Spread School EP 1. How Box Spreads Became a Growth Strategy with Akiva Glazerson

Transparency first: SyntheticFi helps RIAs run box spread loans and related option strategies for their clients. We just started a podcast called Spread School where our head of marketing, Dasarte Yarnway, interviews advisors who use these strategies in their practices. Posting the full transcript of episode one here because a lot of the questions we get from advisors on this sub are answered in it, and I'd rather share the whole conversation than a clip. Not a sales post, happy to answer questions in the comments, and if this kind of post isn't wanted here, mods please remove.

The guest is Akiva Glazerson, founder of STQ Capital in Los Angeles. Background: Deutsche Bank private bank, UBS, RBC, PIMCO's quant solutions group, then head of risk at a roughly $45B RIA, then launched his own firm with no book and no AUM.

Full episode: https://podcasts.apple.com/us/podcast/spread-school-by-syntheticfi/id6808982445?i=1000788029632

Transcript below, lightly cleaned for readability

Dasarte: Welcome back to another episode of Spread School. I'm your host, Dasarte Yarnway, and today you're in for a treat. We've got the man, the myth, the legend, Akiva Glazerson, on the show with us today. Akiva, how are you doing?

Akiva: I am doing great, Dasarte. Thank you for having me. I'm super excited to be here.

Dasarte: I am so excited to have you join us today. One, because the firm just adores you and is a fan of all the work that you're doing. But two, I just have this sort of compassion and empathy for entrepreneurs because I know how hard it is to build a business, but you are building a business at the speed of light. You're serving a lot of clients and you're changing lives along the way. So first I want to say congratulations to you for taking the leap and doing such a great job. And two, I want to say that I'm a fan and I can't wait to just learn more about your story. With that being said, why don't you introduce yourself to the advisors that might be listening to Spread School today?

Akiva: Sure. Thank you so much for that intro, and a big part of my early success is definitely attributable to SyntheticFi. You guys are amazing, so it's definitely a mutually beneficial relationship. But yeah, my career started way back in 2016. I joined right out of college, I joined Deutsche Bank, the private bank, where I spent a few years. Post Deutsche Bank, I joined some of the wirehouses. I spent some time at UBS, I spent some time at RBC, the Royal Bank of Canada. And then ultimately I actually took a hiatus from wealth management for a few years. I went down to Newport Beach and was working in asset management at PIMCO for a number of years in the quantitative solutions group, particularly for insurance companies. Nothing to do with wealth management whatsoever, but that was obviously a very valuable experience. I got to dive into the world of fixed income and alternatives. Some of the smartest and highest caliber people I've ever worked with were down at PIMCO, and that was incredible. But ultimately I knew I wanted to come back to wealth management. So post PIMCO, I joined a very large RIA in Century City that had about $45 billion of assets under management. I actually joined that firm as the head of risk. I spent a couple of years there and ultimately I saw a pretty compelling opportunity to start my own firm and went in that direction.

Dasarte: So Akiva, I know that you were never an advisor before this, but you definitely have a breadth of knowledge and a breadth of experience across the asset management and wealth management space. Tell me, what made you want to jump out and say, hey, I think this is a great opportunity for me to start my own firm?

Akiva: Yeah, to be frank, it was a very scary and uncertain time in my life. To your point, I had never been an advisor. I did not start with any book to speak of whatsoever. Day one was zero clients, zero AUM. But what I did have was a large breadth of experience across these different firms, particularly in very investment heavy roles. At the RIA I was at, I had learned a lot about options. They were option specialists. At PIMCO I'd obviously learned a lot about fixed income and alternative investments. So throughout my career I definitely built up a very strong knowledge base about investments and ultimately saw an opportunity where I could leverage that into a firm of my own. All of this happened alongside an environment where I saw firms much like SyntheticFi offering very powerful solutions to RIAs that allowed me to not only speak to clients about these solutions but actually deploy them at scale. So as I said before, SyntheticFi has been a very valuable partner to me here and I look forward to the continued relationship.

Dasarte: Can you talk about that first day in your own seat? Because I know that we have a lot of emerging advisors as well as a lot of enterprise advisors that listen to the show and also use SyntheticFi. For the advisors in that zero to $500 million range, they never forget the first day they took the leap. It's like, okay, I've done it, what do I do now? What were your emotions like? What were you going through at that time to say, okay, now's the time to get this rolling?

Akiva: Yeah, it was definitely an emotional roller coaster. I had just left my very comfortable, very good job at a very large RIA. There I was sitting on my laptop day one, like, okay, no book, no AUM, what do I do? And it was just as simple as sticking to the plan. And the plan was to always try to do things differently and be as differentiated as possible. I knew that there weren't a lot of advisors out there talking about box spreads. So when I picked up the phone to prospective clients, whether that be friends, family, people I met on the street, any prospect, I tried to have a very differentiated conversation. Whether that be in the realm of box spreads, derivatives, tax loss harvesting, a lot of the conversations I had were very differentiated. And again, SyntheticFi allowed me to have that differentiated conversation and cause a client to take a step back and say, hmm, this sounds really good, I've never heard about this before from my existing advisor, let's dig deeper. And as I had those conversations, I was able to cultivate the relationship by bringing forward a solution that was very powerful and unlike anything they'd ever heard about before.

Dasarte: Amazing. Oftentimes advisors start their practices and they just enter a sea of sameness. That sea of sameness is, hey, I'm a financial advisor, I can help you with long term financial planning, and most of those advisors are just going to throw their clients into ETFs, set it and forget it, without any complex or deep planning for that specific client. So across the board, that just makes you susceptible to losing clients, because an advisor like yourself can come with a differentiated strategy that can really impact a client's life. So as you were having these conversations, what were they like, and how did people take to box spreads as you introduced the concept?

Akiva: Like you said, I think that sea of sameness concept is very applicable, and it's something I've seen across my prospective client base and the conversations I continue to have. One of the challenges I had when I first reached out to people is they're kind of expecting that sameness. Oh, this is a financial advisor, I'm going to hear the same story over and over. They take the call and they leave with more knowledge than what they walked in with. They may have been expecting me to talk about just ETF model portfolios, but ultimately I'm trying to turn that sameness on its head and come out with solutions that are unlike anything they've heard before. Box spreads in particular have been a very powerful solution. Many of my clients were previously using either a securities backed line of credit or a margin loan and they hadn't even heard of a box spread. As soon as I'm able to come in and explain the concept, explain how it works, some of the tax benefits, and so on, I think they're kind of blown away and think that it's too good to be true, which again is a challenge in and of itself. But ultimately it's a very differentiated solution that allows me to continue to win business.

Dasarte: Amazing. One of the things that I would do as an advisor is make sure I gave someone at least two pieces of value to take away from a conversation, regardless of whether they decided to do business with me. Because as you know, when you're prospecting and building your business, sometimes a client you prospect today may not become a client tomorrow. But when that event happens, when they feel like they need financial advice, they remember the value you imparted on them. And I think largely you can do that with box spreads because it is so differentiated and not the status quo for advisors. Let's get into box spreads. How have box spreads made an impact on your business?

Akiva: So I think the obvious answer is that it allows me to offer a differentiated approach to lending, to compete with some of the bigger banks on securities backed lines of credit. All of that is true, and we can get into that in a bit. But I think one of the interesting angles is that whether or not I use them at the beginning of a client relationship, what box spreads allow me to do is aggregate client assets. What do I mean by that? Many of my clients, when they came on board, had five, six, seven, or even eight different accounts at different financial institutions. They'd have one account here for investments and one account there for this and another account for that, and then they would have their big bank relationship for lending. What box spreads have allowed me to do is bring all of a client's assets under one roof, which is very important from an investment management efficiency standpoint. So even if a client may not have a box spread need today or tomorrow, ultimately if they ever do, I'm able to offer them that solution and at the same time consolidate all of their assets in one place.

Dasarte: That's amazing. I think consolidation is important for advisors because it also allows you to really get a full picture of the person's financial plan. Some advisors might say, well, I don't need to consolidate, I just need the data. But it's often difficult to see what may be happening on the other side of the table and whether that's the best decision making process for the client.

Akiva: That's exactly right. And not only does consolidation allow you a full view into all of a client's assets and allow you to build a full and comprehensive financial plan in house with a view into those assets, but ultimately if they ever do want a box spread, it allows them more capacity to do so, as they have more assets to borrow against in one place.

Dasarte: Absolutely. Take me through that conversation. When you've gathered all of the assets, all the financial information, and more so you've got a feel for the client's objective, because I think that's the one part that advisors really have to get a hold of. All these clients want to use their money to improve their lives. When you introduce that concept of box spreads, does it go over their heads, or is it something where their eyes light up and say, wow, I didn't know I could do this? Can you talk about the benefits, and also any resistance you've received from clients?

Akiva: Absolutely. So my client base in terms of client type is really quite wide. I have clients in tech, I have clients in private equity, I have clients that work at hedge funds, I have clients who are in medicine. So the level of investment knowledge and sophistication that a client comes to me with varies really widely. Some of the more sophisticated, for example, I have a client that works at a hedge fund. He was familiar with box spreads, understood how they worked, and was actually running them himself. The reason he came to me was because he simply did not have the time to implement them in his own portfolio on a day to day basis. So somebody like that, it's kind of an easy sell. He knows what he's doing and he knows how it works. But then I have some of my clients in tech or medicine who are far less familiar with investment products and investment strategies, and I sort of have to start from scratch in explaining how a box spread works and why it's so powerful. And that's exactly what I do. Oftentimes, especially at first, it kind of completely goes over the client's head, and it may take three, four, five, or even six conversations to get them to the point where they fully understand what the benefits are, what the risks are, and what the power in the realm of tax efficiency is. I'll spend as much time as possible with the client to get them to the place they need to be to understand how these work. I'm often met with, this is too good to be true, something doesn't sound right. I have a number of clients with whom I actually set up a sort of test case box spread, a very small, maybe $10,000 loan size, just so they could get a taste of how it works, how it appears in their account, and just to show them that it's not as intimidating or as scary as it may sound when I explain it. But ultimately, I do think, ironically, one of the biggest challenges with box spreads is simply explaining what it is, how it works, and why it's not too good to be true.

Dasarte: Yeah. Can you run us through that test case? Because I think advisors sometimes come into it and say it's an all or nothing thing. I had another advisor on this show who was saying if you have any purchases, you should probably do a box spread, because of the benefits and the simplicity of using SyntheticFi. But I think advisors sometimes think they have to go in with a six figure or seven figure amount, which just isn't true. Talk to us about using a test case and how that goes over with your clients.

Akiva: The test case actually led to a case that was ultimately the largest box spread I've done to date, a multi-million dollar box spread. But it started with, like you said, a very small test case, because the client simply did not believe that a solution so powerful could really exist. The client brought over a pretty negligible amount of assets, something like $50,000 just to start off with, and we ran, I believe, a $20,000 box spread. He got to see step by step how it works. Money into the account, set up the SyntheticFi pipes, run the box spread, send the money out of the account. It's kind of as simple as that. Obviously there are other considerations, but ultimately the step by step process of a box spread is very easy because it is facilitated by SyntheticFi. This led to one of the most interesting and powerful and creative client cases I've worked on to date, and a very successful and happy client in the end.

Dasarte: Before we go to that interesting case, a lot of advisors think they have to set up the mechanics, they have to do the trading, they have to manage all the risk. And I think one of the powerful things is you don't have to do that anymore. You don't have to facilitate anything yourself, and that alleviates a lot of pressure and burden off the advisor's shoulders.

Akiva: That's exactly right. Obviously one of the first questions I get from clients when I talk to them about box spreads is, what are the risks? You and I know that one of the main risks of box spreads is execution risk. But knowing that I'm working with a partner like SyntheticFi, who I believe at this point has billions and billions of dollars in box spread loans outstanding, you guys have kind of mastered your craft. So I'm able to sleep easy. The client is able to sleep easy knowing that the mechanics and the really sophisticated nitty gritty aspects of the loans are being handled by the experts.

Dasarte: That's amazing. Now tell me about that case. I want to hear about it.

Akiva: So I've done, at this point, quite a high number of box spreads. I have three cases that really stand out to me as ones where I was able to add real value to the client. We can get into the other two, but I'll start with the first one. This was a client who came to me with about $4 million of publicly traded stock at a company he had worked at. He no longer worked at the company, he was semi-retired. He had some liquidity. He came to me with three problems, really. He came to me with a volatility problem. This was a very volatile stock, and every day he was scared about whether it would be up 20% or down 20% the following day. He was very concerned about the stock's volatility. His secondary concern was liquidity, which is where the box spread came in. He needed money for lifestyle factors, and all of this stock was tied up at a very low basis, and selling it meant a very large capital gain event. And lastly, he had a tax issue, which ties into the first one, where selling down the stock would lead to a capital gain event. So what I did was, I think SyntheticFi calls this the synthetic variable prepaid forward, and that's exactly what I ended up implementing for this client with SyntheticFi. Step number one, issue number one, was the volatility issue. How did we deal with that? We implemented a collar on the stock. We set a floor that he was comfortable with, with a long put, and then we sold a short call, which yes, set a ceiling on the stock, but it also provided premium with which we could then buy the long put and protect the stock. Most importantly for him, though, was liquidity. Once the stock was collared and protected from this volatility, we could then borrow against it and have the ability to sleep well knowing that we're borrowing against a stock that is ultimately protected. Once we had borrowed against it with a box spread, he took half of the proceeds to fund the lifestyle factors he came to me with in the first place. And the other half of the proceeds we actually put into a direct indexing account, where he's been accruing capital losses and ultimately been able to sell down that initial position slowly over time in a tax neutral fashion. He's been very happy about that. So ultimately, each of the three issues he came to me with, number one being volatility, number two being liquidity, and number three being a tax neutral exit, we were able to solve for him. A very successful case in my eyes, and obviously it couldn't have been possible without SyntheticFi, the box spreads, the collar, and so on.

Dasarte: Absolutely. I love hearing cases like that, and the synthetic VPF is something we're really excited about and more advisors are starting to adopt. I wanted to touch on the collar aspect. For the growth oriented investor that you might work with, have you ever gotten any pushback about limiting the upside? Or is this like a perfect time in their eyes to do it?

Akiva: Yeah, absolutely. Different clients have different flavors and different risk tolerances. I've had clients that have done just the collar and are comfortable with limiting the upside of the stock. I've had other clients who want no upside limit and actually wanted to pay for the long put out of pocket just to protect the downside. And that's a very valid and legitimate solution, and even still, we can then box spread against the position, which is protected to the downside. So the beauty of a collar, and options in general, is that we can really customize them to whatever comfort level a client has around how much upside and downside participation they want.

Dasarte: Amazing. I think you had three cases, but let's just do one more.

Akiva: How do I choose? I know which one I'll choose. This one was actually quite a recent case, in the last week or so. A client, a tech client, came to me with a very large portfolio, and he owns two pieces of property. He owns his primary residence and he owns a vacation home. What we ended up doing was refinancing his vacation home using a box spread. The reason that this was particularly powerful was for a number of reasons. Obviously the main one is that he simply gets a lower rate. The box spread, I think, lowered his rate by about 50 or 60 basis points. So that in and of itself was very powerful. However, why this made particular sense for this particular client is because his primary residence was eating up all of his $750,000 mortgage interest deduction. So his secondary mortgage was not getting any sort of tax benefit. By doing the box spread, now all of a sudden there are a lot of tax benefits to that "second mortgage" that he would not have otherwise benefited from or realized. Because he's a tech employee, he has a lot of concentrated stock in the tech company he works for. So some of the capital losses that a box spread can produce would end up being a very powerful tax benefit for him as he looks to unwind some of his concentrated stock. So a very powerful use case for box spreads, not only as it pertains to a lower rate but also some of the tax benefits and flexibility around term and structure.

Dasarte: Amazing. I have nothing to say, because I feel like every advisor here will see the benefit in using a box spread and what it could do for your business. Why don't you share with us what it's done for your business since you've become an independent registered advisor?

Akiva: It's really been a very powerful tool in my toolbox. As I said before, I like to offer differentiated solutions. I like to speak about things that other advisors maybe aren't speaking about. And the box spread offers the obvious, let's get you a lower rate versus your securities backed line of credit or your margin loan. But as I said before, it allows you to have conversations around asset aggregation, and simply allows you to be a solution to your client that you otherwise could not have been as an RIA.

Dasarte: What would you tell the advisor that is on the fence about using box spreads? You've had an interesting path to being an RIA, but many advisors are more classically trained. They have wirehouse experience, they're trying to go for production, they're trying to keep assets in house, they're trying to do things that allow them to make as much money with a scalable system. What do you tell them in terms of differentiating?

Akiva: I think the reason I was comfortable with box spreads so quickly is because my experience leading up to my firm was really more investment heavy. I was in the nitty gritty of options and derivatives for much of my career, and I hadn't been an advisor. So when I launched my business, speaking about box spreads was just kind of another day at the office for me. One thing I would encourage advisors who are on the fence about box spreads to do is just dive in. Learn how they work. Learn the intricacies around using European style options versus American style options. Why do we use SPX options? What are the legs of a box spread? How do they work? What does it mean? And as you get more comfortable with the actual structure of the options, I think advisors will realize that it's not as complicated as it may sound.

Dasarte: So I guess the first thing is education, and that's what Spread School is for, to help advisors learn about box spreads and feel comfortable enough to use them on client cases to provide value. Give me two more things.

Akiva: That's exactly right. It's very hard to speak about something that you don't deeply understand yourself.

Dasarte: If an advisor wants to get started or implement this, what are the second and third things they need to focus on to be not only comfortable but impactful to their clients?

Akiva: I would say get in touch with SyntheticFi directly. Every single person at SyntheticFi that I've ever dealt with, I've dealt with sales, I've dealt with operations, I've dealt with everybody, I drive you guys a little bit crazy, but every person I've spoken to has been immensely helpful. I always leave a call or a meeting knowing more than when I walked in. I wouldn't hesitate to reach out to SyntheticFi directly. Everybody there is an expert in box spreads. If you feel like you're lacking the education, reach out. You guys have been incredible.

Dasarte: Akiva, that's amazing, and thanks for your vote of confidence in the work that we do here. It's really to help you and your clients be better off at the end of the day, to have the tools you need to reach your goals as an advisor and their goals as clients. So we appreciate you and the relationship we have with you, and we can't wait to see what you do with your business in terms of growth and all the client lives you'll impact. I'm betting that after advisors listen to this episode, they're going to want to reach out to you to learn from you. So where can they connect with you or follow along with your journey?

Akiva: Another big part of the early success of my business has been how active I've been on LinkedIn. So feel free to reach out on LinkedIn. stqcap.com is my website. Reach out, let's grab a coffee if you're local to the LA area, we'll set up a call, drop me an email. Happy to connect with advisors and anybody who may be interested in building a practice, box spreads, or really just wants to hang out.

Dasarte: Amazing. Well, thanks Akiva, and thank you all for listening to another episode of Spread School. You know where to find us wherever you listen to podcasts and on YouTube. Visit Spread School to learn more about box spreads and how to use them for your clients. Until next time, we'll see you.

Disclosure: The views and experiences described are those of the guest advisor and his clients, reflect individual circumstances, and are not a guarantee of similar outcomes. Rates referenced are as of the recording date, vary with market conditions, and are not guaranteed. Tax treatment, including the treatment of borrowing costs under Section 1256 and the deductibility of any interest, depends on each individual's specific facts and circumstances, is not guaranteed, and adverse tax treatment is possible; consult your own CPA or tax advisor. Box spread, options, and VPF strategies involve significant risks, including possible loss of principal, as well as margin, execution, and tax considerations. Nothing here is investment, tax, or legal advice. Suitability depends on individual circumstances.