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ONE Financial profiled in National Post's Lunch Money

Bay St. trailblazer is just 31


Bay Street may be dominated by big, faceless financial institutions, but Jeffrey O'Brien is proof that the entrepreneurial spirit lives on the Street.

The 31-year-old Torontonian founded and sold two businesses before he graduated from McMaster University in 1998. Then, at 27, with four years' experience as a broker at RBC Dominion Securities, he launched ONE Financial Corp., which pioneered a range of market-linked notes that are designed to give investors 100% principal protection while enhancing returns.

Today, four years later, at Il Fornello, a busy restaurant on King Street West, a few blocks from Bay Street and next door to ONE Financial's offices, O'Brien can claim about $300-million under management through 15 market-linked notes. His profitable sales and marketing business employs 40 and has a network of more than 1,300 financial advisors serving more than 13,000 retail investors.

"While I was a broker, I really believed in the concept of market-linked notes," he says above the chatter and clank of the Friday lunchtime crowd.

"I saw an opportunity to go out and manufacture these notes and wholesale them, just like a mutual fund company, to all the financial advisors across Canada. Unfortunately, I feel we were kind of Canada's best-kept secret in the investment products world for the first couple of years."

Well, fortune is smiling on O'Brien and ONE Financial now. The market-linked note universe is rapidly expanding to a $10-billion business in Canada as Baby Boomers approaching retirement seek safety for their savings and more upside potential than GICs.

As we examine Il Fornello's Italian-themed menu, it occurs to us that market-linked notes may be viewed by some as being able to have your pasta and eat it, too: The principal is 100% guaranteed after a seven- or eight-year maturity, and there is plenty of upside potential if the securities underlying the notes perform well.

As we chew on this and some chunky bread, O'Brien orders the pasta special – a grilled chicken penne in a cream sauce that comes with a Caesar salad ($11.95). Lunch Money goes for the fish special – grilled rainbow trout and ditto on the Caesar salad ($12.50).

The market-linked notes served up by ONE Financial and the big Canadian banks are simple in their goals – to efficiently offer downside protection and upside potential – but the underlying financial engineering provided to ONE Financial by French banking giant BNP Paribas is complex, with derivatives strategies understood by very few.

O'Brien says that while the "dynamic asset allocation" may be complicated, investors who can now get into the notes for as little as $2,000 shouldn't be fazed by the complexities of derivatives. "When you go to buy a car, it's important what the car can do and what kind of performance it can offer. How it achieves that is complicated, as in how the internal combustion engine works. What's more important is what the product can do.

"With one of these products, there's so much certainty of what you're going to get at the end of the day relative to mutual funds. If you read a mutual fund prospectus, you have no idea what the outcome is going to be. With linked notes, the prospectus says exactly what's going to happen to your money."

O'Brien uses the Canadian mutual fund industry, which manages between $500-billion and $600-billion, as an example of what the guaranteed-linked note business might grow up to be, with $100-billion in assets possible in the next six or seven years.

To help the industry move toward such a lofty target, ONE Financial has come up with an array of products built upon the financial engineering advances of the past decade.

A recent innovation is the first linked note in Canada that not only guarantees 100% of the original investment, but guarantees the investor gets the highest daily net asset value the note achieves over its term. "So it automatically locks in profit on a daily basis," O'Brien says.

Some observers have taken issue with the illiquidity of the linked-note market. But O'Brien points out that a weekly secondary market does exist through BNP Bank Paribas, allowing investors to sell at any time. Meantime, investors are able to switch between notes of a family of products without incurring any sales charges.

As for concerns about high annual fees – from 1.25% to 2.95% depending on the underlying security – he says they're similar to mutual fund rates.

The scandalous collapse of Portus, which issued principal-protected notes in a trust managed by itself, cast a cloud over the sector. It turned out that Portus was not investing all the money it should have in underlying securities.

"That certainly didn't help [the industry]," O'Brien says. "There was a lot of confusion surrounding what Portus was doing."

He makes it clear that ONE Financial is a sales and marketing organization only. The notes are guaranteed by and in trust of BNP Paribas, the world's third-largest bank.

"The contract is between the investor and BNP Paribas. ONE Financial never controls or manages any of the money. The money goes from the stockbroker to the bank and back to the stockbroker. Our role is to spread the word and educate the brokers on the product."

Right now, with the coffees consumed and the bill arrived, O'Brien has to go back to ONE Financial and keep spreading the word.

The bill, including a large bottle of sparkling water, two iced teas, an espresso, a cappuccino, tax and tip comes to a modest $53.72. Il Fornello is not in lofty expense-account territory. It is a reliable, predictable kind of place that people who invest in market-linked notes might appreciate.

ONE Financial and the market-linked notes business have come a long way since O'Brien started the company four years ago. Fifteen products have been launched and closed so far, and another family of five notes is in the works.

It has been a fairly long lunch, but Jeff O'Brien is only 31. It will be interesting to see where he, ONE Financial and market-linked notes will be in another four years.

William Hanley, Financial Post
Published: Saturday, May 13, 2006