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“Financial advisors are looking to differentiate their value to clients as we are on the precipice of the largest wealth transfer in history. I think the playbooks for the next 5, 10, 20 years in the financial advice business will most likely be different than the playbooks from the past. I think a part of that is breaking away from the 60/40 portfolio and really helping investors understand using technology, what else is out there that can better hep them achieve their goals.”
— Jason Broder, CEO, SIMON Markets
When Goldman Sachs spun off their internal structured products marketplace in 2018, the head of their structured investments desk, Jason Broder, left the firm to become CEO of the new entity called SIMON Markets. Jason has lead SIMON through a rapid expansion into risk managed offerings to include fixed income annuities, defined outcome ETFs, and structured investment SMAs. I spoke with Jason about the rise of online marketplaces, how they can better integrate into the traditional advisor ecosystem, and a whole lot more on this episode of the WealthTech Today podcast.
Welcome to the WealthTech Today podcast, I’m your host, Craig Iskowitz, the founder and CEO of Ezra Group Consulting. If you work for an enterprise wealth management firm, an asset manager, RIA aggregator, or at one of the many technology vendors in our space, Ezra Group can help you make better business and technology decisions. Check us out at EzraGroupLLC.com. This podcast features interviews, news, and analysis on the trends and best practices all around the wealth management technology industry.
Our theme for this month is marketplaces. That includes model marketplaces, insurance marketplaces, credit and lending marketplaces, as well as structured products marketplaces. More than $72B worth of structured notes were issued in the US in 2020, which was up 36% from 2019, reaching its highest level since 2006. We’ll be talking to the founders and CEOs of other online marketplaces later in the month, so don’t forget to check back with us to listen to those interviews.
Companies Mentioned
- Blockchange.ai [28:00]
- Goldman Sachs [01:30]
Topics Mentioned
- History of SIMON Markets [01:20]
- Scaling Technology Education [03:20]
- Increased Interest From Advisors [10:00]]
- Competitors & Differentiation [12:30]
- Industry Trends [18:00]
- SIMON’s Product Roadmap [24:00]
Complete Episode Transcript
Craig: I’m pleased to introduce our guest for this episode of the WealthTech Today podcast, Jason Broder, CEO at SIMON Markets. Hey Jason, welcome to the program.
Jason: Hey Craig, thanks for having me, it’s great to be here.
I’m glad to have you, And where are you calling in from, Jason?
Jason: New York.
Craig: Right around the corner, we’re both on the East Coast, both enjoying this horrible Memorial Day weather.
Jason: Exactly, I’m hoping it’s not as bad as they say it’s gonna be.
Craig: I hope not too. But I’m glad you’re here. Can you please give us the 30-second elevator pitch for SIMON Markets?
Jason: Sure. SIMON is a platform that was developed to help financial advisors incorporate risk managed solutions into their clients portfolios. You can think of SIMON as being an end to end solution that sits on the desktop of the financial advisor, and really at its core helps them from start to finish of any risk managed solution. It includes education and training for the financial advisor, compliance tracking for the home office, free trade analytics, order entry and straight through processing, and of course a very robust post trade lifecycle management portal. All which is to help the financial advisor incorporate more risk managed solutions into their business to the extent that it’s suitable for their clients.
History of SIMON Markets
Craig: I’m always interested in the combination of tech and education, and I want to get to that, but can you tell us what gave you the impetus to start this company?
Jason: Sure. Well, just as a bit of background, I spent the first 17 years of my career at Goldman Sachs, and while at Goldman Sachs, I ran the structured investment desk and within that team, we were responsible for the origination distribution of structured investments. And so the original idea for SIMON came about in late 2012, and really when we looked across our client universe, we think about the world in three distinct channels. The very high net worth channels in the private banks and wire houses, the registered investment advisor community, and then the broker dealer channels which we’ve traditionally used as a catch all bucket for three types of clients, the independent broker dealers, the bank broker dealers and the regional broker dealers.
Jason: Back in 2012, obviously, very high net worth side of the spectrum had been using structured investments for a while, and they had been very successful, and the financial advisors who covered clients in that area of the spectrum were comfortable with the products and that’s because the financial institutions where they work, had traditionally had the resources to really scale both the education as well as the distribution of those products. And so when we thought about how to best serve all of our clients, we recognized that there was a real need for increased education and increased analytics around a product class. And so, when we thought about how best to do that, given that there’s on the order of 300,000 financial advisors in the broker dealer community, obviously it’s very difficult to scale that in the absence of a technology solution and so we thought the best way to reach the desktops with the real education and analytics that we thought could bring the transparency that this asset class needed, the best way to do that was with a technology solution. That was really the genesis for why we went down the road of creating SIMON.
Scaling Technology Education
Craig: It’s fascinating it was something you mentioned, which I do not hear a lot is scaling education. We hear the word scale, scalability, quite often in tech and we work with a lot of FinTech firms, my consulting firm, Ezra Group, we work with a ton of FinTech firms and helping them to scale their businesses but I rarely hear them say, we also need to scale, education. But I imagine with structured products and risk managed solutions that education is a large part because it’s so complicated.
Jason: Absolutely. And our view is the more transparency we can breathe into the asset class, the better chances we have to elevate the asset class because when used properly, it can be very powerful for financial advisors and the end investors. And so to understand what they are, how to use them, the risks involved, and how to think about some of the benefits they can provide, it’s not trivial. Having consistency across the education for that product class is really key and so that’s when I think about scaling the education that was a very big component and because we made a large investment into creating top notch content, and that was really the way we started to think about scaling that content across all of our clients.
Craig: So what’s the interaction with the education, of your clients who are using the platform, what’s the breakdown of how many videos, how much of the educational material they watch versus non clients. Do you have a lot of non clients using your educational tools?
Jason: So we created about 65 structured investment modules, and they range the gamut from general education for example, Structured Investments 101, Market Linked Notes 101, risks of structured investments. And then you get specific into the product so we have buffered notes and auto callables. And what we’ve done with these 65 videos is when we onboard a new client, we have a conversation with the home office, and usually involve the compliance folks and say, 65 videos, would you like to expose some are all to financial advisors? And what’s happened is the majority of our clients have taken the 65 videos, and used the subset of those videos to create a curriculum for their financial advisors, but then it becomes part of the training for the financial advisors to get comfortable with structuring investments. And the subset, or the curriculum can range the gamut of 10 or 12 videos to 30 or 35 videos. We set them up in tracks, so level one is all the one on one videos level twos still general but a little deeper level three is more product specific, etc.
Craig: So do you charge just for the education? That seems like a business in itself, but is that something that you charge for or do you give it away free to try to attract people to the platform?
Jason: We’ve never charged for the education, it’s always been free to the distribution network to use as education.
Increased Interest from Advisors
Craig: That’s cool. So why are advisors interested in structure products? Why should they care about this type of tool, why can’t they just use this standard securities and other investment products?
Jason: So I’ll go back to the risk managed solutions framework, we really think about SIMON today, not as a platform for structured investments but as a platform to deliver risk managed solutions to the financial advisor community on a holistic standpoint. What’s great about risk managed solutions now in particular structured investments, is that you can customize the profile of the payout to be very tailored to the client’s specific situation, whether they are comfortable taking more risk or not comfortable taking any risk. There’s built in protection features as an example on the downside, and then you can tailor the upside based on their market view, in certain cases you can participate more than one for one, with a cap in certain instances, you can be capped out. And so they’re very flexible, based on the investor’s actual view on the market and how comfortable they are taking market risk.
The other piece too is, you can customize a structured investment for a particular maturity. You can have it short dated, 13 months, you can have it long dated for five, six years. And so the flexibility around the tailoring of the risk profile is what’s very attractive and so what we’ve seen over the years is that a lot of financial advisors have begun to use structured investments as a way to replace some equity exposure. As an example, if you have a portfolio, and let’s just say 20% is allocated to large cap US equity, many instances, you can use ETFs for the representation or mutual funds, we’ve seen a lot of financial advisors, in my example, take 10%, keep it in the mutual fund or ETF, but put 10% into an S&P linked structured investment, and it changes the risk reward profile a bit, but it tampers the downside exposure while also maintaining some upside. And so it’s been really interesting to see how financial advisors incorporate these into their portfolio construction.
Craig: Yeah, it seems like something that a lot of advisors could be using. But I also think that some of the tools you offer around portfolio construction are important because not a lot of firms offer this type of structured notes as part of portfolio construction, they’re really limited to just easiest mutual funds, stocks, maybe SMAs. So having the tools that you’re offering I think are pretty valuable but, do you see some of your tools replacing the portfolio management or investment analytics tools that advisors are using or is it complimentary?
Jason: I think it’s complimentary. Our view at SIMON has always been to go where our clients go. And so we built SIMON in a pretty modular way, we can either invite the financial advisor to continue using our platform and use the portfolio analytics tools that are on our UI today, or we also can expose API’s to the extent they wanted to consume them in their existing portfolio management or portfolio analytics tools. To us were agnostic, we just want to help the financial advisor, better utilize or understand how to utilize and leverage these products within their portfolio construction.
Craig: Do you share any stats on how many advisors or what the assets are flowing through your platform?
Jason: We don’t normally.
Craig: No problem. So, when it comes to the usage of structured products and structured notes and these risk managed tools, do you think advisors might get frustrated having different interfaces? With certain interfaces for their standard investments and other interfaces like SIMON for their managed risk tools and would you see them coming together under one platform soon?
Jason: Yeah I think the goal at SIMON has always been to eliminate that bifurcated user experience or the swivel chair effect. And so what we’ve done for structured investments and then I’ll answer your broader question Craig, before SIMON, an advisor would have to go to one place for education, to the extent that existed, then go to another place for analytics, they’d have to go to another place to enter an order, and good luck being I’m going to track the actual product and how it’s performing once you’ve bought it. There was no standardization of data, and therefore there was no consistency in analytics and services that were run. And so what SIMON did was really helped consolidate that on one platform and under one umbrella and financial advisors loved it.
And so our goal has always been to integrate into the financial advisors’ ecosystems. So that’s why when we do roll out the platform, one of our first orders of business is to really have deep conversations with senior leadership at our clients and inspire them to integrate with the platform. And that’s SSO for example, that’s incorporating position level data from the clients from the financial advisor SSOs from their existing workstation, right into SIMON, they see their existing book of business with their structured investments attached to their clients and relationships and households, and it’s seamless for them. And so our goal is to make it as easy as possible for the financial advisor to do business and really like to go to our clients go and just be as deeply integrated as possible into their existing ecosystem.
Competitors & Differentiation
Craig: That’s what I was looking for because a lot of firms we work with, one of the common projects we help enterprise wealth management firms with is platform consolidation. So there’s already too many platforms out there, there’s already too many tools. There’s already too many interfaces. We’ve been using the term swivel chair for for 15-20 years, it’s been out there for a long time it’s not a new problem for advisors so I’m glad to hear you guys are, are doing some work on consolidating that. We’re seeing the rise of companies such as SIMON in the what we call, broadly speaking, the marketplaces, who are your biggest competitors and how do you differentiate from them?
Jason: I think there are other companies out there who offer platforms for structured investments and insurance products. I think our goal has always been to give the financial advisor as unified and seamless of an experience as possible. I mentioned earlier, when we were part of Goldman Sachs, we were a platform for structured investments, but as we become independent, we’ve really been able to expand to become a platform for risk managed solutions. And so the goal for us is to create those seamless workflows and seamless user experience for not only structured investments but when you use SIMON for your annuities business, it looks exactly the same. The education is in the same place, it’s the same level, gives the same analytics, the marketplace looks the same, the post trade lifecycle functionality is the same. And when we’ve added defined outcome ETFs, it’s the same thing and similar, we just added structured investment SMAs.
When you think about SIMMON across the four product elements, and the user experience for the financial advisor, our goal is to create as seamless an experience as possible across all risk managed solutions. And we do that by being laser focused on the UX, by being laser focused on the integrations that I mentioned with the advisors’ ecosystem. And so when we think about the go to marketplace for risk managed solutions, we want to make it as easy as possible for the financial advisors to have one place to go within their advisor workstation which is SIMON.
Craig: That makes a lot of sense. One thing I noticed on your website is something called a multi dimensional framework for allocation analysis, can you explain what this is and why advisors would be using it?
Jason: That’s something we that we call Spectrum that we’ve developed at SIMON and Spectrum is a multi dimensional framework where financial advisors can for the first time, compare apples to apples, how a structured investment impacts a portfolio versus a mutual fund or an ETF, and it’s important because in the absence of a multi dimensional framework, if you’re using traditional risk reward metrics, it’s very difficult to illustrate how the structured investment may have a lot more downside protection than an ETF or mutual fund, but the trade off is simplicity, the trade off is liquidity. And so what we do with Spectrum is really look at the traditional risk reward framework, and we blow it out to five dimensions.
We look at protection and upside differently because we appreciate investors look at gains and view gains very differently than they view and look at their losses. We look at simplicity, because of course, the more complex asset classes aren’t necessarily as simple as an ETF or mutual fund. Then we look at liquidity, because a lot of these structured investments are buy and hold investments. And then the last one is the underlying history. And so when you look at your portfolio across these five dimensions, and then you look at how your client profile is mapped to the similar framework across the five dimensions, you can then compare the two, again in a more standardized way, and you can see in a much more clear and visual way how a structured investment in this example impacts your portfolio or better aligns your portfolio with your investment objectives. So it’s something we’ve been working on for a long time, and we continue to invest heavily in it because we think it’s a game changer for the financial advisor community as it pertains to understanding more complex asset classes within portfolio construction.
Craig: That seems like a product you could sell just on its own, even without the rest of your market and tools, that seems really valuable because as the markets in the markets have been going up, nonstop for the last six years, almost, and people get used to that, but at some point, there’s going to be a reckoning and we’re going to go into a bear market and then they’re going to wish they had some of these downside protection products and other risk managed product. So smart advisors, I imagine, are looking at tools like SIMON or marketplaces like SIMON and the tools you provide to help them understand which products to use and also help explain to their clients why you’re using them because they are a bit complex to understand.
Jason: Absolutely, we’ve actually made a big push at SIMON, to do more and more in the sense of helping provide the financial advisor with end client materials, because it’s great for the financial advisor to use our platform and really get educated and have access to the analytics, but it becomes a lot more powerful for them if they can share a subset of that with the end client to help in the discussions.
Industry Trends
Craig: So we’ve seen a lot of trends, we have a research division, and we’ve been doing a fair amount of research in different marketplaces, not just structured products but annuities and other insurance, as well as credit and lending, there’s lots of different marketplaces coming out. So what are some trends that you’re seeing and how is SIMON adjusting to those trends?
Jason: Financial advisors are looking for ways to differentiate the value they add to their clients. I think we are on the precipice of the largest wealth transfer in history, and I think the playbooks for the next 5, 10, 20 years in the financial advice business will most likely be different than the playbooks for the last 10, 20, 30 years.
I think a part of that is breaking away from the 60/40 portfolio, and really helping investors understand using technology, what else is out there that can better help them achieve their goals? Maybe the answer is 60/40 is right for a particular investor, but having access and tools for not only the financial advisor but that they can then share with the end clients to really showcase the value they bring to the relationship, and this is above and beyond obviously the trust that they built over the years, I think is very important.
And I think that’s where SIMON’s focused to really take these complex products or alternative solutions if you will, and provide tools to the financial advisors to help them not only educate themselves and their clients, analyze these products within the portfolio, and ultimately track them if they do purchase them for clients and understand, are they up are they down, and why. If it’s an annuity contract, do I need to service it. If it’s a structured investment, what are the lifecycle components and how do I need to be thoughtful about conversations that I have upcoming with the client and how they may want to adjust the portfolio using these products.
Craig: Okay Jason I’m going to put you on the spot, but when it comes to the marketplaces where do you see the puck going? So, obviously you’ve got a very strong foothold, when it comes to risk managed and structured products, but what’s the next step for SIMON and where do you see yourself going and why?
Jason: We view SIMON as being the go-to marketplace for all alternative solutions, and that’s risk managed solutions, private investments, digital assets. To your point about the swivel chair earlier, what we really want to do for the financial advisor community is have them have one marketplace integrated within their existing ecosystem, and also working with partners in the wealth management space and when we have a lot of them, they’re fantastic. But what we’ve done is, and we’ve been fortunate, we’ve focused on the complex asset classes for the last eight years, and so the way we think about modeling them from a data architecture standpoint, which is key. And once you have standardized data, you can for the first time, build consistent analytics and services on top of that. And when you power that, combined with very elegant user experience and UI, you can illustrate how these products should be used or how to think about these products in ways that it just hasn’t been done before. And so we view that as a massive opportunity set for the entire US wealth management industry, and we want to be at the forefront of it.
Craig: Okay, so it’s something that piqued my interest, you mentioned data. Can you talk about how you are either gathering data, your data model, your data architecture, infrastructure. Having a data standardized enables you to build consistent analytics. Can you talk about why it was a problem before to get standardized data and how you approached and solved that problem?
Jason: Absolutely. Thinking about the world of structured investments, before SIMON. If you took five different issuers, issuers A, B, C, D, E, the way that they would model the same exact payout market link growth note in their risk management systems was different. One issuer would call it a 20% buffer, another would call it an 80% buffer. The way they thought about digital coupons and how they struck them versus at the money or in the money was different. And that’s the data, let alone the nomenclature was different at each of my five issuers in the example.
What we did as part of SIMON when we spun out is we created what we call the SIMON product schema. And so what we’ve been able to do is work hand in hand with all of our issuer partners and standardize the data structure of the structured investment product set, and so we’re now connected with all of the 19 structured investment issuers on our platform via API. And when they put the data on SIMON it all maps to a consistent product schema. So now we have a database of about 65,000 structured investments on our platform, that are all in a consistent standardized data format, regardless of the payout, it can be vanilla or very bespoke.
Having that unique data set was key, because you can’t build consistent analytics like back testing or post trade performance analysis or understanding how they fit in the portfolio, if you’re first trying to wrestle with standardizing data across different payouts from different issuers. We have a fantastic issuer partners, we’ve been very fortunate for everybody to really get together and drive the standardization, but it’s been key. And on the distribution side, our clients love it because it makes their lives so much easier. Between standardized data and analytics that now, you can run in real time, and it’s extremely scalable, and also consistent nomenclature across the product names. It’s been game changing, and it’s a big feather in the cap of, in this example, the structured investment industry and all the stakeholders who have been tremendous and helping do this.
SIMON’s Product Roadmap
Craig: Jason before we go I want to get a couple more questions in, I know you’re busy. Can you share anything on your product roadmap for the rest of the year?
Jason: Sure, we are continuing to build deep integrations into our existing clients as well as our new clients. We are rolling out with one of the biggest custodians in the US, next week actually, and will be deeply integrated into their platform as the structured investment platform that they’re using on a go forward basis. And so we’re very focused there, very focused on the RIA space and we’re very focused on our existing broker dealer clients and just helping them not only continue to build out their needs, but also thinking together with them, what will they need for their financial advisors with the next 1, 2, 3 years, and working together to really help build that.
So for example the portfolio construction concept was something that was born from the feedback of so many financial advisors over the years. And so when we think about our roadmap, it’s really capturing that feedback like that, and making sure that the team is laser focused on delivering that. Our view is the deeper we can be integrated with the financial advisors desktop, and the stickier we can be within their existing ecosystem, to your earlier point, the easier their lives will be in using risk managed solutions as part of their business.
Craig: And one thing before we head out, I noticed a recent announcement is an area that is near and dear to my heart. You guys announced a new educational platform for cryptocurrency for wealth managers so I’m on the advisory board of a company called Blockchange.ai that has a digital assets TAMP, so they’re building out the pipes for advisors to be able to purchase digital assets and in models and similar to SMAs, but you’re providing the education. Can you talk about the education platform around cryptocurrency and why you guys put this out now?
Jason: Absolutely, it’s a big initiative for SIMON. Our view like we’ve done in the other asset classes, is really start with education because bringing that transparency to the financial advisor is key. In this instance, we’ve had a tremendous amount of incoming feedback from not only financial advisors, but also home offices that they are in dire need of education around digital assets. This is one example where the end investors, potentially are doing their own trading outside of the financial advisor relationship, and so as they think about incorporating these products more and more into their broader assets within their portfolio construction, getting education out there is more important now than ever, it’s very timely. And so we’re excited to launch that because there’s a big need for it, and it’s something our clients been asking for for a long time.
Craig: I can understand that it’s a really ground up, bottom up type of movement, crypto we’ve seen that everywhere it’s one of the few asset classes where you know the Main Street investors got in before the Wall Street investors and really got ahead of them so it’s great that you guys are doing that. So, we are out of time, Jason, thanks so much for being on the program really appreciate it. Where can advisors, broker dealers and others find out more information about SIMON?
Jason: They can go to Simon.io, they can follow us on LinkedIn, Instagram and Twitter, and they can always email us if they want a demo at Hello@Simonmarkets.com. We’d be happy to talk to them.
Craig: Awesome, thanks Jason appreciate your time.
Jason: Thanks, Craig. Appreciate you having me on your show.
