It was really exciting last week to see an advert from the California State Treasurer that the state is about to issue $1.9 billion of bonds.
Wow this looks amazing! “Invest in your future. Move California forward.” That’s a great tagline.*
Right now California is doing a great – I might even say game-changing – job in trying to bring these opportunities to the average person. In a market where information dissemination isn’t exactly strong, they’re pretty far ahead of the vast majority of US public agencies.
There’s just one problem. The state of California doesn’t control the whole process of investing, and its enthusiasm for engaging the public isn’t shared by everyone. What that means is that the average Californian who found the ad above exciting will probably not end up investing in the state.
This is one of the reasons we started Neighborly. We believe that when you make an investment decision you should be just as excited as the average Californian was when they heard they could invest in their state. You should also feel safe, and taken care of. You should be able to understand the process fully and trust in it. We’re excited to work with pioneering public agencies to make that a reality.
Now let’s dive into the problem, and walk through the process of trying to invest in California, from the perspective of an interested Californian who was excited by the advert but has never bought a bond before. I start my journey at buycaliforniabonds.com.
It’s a pretty conventional government website, functional rather than beautiful. That’s what I would expect. There’s a note from the Treasurer, which is great. Check out that image – ‘My bond with California is all about family’. Great stuff. Exactly the kind of things I care about. Click Buy California Bonds.
Now I’m reading a lot of text that a first-time investor might find confusing. I’m told there’s an Early Order Period. I’m not sure what that is, but it sounds like something good. I’m getting a good deal, I think. I click through to the Early Order Period page.
Lots more text. I see that I’m about to participate in an order period, and it sounds like a kind of bidding system in which final prices are decided when all the orders are in. I guess that’s ok. It refers to brokers in a few places. I don’t have a broker, and I don’t yet know how to get one. I hit the Back button on my browser and look down the page.
Ok, great, I’d like to invest!
Have a brokerage account? I don’t have one. There are a series of partners I can sign up with. OK, I wonder who the partners are? My eyes stop on “Investors are encouraged to begin the New Account process well in advance of the sale. Depending on the brokerage, internal new account procedures may take some time to process.”
That doesn’t sound good. Is this going to be a process like filing my taxes? I hope not. I just wanted to invest in California.
Well Steps 2 and 3 sound great. That’s what I want to do. I want to learn about what I’m investing in and why it matters. And then do it.
I really hope I find a good broker here. Right then, I’m ready to do some exploring and find out about investing in California! Click.
I’m not sure what I’m looking for here. I remember I was told there are $1.9 billion of bonds to invest in, and I see a column with $1,900,000,000 listed. That looks like my deal! The title “Various Purpose General Obligation Bonds” doesn’t sound as exciting as I imagined. I assume it’s financial jargon. Anyway, I’m still interested. Click.
I see lots of links here. There’s a link to a Print Ad. This is more like what I saw on the first page. Great. This radio ad is very informal and welcoming.
What’s a Preliminary Official Statement? It sounds important and like something I should read. Click.
Hmm, ok, there’s a disclaimer. So this is public information, but this page is telling me that this is information only and I can’t buy something without a broker. Ok, well, I suppose I knew that already. Click.
Now I’m reading a 337 page pdf. Wow, this is a lot. It looks like this document is explaining the finances of what I’m investing in. There’s a ton of legalese here, but I guess this is necessary. I’m really glad I took that accounting and finance class in college. I’ll come back to this later. I guess I could also ask my cousin, she works for a bank, or my neighbor, a lawyer who works for the city. I’m sure they can help me figure it out.
I think I’ll go back to that friendly page on buycaliforniabonds.com and see how I can actually buy a bond.
OK, so I need an account. How do I get one?
Another disclaimer. I understand I’m being redirected to a private company, and the state of California isn’t liable for what happens with my accounts with that company. That seems fair. Let’s find an account.
Uh, there are 64 companies here. I’ve no idea where to start. I recognize some of these names from billboards and my 401k, but there are lots I haven’t heard of. Who are all these folks, and how do I get an account with them?
I click through a couple, and I’m seeing a long list of products. What kind of account will let me buy California bonds? I can’t tell. I don’t see any California messaging anywhere here. A few of them are asking me to call them. Call them? I thought I was investing in the future.
Hmm, well, I’m excited about investing in California still… I think… maybe I’ll come back another time.
It’s at this point that the real problem for the average investor arises: when they have to interact with a broker. It’s the point when the user gets totally lost and probably just a little bit intimidated. Most won’t get past this point.
That’s a big missed opportunity for California, which made the effort to reach these potential investors and did a pretty good job, especially compared to many of other public agencies.
That’s why as well as building a marketplace for community investment opportunities at Neighborly, we’re also building a twenty-first century bond brokerage firm that will be the kind of partner that cities need to connect with the next generation of investors. It’s called Neighborly Securities, and it’s registered with FINRA and the SEC. We want to make the process of getting from the intention to invest in your community to actually doing so as easy as possible.
We’ve had some awesome interactions with our early adopters and run some exciting experiments. But we still have plenty of hard work ahead of us before Neighborly is ready for a full public launch. Over the coming weeks we’re going to be sharing more about the challenges we’ve faced in building an experience that meets the average investor where they’re at and connects them with the investment opportunities they care about. We’re going to explain what it’s really like today to open a conventional brokerage account to buy bonds. Spoiler: it’s even longer and needs even more screenshots than I used in this post. I’ll also explain how Neighborly is going to make that process much faster, more transparent and a lot easier to understand.
* Coincidentally, it’s weirdly similar to the tagline I’ve been using on my Neighborly emails, “Invest in Your City. Invest in Your Future.”
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