Barry H. Zucker
President and Chief Executive Officer
JBHanauer & Co.
The 57-year-old head of this former bond shop tells Senior Editor Tony Chapelle why laddering may not be the best strategy for investors and how the Internet is leading clients to his advisors.
Q: Tell me about the JBHanauer Web sites that show clients the best prices on corporate and municipal bonds, as well as CD rates.
A: We have a robust lead-generating program that uses the Internet. Five years ago, we started BondSearch123; three years ago, we added CDSearch123. The investor who is either unaffiliated with an advisor or is not particularly satisfied [with the one he has] may do independent learning about fixed income. When [a person does] online research, our name often comes up. So even though our physical footprint is on the East Coast, our electronic footprint is nationwide. The model doesn't allow for investors to do any execution. It provides them with information and--upon request--a live financial advisor. It's become our best lead-flow provider. We use it both for recruitment and retention.
Q: Is it true that you don't necessarily think laddering is the best way to invest in fixed-income instruments?
A: There are a number of misconceptions about the fixed-income asset class. One is that all bonds are to be held until maturity. We don't think that. Circumstances change, and opportunities evolve. Bond portfolios can be managed--not just left until maturity.
I don't have a negative attitude toward laddering, per se. There are certain markets and clients where it makes sense--but not for every customer and every scenario. [Yet] there are many [brokers] who treat bonds that way. To make it worse, they then wrap a fee around that portfolio. A fee should be paid for management, but a laddered portfolio is not a managed product.
I have no problem with laddering in the current market, where we have an inverted yield curve, or in a flat curve. But [it shouldn't occur] in a market with a positive yield curve, which means that the longer you invest, the more return you get. To have everybody's bonds laddered in the shortest maturities guarantees them the lowest returns. Not good. In today's market, laddering is probably suitable for a large proportion of investors. They're not losing return by staying shorter in maturity. But when we get through this particular phase, and there are better yields in the longer term, it [will make] sense for people to be in longer-term opportunities.
Q: Most people probably still think of JBHanauer as a bond house. Do you concede a lot of business that clients might hand you if you had a broader menu?
A: Clients that had been doing fixed-income business with us pushed us to do more. They started asking for guidance in wealth management, like how to map portfolios, how to rebalance, having goals and objectives--things they didn't feel they were getting. In the last eight years, through recruiting and training of our advisors, Hanauer's revenues from the municipal fixed-income portion are less than 50%, although total fixed income is about 70%.
Q: JBHanauer plans to expand its sales force by 20% over the next year. What's your broker-recruiting offer?
A: We are not the highest deal on the street. But we will pay 50% to 100% of trailing-12-month commissions for the right advisors. A lot of brokers at the largest bank and brokerage firms are unhappy and want to feel significant. We cater to personal attention for our advisors and their clients. Bigger isn't necessarily better. We have a fairly flat organizational structure. The advisor has access to the head of trading, the heads of product groups and me.
Q: And what's the draw going to be when you market to clients--in terms of financial incentives or services?
A: Clients appreciate our strong fixed-income expertise. They also like that we don't push them into any form of relationship. Some clients want a fee-based relationship; some want a transactional one. We let them tell us. If you're only earning 3% in a bond, you don't need to give me 1% to manage it. The bond portion should be done on a transactional basis. You earn the interest, and I don't share it. Another area that we've gotten involved in is structured products. Risk-averse clients can protect their principal through derivatives within the product--for example, bank CDs and corporate notes tied to an index and a specific maturity. In three or six years, you're guaranteed to get back your principal, even if the index falls. But if it appreciates, you participate in the upside. We see strong growth in structured products for individual investors
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