In this age of inventive investments and wildly diversified portfolios, the classic, safe financial products don’t always get the buzz, though they are still largely the foundation of the industry.
This is particularly true for the average consumer. l
Retirement-investment accounts have experienced many roller-coaster phases over the past decades so those nearing retirement may have portfolios that have taken a beating. Or, because those nearing retirement age are at the tail end of the boomer generation, they may not have nearly the retirement reserves generations before had.
A “safe” investment that pays interest dividends sounds like an ideal option and the old stalwart products – such as a certificate of deposit or CD – are among the most proven and reliable as they have been around for decades and are insured by the FDIC.
“We are one of the only private broker-dealer in the region, and we’ve been here since 1982,” says Bryan Bennett, Finance 500 CEO. “Though there are others, they are mostly branches of huge New York City firms. I believe it’s a testament to our consistency that we’re still around after nearly 40 years.”
Finance 500 was founded by Lance Hicks, who nurtured his firm into a trusted brand during its first 20 years. The CD underwriting division was added in 1996 and Bennett joined the firm two years later. The other partners, Jaemin Ragsdale, joined in 1997 and Fred Murrieta followed in 2000. Soon, it became the “flagship product for the company.”
Since then, the firm has established itself as one of the leaders in this niche, consistently ranking among the top firms nationwide in total underwriting volume. It has also been around the longest and has a significant share of the market.
“It wasn’t easy; we grew this firm by cold calling,” Bennett says. “There are about 5,500 banks, and we’d call each bank every three months. We scoured the country and never gave up. Slowly but surely, banks signed us up. And during that period, there was a lot of education about what broker deposits were and how they worked. It took time to get all those banks signed up. Once you have the product, it then takes a while to get all the investors and brokerage firms to embrace the sale of the CDs.”
In 2015, the company’s founder decided to retire after 37 years in the industry and Bennett, Ragsdale and Murrieta were ready to take the reins and purchase the company and bring it to the next level.
The plan was to focus tightly on the products they were expert in, beginning with CD underwriting.
“CDs are our core product,” Bennett says. “It’s what we’re in love with. The transition of ownership took about six months with regulators. Of course, they needed to make sure the people who were taking over the company knew what they were doing and the board of directors knew how to run a brokerage firm.”
Bennett and his team were thoroughly vetted and the application went through.
The way banks, brokerage firms and broker-dealers interact, it’s easy to lose sight of the fact that CDs are a retail product.
“The bulk of the buyers are individuals,” Bennett says. “When we underwrite a brokered deposit for a bank, not only do we sell the CDs to our internal customers, we also offer the CD issue to all the broker-dealers in the country and they offer it to their clients. Although institutions are big buyers of CDs, typically CDs are bought by people on a fixed income. As you know, they’re the safest investments out there because they are FDIC insured.”
The vast majority are purchased by individuals who can purchase a CD in increments as little as $1,000. The product has been extremely successful for the firm. You don’t usually hear financial success stories that took place in 2008, but ironically, that was Finance 500’s biggest year to date. It underwrote around $22 billion that year due to market conditions. An average year is about $7 billion.
Brokered CDs are only sold through a registered brokerage firm. This program allows a person or institution to buy a wide variety of bank names, all insured for up to $250,000, through one account. Interest on CDs are typically paid monthly and all interest payments are paid into one account as well. It’s easy for purchasers because they can buy as many CDs as they wish, so long as they have less than $250,000 in each bank name. If they get close to that total with one bank, they purchase any others under a different bank name.
When you work with a brokerage firm, you don’t have to search the financial pages to find the best CD rates. You just go to your broker and it’s all done for you. Even if you use a discount broker, you can still set up your account and do the searches yourself to find the best CDs and act as your own representative. Though there are some provisions for death, a CD is expected to be held until it reaches its maturity date. Unlike a traditional CD held directly with a bank where there are early withdrawal options that come with penalties, there is no early withdrawal with a brokered CD. Instead if you do need to get out of it, you can sell it like you would with any stock or bond but the price you receive depends on the current market conditions.
“The selling itself is easy, though,” Bennett says. “There is a huge secondary market for them.”
For the issuing banks that work with Finance 500, brokered deposits have become a valued asset for raising funds due to the programs many benefits. Brokered deposits, which are CDs brokered through the Depository Trust Company (DTC), are important products because they help small to mid-size banks compete with large banks and help infuse money into smaller communities through the brokered CD system.
“Brokered deposits allow banks to acquire funding from financial sources around the country, which enables them to make loans within their local community,” Bennett says. “This helps banks save on overhead – marketing, payroll and administrative costs. They would need to pay those expenses if they were soliciting funds locally or through a network of branches. Brokered deposits are also often less expensive than borrowing from the Federal Home Loan Bank and are almost always less than many on-line CD listing services.”
There is no early withdrawal so the banks never have to worry about a “run on the bank.” Also, the banks don’t need to open/monitor accounts.
“It’s all done by the broker,” Bennett says. “And it’s all packaged into one simple two-page CD and it makes it possible for smaller banks to compete with larger banks. It facilitates the transfer of funds that might be in a savings-rich area to an area that needs money and has some unmet credit needs so it’s a balancing product.”
Finance 500 has built its reputation on the bedrock of some of the industry’s most-reliable products. Says Bennett: “We’ve thrived in this niche for almost four decades by providing specialized service, a commitment to customers and cultivating partnerships with financial institutions nationwide.”
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