Chicago-Based Halo Investing Inc.—a fintech firm that enables advisors to compare, buy and manage protective investments—last week promoted COO Matt Radgowski as its new CEO. Radgowski will succeed Biju Kulathakal, one of the firm’s co-founders, in that role.
Kulathakal and Jason Barsema co-founded Halo Investing in 2015. It has facilitated roughly $12.5 billion in issuance since its founding on a platform where advisors can monitor, analyze and invest in structured notes, market-linked CDs, buffered ETFs and annuities offered by financial institutions. It also includes tools for advisors to analyze, customize, execute and manage portfolios. The firm is part of a broader trend of offering increased access to investments that have traditionally been the purview of large institutions, family offices and high-net-worth individuals.
Earlier this year Halo also added a multi-manager structured note separately managed account (SMA) marketplace that provides advisors access to institutional asset managers specializing in defined-outcome portfolio strategies.
Structured retail product issuance has almost doubled in recent years, from $58 billion in volume in 2019 to a peak of $100 billion in 2021 and $93.7 billion in 2022, according to Morningstar data. But some in the industry have pointed to the complexity of the investments as potential barriers for advisors and their clients.
“In terms of the market as whole, these investments are most often sold and not bought,” Madeline Hume, a NEXT senior research analyst for Morningstar Research Services, told WealthManagement.com last month. Hume also authored a research note assessing the risks and opportunities of structured products in April. “The vehicle is pretty adaptable. It can be deployed in portfolios in ways that make sense. But, unfortunately, given the commission-based framework, they can take on that ‘au courant’ flavor. The vehicle does not do right by investors the way a more strategic overlay of risk management could.”
Radgowski, who joined Halo has COO in 2022 after serving as the head of advisor solutions at Morningstar, focused on go-to-market efforts in the advisor and wealth management sectors, and acted as the COO for its investment management group, says that protective investments can play a complementary role in many portfolios, depending on a client’s goals.
Halo’s growth included $100 million in Series C funding in 2021 that included backing from Owl Capital, a fund managed by Abu Dhabi Catalyst Partners. It’s also been backed by Allianz Life Ventures and William Blair. Halo operates out of a Chicago headquarters as well as internationally with offices in Abu Dhabi,U.A.E., and Zurich, Switzerland.
Wealthmanagement.com caught up with Radgowski to discuss the move and the firm’s continued growth plans.
This interview has been edited for style, length and clarity.
Wealthmanagement.com: Can you talk a bit about your background in this sector?
Matt Radgowski: I got my start in the insurance/annuity world. I had an introduction to protected investments right out of the gate. Beyond that, whether it was at Wilshire Associates, Horizon Investments or Morningstar, I focused my career on building and selling investment advisory solutions. It’s been about building better portfolios and delivering outcomes to investors.
WM: And you’ve been with Halo for about a year, correct?
MR: I joined Halo back in August of 2022 and came on as COO and was really focused on our “go to market” efforts—execution, distribution and maturing our infrastructure and processes as we move from being a start-up to our next stage of growth.
WM: So why is this change happening now?
MR: Biju Kulathakal was a co-founder and our CEO for the first eight years of the firm. As we’ve matured and have moved into our next stage of growth, we felt it was the appropriate time for the change. Biju spent the last couple of years building out our leadership team. I was part of the talent that was brought into the firm. But across functions he has focused on bringing on new leaders.
WM: Can you talk a bit about your platform and what you are providing?
MR: Our strategy is focused on two things. We want to create an effective marketplace for these products. And we want to give advisors the tools to manage these products over time. It’s the purchase and life cycle management and creating a seamless process for all of that. We want to pair up the providers of structure notes, annuities and buffered ETFs with advisors. And we are also driving competition into market through our auction strategy on the notes space.
What’s critical to success is the educational component and the contextualize of the note or other protective investments within a portfolio. We want to arm advisors with the tools to show them the benefits so they can show their clients that as well. And we need to integrate into the workflow of where the advisor is every day. We can’t hang off the side of the desk as their note platform. We need to integrate deep in to the platforms they use everyday.
WM: What problem are these products aiming to solve for advisors and investors?
MR: A very low amount of portfolios have protected investments with them. We want to create an experience and tools to help the advisor contextualize protective investments within portfolios. They can define the outcome they are looking for and create a portfolio of traditional investment and protective investments to achieve that outcome.
WM: But there are barriers correct? The products, for example, can have very convoluted names where advisors or investors may not understand what they are. How do you overcome that?
MR: That’s a huge part of the reason of why I’m here. I spent time at Mornginstar getting clarity out of complexity, and that is what we are here for as well. It’s demystifying. It’s explaining in terms that advisors and their clients can understand.
The other thing too is, in many cases, the structure that is required is actually fairly straightforward. The underlying asset the note is based on often is a straightforward structure. We are heavy proponents of broad-market indexes.
And then it is understanding what is the upside participation and the downside risk level. For example, we can start the advisor off with a straight underlying S&P index and illustrate to them what is the upside and what is downside in the risk mitigation. Then we can get into catapults, shark fins or other structures that get more complex. We want to bring clarity to those structures too, but at the same time we want to make sure we start that advisor off with investments that align with their broader investment policy and provide a layer of protection to what their client has invested in.
WM: There is probably not one answer to this question given how much investor needs vary, but is there an ideal percentage of a portfolio that should be allocated to these kinds of investments?
MR: It certainly varies. There are a few dimensions to consider. There are future cashflows, the cost of the investments and security. That is a critical element. How secure does the investor want to be in getting to their desired outcomes? So, it really does vary.
For an investor that is open to variability and doesn’t value security, has an extended horizon and well-funded portfolio, the impact would be lower. But for most investors there is a saving crisis. Most investors have not saved as much capital as they should. So, they may need to put money in riskier assets to achieve their goals.
In our modeling, we have created scenarios that a 10% allocation to notes can have a meaningful or positive impact to that investor’s portfolio.
And there is also the behavioral element. Giving an investor comfort that there is protection in their portfolio can help them to stay the course.
WM: How do you go about sourcing on both sides of your platform? Where do you find the products for the marketplace and how are you getting in front of advisors?
MR: Investment banks are providing the notes. We want an open and transparent relationship. We want to create a process that makes their issuance easier. We are investing heavily in technology to make sure we are providing that.
On the advisor side, we want to help them understand the impact these investments will have in their client’s portfolios. It’s not just education of what a structured note is, but on what impact it can it have when it is appropriately deployed in a portfolio. We give them educational content as well as ongoing communications in a journal that is a place they can come for information on protective investments, their appropriate use and how they can impact a portfolio. We’ve also invested heavily in digital engagement. We have humans at the ready to speak to advisors. And that will always be there. But we also have invested heavily in ways where advisors may prefer a more digital engagement with us.
WM: How does Halo make money as part of this?
MR: Our economic model, whether it’s for an annuity or a structured note product, is that we only make money when an advisor decides to use that note. There are fees for our tech product offering that are embedded in the product structure. In terms of the usage of platform, the fees are included in the issuance of the note itself or paid in the case of the annuity, similarly to how they would pay the advisors themselves.
WM: How much volume is your marketplace handling?
MR: As of Q1, we have participated in issuance of about $12.5 billion of notes since our founding. The market in total in the U.S. in 2022 was about $100 billion. For us, we look at the attractiveness of the market in that there’s still low adoption, so there’s still a significant potential upside. If you consider that for managed money overall being $9.5 trillion to $10 trillion, we’re a mere fraction of those assets today, and we do think that as we educate appropriate usage will grow.
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