. So, you won’t lose more than 10%. You can of course adjust that floor to whatever you want, but it’s also got a cap, so you get one for one on the upside subject to a cap. It’s just a collar that you put around your stock position.
What’s cool about the variable prepaid forward though is that you can actually release 90% of the value of that position at a rate of SOFR, which is basically your benchmark lending rate. So, not SOFR plus, but at SOFR, and you can use those proceeds to buy bonds, buy conservative income note portfolios, or ultimately, buy the everyday things that you need to buy in your life. Those variable prepaid forward strategies are becoming quite popular. Box strategies are becoming quite popular. It’s a great way to be able to unlock liquidity, I would say in a very tax efficient way and consult your own tax advisor.
But you’re seeing investors of all wallet sizes. You can do it for as little as 50 grand if you want to. So, it’s not just about, oh, if I have a $10 million position. No. That’s really the power of our tools and our solutions at Halo is it’s really built for the democratization. So, all these institutional solutions that I used to use at Credit Suisse, nearly all of them are now available to all of us that may not have $50 million or $100 million. So, that’s number one.
Brad Johnson: Before we get off that one, Jason, all right, so because I came from insurance, you got to explain this to an insurance guy. So, here’s kind of what I understood that you said. So, basically, you’re not selling the underlying stock because we don’t want the tax consequence of that, but we’re almost using it as collateral because we’ve capped the downside. In your example, 10%, let’s say it’s $100 a share, so if it hits $90 a share, that’s the max that I’m willing to give up.
Jason Barsema: Yep, that’s the max loss. So, let’s say the stock falls 5%, you’re down 5%. Okay, well, you were holding the stock anyways. Say the stock falls 40%, you’re only down 10 if you’ve got that floor of…
Brad Johnson: So, you’re basically doing option strategies to just…
Jason Barsema: Yeah.
Brad Johnson: Got it.
Jason Barsema: It’s a collar. And what’s nice about the collar is it allows it to preserve the wealth because you may still like the stock, right? We have other solutions that we’re rolling out that you can even take concentrated stock positions and be able to diversify that concentrated stock position in a tax-deferred way, which is quite interesting, so stay tuned for that. But getting back to my original point, Brad, is you’re just protecting the stock, which is great for peace of mind and you’re able to borrow up to 90% of the value of that stock.
Brad Johnson: Because you’ve locked in to where it’s not going to go below that floor. You’re using it as collateral stock.
Jason Barsema: Yeah, which you’re borrowing at rates around SOFR instead of paying typical margin rates, which are, again, nosebleed levels, usually twice the amount of SOFR. So, this is a really great way to be able to protect, be able to defer taxes, and be able to unlock liquidity people who need income. So, that is one way.
Brad Johnson: What happens if that stock goes from $100 a share to $150? You just ratchet it up?
Jason Barsema: Exactly. So, basically, what happens is you’ve got that floor I talked about. On the flip side, you’ve got a cap. So, if you’ve got a 10% floor, it depends on the stock, but you’re going to have roughly around a 10% to 15% cap. So, on this position, which is usually rolled every 13 months, so that’s how long you keep this position on, then you just continue to roll it forward, you get capped out as the 15%.
And for clients who like these strategies, they’re like, “Okay, yeah, geez, it was up 50% and that stinks, but…” And you don’t have to do this to the entire position, by the way. But for a majority of the position, I’m fine making 15% because we have to go back to what we typically want as clients, which is typically make me 7% to 9% on my money per annum and I’m good, right?
Brad Johnson: Yeah. So, is it fair to say you’re almost creating a structured note on an individual equity? I mean, is it a similar concept?
Jason Barsema: Yes, that is right. Yeah, that is right. You’re using your stock ultimately as the collateral for this structured note versus paying cash to buy the structured note. So, that is a really good way to think about it, Brad. And it’s really novel, and we’ve seen a tremendous amount of demand and popularity for that. But some of the listeners may be saying, “Well, I need income and I don’t have concentrated stock positions, so what do I do?” That’s where some of these annuity products like MYGAs and other types of annuities can make sense for you. But what I like doing are income-generating structured notes.
So, on average, 5% of my holistic portfolio are allocated towards what we call income notes. What are income notes? They’re structured notes linked to major indices that give you downside investment protection against the decline of those indices. But instead of getting the enhanced upside on that index, you trade that upside for a fixed return that’s paid out quarterly like a bond.
For example, in my portfolio, I typically buy three-year income structured notes with about 30% downside protection, so pretty meaningful amount of protection, linked to major indices. And those products typically yield anywhere from 9% to 11%. I try to target 10%, which is kind of the average, and that’s kind of been the average over the last 20 years. The yields move based on volatility. If you’re wondering, well, why was it 9% and now 11%, based on market volatility, that’s what ultimately dictates the yield of that product. So, low volatility, you’re looking at 9%. High volatility, well, you’re looking at probably, like, 13% or 14%, but ceteris paribus, meaning all else equal, 9% to 11%, I try to target 10, as I mentioned.
For those, I really like that as a great way to generate income and ultimately defend against sideways markets. Again, going back to my earlier statement where most clients just want to make 7% to 9% in the portfolio, when I used to use these for my clients at Credit Suisse, including my own father, it’d be like, “Put the whole portfolio in that thing because I want to make 7% to 8%.
This is offering me 10% with 30% downside.” And he’d always challenge me. He’s like, “Find me an equity manager in the portfolio that can give me that expected return or that Sharpe or Sortino,” 30% downside protection, very low probability of breaching, by the way, especially over a three-year period, which is the term I typically buy, three to four years.
With a 10% per annum return, it is from a Sharpe perspective, pretty attractive. What I remind my father and my clients is that sounds good until the market’s up 20% and then you’re like, “Oh, I’m only up 10%.” And so, we have short-term memories. Our clients have short-term memories. But I really love those products because they generate income. They allow me to have a positive conversation in difficult markets where if the market’s down, I can say, “Hey, Brad, good news, bad news. Bad news is market’s down. Good news is 5% to 10% of our portfolio is allocated these products. We’re clipping our quarterly coupons, and we’re yielding around 9% to 11% per year.” It’s a good conversation to have when people see that cash flow hitting their account in very challenging times.
Brad Johnson: Yeah, for sure.
Jason Barsema: And it protects against sideways markets. So, those are some of the strategies that I would recommend people looking at as protect and ultimately unlock concentrated stock positions and take a look at income notes. They can be very good in these types of markets.
Brad Johnson: Awesome. All right, I told you we’d hit this. So, a little bit on your dad. His company was Redback. Was that the name of it?
Jason Barsema: Yep. He had others, but that was what he was best known for, yeah.
Brad Johnson: Yeah. So, Redback Networks, a broadband internet company, went public in ‘99, did well for himself. Then he joined Benchmark Capital, had opportunity to invest early in companies like Google, Facebook, Twitter. So, I’m assuming that led the bank account in a good direction.
Jason Barsema: We’ve been very blessed, yeah.
Brad Johnson: So, for a lot of this audience, you were even mentioning when you first got into finance as an advisor, it’s kind of like, “Well, have no book of business. Let’s go see what I can drum up, and whoever walks through the front door tends to be the client, regardless of investable assets.” But I think those that are seasoned a bit start to build their business, start to do higher-end planning, the goal is always to ratchet up the investable assets.
So, my question to you, being a guy that’s lived it, and it’s actually your family’s money, which you care about your clients, but probably care about your own bank account a bit as well, what is the key as an advisor to unlocking, bringing on higher net worth clients? Like if you said these are the two or three things if I was to go back to being an advisor, besides your own family’s money, that I would truly be focusing on if I wanted to focus there.
Jason Barsema: Yeah. It’s a good question. And when I was in the business of wealth management, you hit the nail on the head. I did care about my family’s portfolio. I’m proud to say they were not my first client. It took quite some time for me to actually win my own family’s money, and rightfully so, everything in my family have to earn. And so, from our perspective and from clients’ perspective is I really liked the planning aspect.
Again, going back to ultra-high net worth families is when you think about the trust and estate setup, when you deal with multi-generational planning, it’s very challenging. Being able to have an intermediary who really understands that, that can have that family conversation takes a big and tremendous, I should say even big, tremendous amount of weight and pressure and stress off of the patriarch. Because no one wants to be able to have to tell their kids and their grandkids either tough news or you’re going to have to earn the money or be realistic about you’re going to have to have a job, you’re going to have to be able to work either with the family or outside the family or all the other constraints that many families put on the kids and the grandkids and the nieces and the nephews.
A lot of people don’t really appreciate just how much is coming at you, right? I can’t tell you how many clients, and we’ve had some personal experiences too, but how many clients have had the second and third cousins that no one’s even heard about that read about you and come and say, “Hey, I’ve fallen on hard luck.” Those are very challenging.
So, what I always used to like to be for my clients, including my own family, is the gatekeeper, right? So, I can be the one to have the very difficult conversation. That’s number one. Trust and estate planning is very expensive, and it’s very frustrating for a lot of families, right? Because again, a lot of the families that I worked with, including my own family, is first-generation wealth, right?
So, my grandfather was a milkman and a mechanic. My grandmother was an assistant for a teacher or for the principal at the local school. And so, we come from very blue-collar roots, and we like to say that we never forgot where we came from. And so, from that perspective is we’re sensitive to all the fees and costs that we outlay to attorneys, to accountants, and all this estate structure.
So, at Credit Suisse, it was really nice because we had this family office planning group. Now, to your point, Brad, it was for clients who typically had $100 million and above where we could centralize all that. We never executed any documents, but we could package everything up in a nice bow and do a lot of the pre-work for the family’s attorney to be able to review and opine.
So, being that gatekeeper, really doing the planning from an estate tax and legal perspective, I think adds a lot of value. I see too many advisors try to go, including my own family, like we get solicited 100 times a day of the next fund and this investment. We’ve got plenty of solutions. Solve a problem that needs to be solved that only you can solve. That’s always the best piece of advice that I give financial advisors.
Like, don’t sell me a private credit fund. I’ve got access to 300 of them direct. I’m not going to go through you. Don’t sell me an SPV of SpaceX. We’ll get direct access. I’m not going to go through you, right? I don’t want to be hawked solutions or investment products. I want to be ultimately pitched and assisted with solutions that help my family plan for multiple generations.
So, I always say put yourself in that person’s shoes. What are you the most concerned about? I want to have wealth and legacy planning. That’s really important. I want to make sure our great-great-great-grandkids always be able to have the family’s legacy. I want to make sure that I understand philanthropy because philanthropy is really important to my family and most families that I know, right? So, understanding that, giving strategy and structure is really, really important.
And ultimately, I want to be able to be that gatekeeper for the family, kind of like your OCIO, if you will, to be able to have the difficult conversations and managing a lot of the stuff in my life that’s just a pain, right? And running a family office is extremely expensive. And I think with a lot of the tools out there, a lot of the services out there, a lot of the solutions out there, any financial advisor can be a multifamily office. And many of them are these days. Like, what is a family office these days? And so, I think there’s a lot of benefit, candidly, of using third-parties, advisors, and institutions to be able to get this versus building it all in-house.
Brad Johnson: Yeah. Well, technology has made it much more affordable for some of those family office level services that didn’t even exist 5, 10 years ago. But the other thing I want to drive home, I was just listening to your answers there and the themes, everything focused around a process that could serve the needs of your family today and into the future generationally, right, not slinging a product. Yeah, so it’s very process-driven, planning-driven, not product-driven.
So, for those of you advisors out there listening in, I think that’s great advice, and I’ve seen that same theme play through with our top growth firms. They’re focusing all their time on a process and a planning process, I should say, that serves for the ideal outcomes, and then just goes back into that financial toolbox and looks at all the best options and builds them into the plan.
Jason Barsema: Yeah, and it doesn’t mean that you don’t ever lead with an investment solution. I did that all the time, but that wasn’t what I initially led with. Like, listen, right? So many people when they come up to an ultra-high-net-worth family or a family office, it’s like the kid in the candy store. It’s my one shot, and I’m going to go and just throw a smattering of different product ideas of, “Oh, I got this great new private credit fund, and I got this new green tech fund, and I’ve got…” It’s like, “Whoa, dude. I don’t even know who you are.” And so, why don’t you listen? Why don’t you ask questions about what we struggle with, what we’re doing, what we’re seeing? We’re pretty smart people, right? You don’t become an ultra-high-net-worth family by not being intelligent or good at your craft, right?
So, take an interest in their life, take an interest in their views, understand some of the challenges that they’re dealing with, and then based on that, then you can have and devise the appropriate investment solution, if appropriate, or investment plan or estate plan. So, I led on the investment solution side with structured products and variable prepaid forwards when I was building my practice. Why? It’s because it was a niche product that most people didn’t understand, and I solved a problem that needed to be solved that I felt like I only could solve, right?
People were scared about the markets. They also wanted to invest because they wanted to capture, but they were scared of losing everything. This was a super, super scary time where money markets were blowing up, right? So, you have to empathize of how people felt. I did and I came up with, and I still think that that solution works today because again, we want to grow our wealth, preserve our wealth, and generate income. Structured products can do that for you. Just don’t lead with it.
Lead with your ears, not with your mouth, and that is, I think, what I see the mistake of a lot of financial advisors out there. And so, I think that that’s, at the end of the day, to make a long story short, relationships win business. And I say that to my team, too. I’ve got amazing technology. We’ve been in the top 10 world’s most innovative fintechs for two or three years in a row. It’s been a blessing.
However, we don’t win our business because we have a really good technology. We win our business because we have the relationships, and the relationships we have is because they trust us. They trust our morals and our integrity and our vision, and that’s first, and then technology skills. You’ll never do business with someone you don’t like or you don’t trust. So, take the time. The old adage, use your ears twice as much as your mouth.
Brad Johnson: Solid advice.
Jason Barsema: You need take that own advice, I think, on this podcast.
Brad Johnson: No. I’m the one asking the questions. You’re the one supposed to be talking, so you’re doing exactly what you need to do. So, well, Jason, awesome conversation. And as you know, here at Triad, we focus a lot on doing business and doing life, which is that integration, which it’s funny, we’ve talked about it a lot with the products that you’ve built that enable a lot of that for the clients you serve and the advisors you serve. So, I would love to hear your final take, Jason, on what does do business, do life mean to you? What’s your definition?
Jason Barsema: Yeah. Ultimately, I think it’s doing something that’s bigger than yourself, right? Like the sign over my shoulder of impact before profit. I say for any of us, right, is do something that’s bigger than yourself, whether that’s in your local community or whether that’s changing the world. Mine was about solving the world savings crisis. That’s really important to me and to my family for a wide variety of reasons.
But I think that we’ll all derive the greatest personal utility in our lives by doing something that’s bigger than yourself. And I think in this day and age with a lot of global uncertainties, it’s good advice for all of us. And for all the advisors out there, you are doing something that’s bigger than yourself by managing someone’s legacy, and it’s very profound and it’s very provocative of what you’re doing. There’s no more important role in someone’s life than you as a financial advisor, and you have more trust and more knowledge about someone’s family than most people even within the inner circle of that family. So, don’t take that responsibility lightly.
But also use it to your advantage to do something good in the world because if we all did that, if we all impact 12 people in our lifetimes, that’s it, 12 people in our entire lifetimes, if you positively impact them, and every single person does that, you could impact and touch every single person on this planet under one generation. And think about the positive change that we could do just by trying to be a good person and positively impact people in our everyday lives and worlds.
Brad Johnson: Yeah. Well said. All right, Jason, well, it’s been a pleasure, my man. Look forward, next time I’m in Chicago, I’ll have to swing by the office.
Jason Barsema: Yeah, please do. We appreciate your partnership, Brad. And thank you again for having me on. It was a real honor. Thank you.
Brad Johnson: All right. Till next time
Jason Barsema: All right. Cheers.
