Recently, we had the opportunity to speak with Karan Sood, co-founder and CEO of Vest Financial, about Vest’s unique online investing platform.
ETF Database (ETFdb): What is your background and what inspired you to launch Vest Financial?
Karan Sood (KS): My background is in structuring protective investment products. I have worked on derivative trading desks for over a decade in a variety of locations around the world. My work has involved using options, swaps, and other customizable over-the-counter derivatives in designing protective structured investments for institutional and high-net-worth investors.
After over a decade experience in this area, it became clear to me that investments with a degree of protection would have a high utility in the portfolios of all kinds of investors. However, the ability to customize such investments has been accessible to only a select few—either sophisticated investors who know how to put together option securities to build protective investments, or institutional investors and high-net-worth investors who are clients of banks that only build structured protective investments for them in large sizes and often for higher fees.
My co-founders, who come from the related fields of derivatives technology and trading, made similar observations during their time in the industry. We were inspired to bring such protective investments to everybody, which is why we founded Vest.
ETFdb: Tell us more about the online investing platform you have built.
KS: Vest offers Single Security Solutions to all investors. Individuals and financial advisors can get exposure to a stock or ETF with a degree of protection; or protection to an existing position.
Vest also offers Portfolio Solutions to financial advisors, allowing them to protect their clients’ existing portfolios, build completely new portfolios of protective investments, or choose from pre-selected portfolios based around different risk preferences and investment objectives.
ETFdb: What does your service help investors accomplish?
KS: The potential returns from stock or ETF investments can be quite high, however, there is a significant potential for market losses as well. This uncertainty on the downside is a major concern, and protective investments can provide more clarity when it comes to investors’ return expectations, providing investors with the peace of mind they’re looking for.
ETFdb: Who is it suited for?
KS: Vest is most likely to be used by conservative, protection-oriented investors, or investors who desire more certainty in the outcomes from their investments. These could be savers, who are sitting in low-yield cash, or even fixed-income instruments, and would prefer to combine the upside potential of riskier assets with the downside risk-mitigation of protective investments.
ETFdb: Who are your competitors?
KS: If someone is sophisticated enough to understand options they can possibly do it themselves. Alternatively, bigger institutions and private banking clients have access to protective packaged investments for higher investment sizes and potentially higher fees. Vest makes it easier and potentially cheaper to build protective investments by using technology, making it accessible to a much larger pool of investors.
ETFdb: Could you elaborate on the product offering as it relates to ETF investors?
KS: An overwhelming number of our clients are building protective investments linked to ETFs. We believe the next step in the evolution of the ETF industry will be in devising innovative ways to use existing ETFs more effectively. Whether that is the existing trend of building multi-asset portfolios with ETFs or the new way proposed by Vest of getting access to interesting assets with a degree of protection against losses.
ETFdb: How many funds are available via the Vestfin platform now?
KS: Vest uses a series of filters to ensure that the protective investments linked to ETF and stock names available on the platform have a level of liquidity. The number of names available on any given day changes as the liquidity in the underlying market changes. Currently, the number of names available is between 600 and 700.
ETFdb: Please walk us through an example of how an investor would go about creating a protected ETF investment.
KS: 1) Go to www.vestfin.com.
2) Pick an ETF that you wish to protect (Example: SPY).
3) Pick your investment term (Example: Dec 15, 2017).
4) Indicate if you already own the stock/ETF or if this is a new investment (Example: New Position).
5) Use the sliders to define your downside protection range and your upside participation range and see the price for the investment change in real time. (Example: Protection range: $190 to $170; Upside Cap: $245; Price: Almost the same price as that of the ETF.)
6) When you are satisfied with your investment, choose the quantity, review the terms including the option securities to be purchased, and click the final button to get the investment in your linked account. (Click here to review the investment.)
ETFdb: What do you think is unique about the protection offered through Vest? What are some of the pitfalls associated with traditional diversification that Vest aims to address?
KS: Traditionally, investors have attempted to achieve “protection” through diversification. While theoretically a sound concept, in practice the protection from diversification is quite uncertain and is known to fail when it’s needed most—when asset classes such as commodities, equities and corporate bonds all go down together as they did in September 2008 or in the sell-off in the markets recently.
Uncertainty in itself might not be bad for those investors who can stomach the potential for extreme volatility.
However, investors looking for more certain outcomes from their investments may prefer the Vest way. In contrast to protection through diversification, protective investments through Vest have a contractual level of protection, which is achieved through options. Although different in various important respects, protection through options is often compared to buying insurance. The option contract pays to make up from losses below a certain price. More importantly, the contract pays without any considerations to market correlations, which is what makes the returns achieved through Vest’s strategies more certain.
Karan Sood, Co-Founder and CEO of Vest
Karan has a decade of experience in creating innovative financial products. Prior to starting Vest, Karan worked as a senior manager in new product development at ProShares Advisors, where he played an instrumental role in developing several first-to-market ETFs.
Previously, Karan served as vice president at Barclays Capital. Last based in New York, he was responsible for using derivatives to design structured products and solutions for the firm’s clients in the Americas. Prior to this, Karan worked in a similar capacity in London with Barclays Capital’s European clients.
Karan received a master’s degree in Decision Sciences & Operations Research from the London School of Economics & Political Science. He also holds a bachelor’s degree in engineering from the Indian Institute of Technology, Delhi. He holds FINRA Series 24, Series 17, Series 63 and Series 65 securities registrations.