Non-Beta Alpha Clearing Week: Greg Bruce SVP & National Director of the Investment Advisors Division Raymond James

View Transcript

Ryan Morfin:

Welcome to Non-Beta Alpha. I’m Ryan Morfin. Today’s episode, we have Greg Bruce, the national director of the investment advisory division at Raymond James, talking to us about the future of clearing. This is Non-Beta Alpha.

Ryan Morfin:

Greg, welcome to the show. Thank you so much for joining us.

Greg Bruce:

I appreciate you having me.

Ryan Morfin:

Well, we wanted to talk to you about Raymond James clearing business today. Some of the trends in wealth management that you’re following. It’s been a pretty active time for the clearing industry. Would love to hear your thoughts about the consolidation and the technology challenges facing the clearing business.

Greg Bruce:

Absolutely. Without question, there’s been disruption in the industry, as it relates to some of the consolidation that’s taking place. I think it’s an interesting time for the clearing businesses to think about their identity, to think about who they are and how they fit in, in the competitive landscape and how they’re developing their value proposition in order to build out market share, as we look at the future going forward. As it relates to my specific division, I lead the RA division at Raymond James. We feel as though we’ve got a very different story to tell. We feel as though that we have a model that’s predicated on comprehensive wealth management and advisors that are attracted to a bundled solution that has those types of attributes are interesting conversations for us to have. And we’re excited about the success that we’ve seen in the last six to eight months.

Ryan Morfin:

And it is interesting out of all the clearing opportunities for advisors to choose. Raymond James was really a wealth management business that evolved into a clearing business. Is that correct?

Greg Bruce:

It is. And I would say that if you’re going to look at the Raymond James landscape, you really start with what we call advisor choice. That allows our financial advisors to fully have a disclosed ownership of their book of business, but it also allows them to move freely amongst the different general affiliations within Raymond James to determine the best model for their clients, as well as how they want to manage and run their business.

Ryan Morfin:

And so you guys have a W-2 model, you have an independent model, a hybrid model. Maybe talk a little bit about the trends in the W-2 space. I actually have been seeing a lot of independent advisors want to go back to W-2. Are you guys seeing that as well?

Greg Bruce:

Yeah, there’s a lot of momentum there as well as the independent contractor division. I think that right now, the financial service’s industry is a tide that is rising all ships as it relates to the Raymond James experience. We’re certainly seeing a tremendous amount of growth on the W-2 as well as the 1099 side of our business. And I think, the way that we are approaching that, is that we feel that there are advisors that fit within all of those affiliations and our ability to attract and educate and create awareness there is really where our focus is.

Ryan Morfin:

And as it relates to the clearing business, the number of firms that are in the clearing business is shrinking. As there’s consolidation going on in some of the competitors, does that seem to open up a new window for you guys to grow your cleaning business? Are you guys excited about the opportunities in the years to come?

Greg Bruce:

I think it does. I touched on it a little earlier, but I think that it creates a unique opportunity to have different conversations. When you look at the core of clearing and custody, the tenants of that generally are service technology and practice management. You’re going to have one provider that is going to have a tremendous amount of market share and scale and have a version of how they want to serve their clients. I think you’re going to have owner solutions such as ours, that I think create interesting perspectives for advisors to look at something that might look and feel very different in the marketplace, as we get a little deeper around the comprehensive wealth management platform, we feel confident that there’s a fair amount of advisors that are intrigued about opportunities to embrace services, such as an investment banking, insurance, in house marketing and global wealth solutions. Have access to JDs, CFEs and CFAs that are part of their custody relationship, as opposed to relying on developing those within their RAA business. Again, I just think it’s an interesting time for us to have different conversations.

Ryan Morfin:

Do you provide access to even like the syndicate desk and all these other services to every different bucket of advisor types from different channel affiliations?

Greg Bruce:

Yeah. There’s different procedures and different, I would say boundaries around utilization of our capital markets groups, and other elements of trading and access to those asset classes. But without question, there’s an intention for us to look at the channel affiliations within our business model, create attractive and competitive offerings that are appealing to advisors. And then make sure that the client experience is driving their satisfaction and loyalty to us, both at the end client level, as well as the advisor level.

Ryan Morfin:

A lot of the other competitors are either have banks attached to them or are funded from a family office. A question for you, is where are you guys investing? And how do you see the competitive landscape changing in this kind of we’ll call freemium model that some of the competitors are migrating towards?

Greg Bruce:

I think that as you look at the service experience, I think that’s an area of opportunity. When you look at where scale is developed with some of the largest providers in the clearing, I feel as though there might be a situation where service is compromised with some type of client segmentation exercise or otherwise. We’ve taken the approach to double down on our service experience. And what we’ve looked and do is provide every client on our platform a dedicated contact that is an extension of their back office. It’s meant to be proactive, it’s meant to be consultative. The idea is for them to create individual relationships with back office professionals and our clients. So there’s just more camaraderie and understanding of how they do business. And we’re confident that, that’s going to have a positive effect as we look to move forward and grow our platform.

Ryan Morfin:

And you guys talk a lot about technology and I have talked to some of your RAs, they do rave about the Raymond James technology experience. Can you talk a little bit about your tech roadmap and where you guys see the trends moving in wealth management?

Greg Bruce:

Absolutely. And I think part of the appeal within the investment advisors division that supports our RAs is the idea around, that we support both the ability to leverage a fully integrated, active model of technology that Raymond James has created and really worked and developed to make it advisor centric. But yet we also have the ability for them to choose more of the traditional, open architecture, a la carte infrastructure. Create their own technology stack, and allow our data to transfer there. So in many cases, there’s hybrid offerings, where they’re using some of ours and some third party. In other cases, they’re kind of drawing the lines on one of those former options. So within that conversation, I think we create a lot of opportunity for independence and the ability for them to create their own business model and serve the client.

PART 1 OF 4 ENDS [00:08:04]

Greg Bruce:

And the ability for them to create their own business model and serve their clients.

Ryan Morfin:

And your perspective. I mean, we’re in election season now. How is your perspective on the regulatory environment? Do you anticipate there’ll be a lot more change coming for RIAs and broker dealers? Or do you think it’ll just continued to elongate itself through another cycle?

Greg Bruce:

I think we’re going to continue on this cycle. I don’t know that I’d go as far as to speculate what the next domino to fall might be on the regulatory aspect of things. But I’d say that we’re being very cautious around our approach to paying attention around where we need to reinvest. We’re adjusting our platforms with a degree of flexibility, to identify where there might be some pivots in regulatory affairs and the need for us across all of our businesses to pivot and to make some directional moves. So I think within that idea, we’re trying to be as flexible as we can, without real certainty on the direction it’s going.

Ryan Morfin:

And going to the business model. I mean, given that interest rates are so low and may be low for a long period of time here, what does the revenue model or the pricing model look like in the future? Does free work? Is it subscription based? Is it a la carte? How do you guys look at the pricing of the clearing business going forward?

Greg Bruce:

Yeah, that’s an interesting question. I think that, undoubtedly in this type of environment with very low interest rates with [inaudible 00:09:32] positions being what they are, with no transaction fees and the custodial clearing models are certainly compromised in this situation, I think one, you can look out for an opportunity for growth and look for an opportunity to see where there’s a benefit of continuing to escalate your growth levels in order to create some additional high level revenue for the businesses. But to directly answer your question, I think that all custodians are reviewing their options as it relates to taking a look at different scenarios. I don’t know that there’s consensus as we sit here today, but I think there’s an evaluation around subscription, versus asset-based pricing, versus different types of relationship based fees within the models.

Ryan Morfin:

And the last few months have been very challenging for all advisors and anybody managing assets. As you look around the country and you guys touch all the different Raymond James offices, what are some best practices that you’ve come away with having conversations with folks that are part of your clearing platform?

Greg Bruce:

I think the number one thing is, without question, the advisors that are really being aggressive with their communication are benefiting from that. We’re starting to see double digit growth levels in this pandemic setting with those that are trying to get creative with how they’re connecting with their clients. I think we saw phase one in March when the volatility was at a peak, where our advisors were looking to really have phone calls, connect, touch base, and ensure that there was a level of comfort.

Greg Bruce:

And then the situation with the pandemic was elongated. And then there became the need to embrace Zoom or GoToMeeting and other technology solutions that are out there, in order to stay in touch. Then I think there’s a third tier of advisor, that’s understanding that there’s a further opportunity to be here. I can increase my credibility. I can do some webinars. I can bring some third parties in. I can add some expertise. I can create some additional connectivity, with that end client and my firm. I think those firms are getting talked about. I think referrals are getting made and I think growth is happening in those cases.

Ryan Morfin:

And this client experience, it seems that the advisors are being forced into this digital moment to accelerate their tech IQ, if you will. What can advisors do today to digitize or, be effective in a no touch economy?

Greg Bruce:

I think there’s a couple things. The first thing I would say is, really do some deep analysis around the existing policies and procedures to really try to identify to scale. It isn’t necessarily the purchase of a new technology. It isn’t the addition of some innovation related to their models. It’s really an assessment of efficiency of how they’re transacting business and really a drive towards doing it. What I found is a lot of clients that have been forced into business contingency plans based on the virus, have recognized that that’s an opportunity to embrace some efficiency gains and allow themselves to really look at where there’s improvements. And how they can embrace those going forward. I think when we come out of this, whatever that looks like as it relates to a new normal or any type of resemblance of the previous era. I think you’re going to see an increased business model across the RIA industry as it relates to efficiencies and cost savings.

Ryan Morfin:

No, that’s a great point. It doesn’t always have to be buying new technology and adapting. You can just change your workflows and design thinking around process management is really critical today. As it relates to marketing, you guys talk about your marketing services, how has your organization pivoted in the new normal from a marketing stance?

Greg Bruce:

Yeah, and I think when you look at the RIA space, I often times have been exposed to scenarios where well-intentioned RIAs go through some type of RFP process to try to identify a marketing agency or a group of professionals to really support an initiative or increased brand awareness. Maybe some new digital advertising for themselves, in addition to their logos and website and other types of affairs. And what I found was they often get left at a point of disappointment because those professionals didn’t have a specialization around the RIA industry.

Greg Bruce:

Although they might’ve had exposure to financial services, they truly didn’t understand the independent model. They didn’t understand the fiduciary standards associated with our client base. And it left them disappointed and falling short of maybe were expectations were to further extend what their value propositions are in the marketplace. What we bring at Raymond James is a marketing group that provides very competitively priced services, that have that specialization. That understand the business model and really can start in the fifth or sixth inning of that process. Instead of going through some type of educational alignment around what the message needs to be and how they’re trying to deliver it. They very quickly get to try to better understand the individual RIAs and what their core message needs to be.

Ryan Morfin:

It’s been a very active time in wealth management RIA, whether it’s been RIAs or broker dealer consolidation. From a Raymond James perspective, how do you guys see that unfolding with the volatility on the horizon of asset levels? And then are you guys going to be active in supporting advisors acquire books, et cetera?

Greg Bruce:

I think so. I think that’s something that we’re going to continue to support. We’ve found a tremendous amount of growth within our RIAs. From both an organic perspective [inaudible 00:15:29] clients, in addition to their ability to attract advisors with books and business. I think that’s a trend that’s going to continue to increase, but I do think the trend is changing there a little bit. And what I mean by that is, I would say, you go back 10, 12 years ago M&A was traditionally [inaudible 00:15:47] planning and really a focus on the legacy of the business. And then we went through a period where it was more geared towards talent acquisition, driving scale, or adding more services. I think based on the market volatility that we experienced early.

PART 2 OF 4 ENDS [00:16:04]

Greg Bruce:

I think based on the market volatility that we experienced earlier in the year and kind of the uncertainty of the virus, we’re kind of circling back to that succession conversation to say, “If I haven’t produced a plan that’s both contractually obligated and agreed upon as well as properly funded, that might need to be a priority for me right now.” And then you couple in the mitigating factor of many of the aggregators and other firms out there are very active in this space. So they’re adding services and creating robust platforms that’s driving competitiveness in a way that may produce additional M & A to stay competitive.

Ryan Morfin:

Yeah, no, it’s definitely the inorganic growth that’s been driving a lot of these productivity gains, I think, in the industry. What are your thoughts on fintech? There was an interesting stat that I just came across. I believe in the last five years there’s been about 25 billion in fintech funding in the IPO market and there’s only been about a billion of IPOs in the last five years in wealth management, mainly AssetMark and Focused Financial. Is that troubling for the industry? Do you think that the lack of access to capital in the public markets for our industry is a troubling data point?

Greg Bruce:

Well, I think when I look at fintech as it relates to the individual offerings for our clients, it’s as competitive as it’s ever been. I feel like there’s innovation that’s being driven towards enhanced services, additional features and functionalities. I think the integration of most of the third party tools is continuing to be refined. So I think it’s healthy from the perspective of what the end client experiences, and as it relates to individual capitalization of those firms, I probably am less competent to speak about those aspects of the business, but I can say from a deliverable perspective, I think that the market is moving at a faster velocity than it ever has. And I think that innovation is going to help the end client and it’s going to help drive the advisors’ efficiency as well.

Ryan Morfin:

Yeah, no, I do think it’s going to force some firms to either adapt or get acquired. And it’ll be interesting to see if the fintech companies become the acquirers and consolidators of the near future. From a Raymond James perspective, how has the RIA versus broker-dealer kind of hybrid back and forth with the SEC and FINRA, how has that been unfolding from your perspective? Do you think that there’ll be more oversight coming for RIAs in the future, or do you think FINRA and the SEC have kind of found an equilibrium as it relates to some of the DOL rule and the REG BI?

Greg Bruce:

I think we’re in a comfortable position where I think most of the stakeholders feel as though their interests have been represented from a regulatory perspective. It’s difficult to make any predictions as it relates to those types of affairs, but I do think that we’re in a position now that the major players have reacted towards the pending or already implemented regulations that are out there. And I think that we’re in a place the end client feels well represented and protected.

Ryan Morfin:

So as it relates to going back to the technology space and kind of risk management and compliance, what are some trends or some items that you guys are paying attention to from a regulatory technology-driven compliance framework?

Greg Bruce:

Yeah, one of the things is cybersecurity. I think that given that almost every firm was forced to engage upon some type of their business contingency plan and work remotely on a full scale, I think that that’s promoted the idea that our clients are being much more proactive than they have in the past around identifying cybersecurity concerns, remedying that, and reinvesting in their business more aggressively in that area than they have historically. I think as you move going forward with the idea that maybe not all employees go back to the office and maybe the remote work becomes more of a permanent solution, I think there’s going to be a heightened emphasis on cybersecurity and the production of client data in general.

Ryan Morfin:

No, that definitely is becoming a bigger and bigger issue with people working remotely. As it relates to Raymond James and the organization working remotely, how have you guys changed your business development at Raymond James to adapt to this new reality?

Greg Bruce:

Well, I think that the first element is just around the virtual communication. I think that there’s just a different type of sales cycle now and attracting advisors to our business lines. We prided ourself on what we called home office visits to really bring advisors in their teams into our headquarters and meet senior leadership and have the opportunity to embrace our culture.

Greg Bruce:

I think the ability to move in a different direction and do that virtually is admittedly less desirable. But I think that it’s also effective from an education and communication perspective. I think prospects are also being understanding of the idea that we’re just in a different environment, that the traditional sales process just has to morph into something different, something unique and something that can still meet expectations on a go-forward basis.

Greg Bruce:

So I think it started slowly. I think in March and April there was a pause in everyone kind of recalibrating and gaining an assessment of where the opportunities were. But I tell you now that things are moving full steam ahead, and those engagements are moving forward in the sales processes and in many cases are continuing to move forward.

Ryan Morfin:

Yeah. We’re seeing an increased pipeline across the board as well. It seems like people took Q2 off to lay back and watch this unfold and now there’s a lot of moves accelerating. As it relates to you kind of just being a leader in the industry and managing a large team of people, what have you done differently as it relates to your leadership approach during this pandemic?

Greg Bruce:

Well, I think initially I really felt as though there was the idea that you just can’t over communicate. I think that I was really trying to overextend all mediums of communication to allow people to have a sense of comfort, a sense of inclusion, and really be a need for them to be reassured that we’re still operating with full functionality and in a remote way, and they’re still valuable contributors and we need to continue to stay focused on what the objectives are.

Greg Bruce:

I would say as this is extended beyond the timeline that I think any of us have felt it was going to continue, that’s morphed into something different. I think that the cadence of communication is now moved into a bit more of a collaborative fashion. The biggest sensitivity that I have as a leader is that we lose that collaboration, that teamwork, that alignment as a group that we might have on a boardroom white boarding session that’s just more difficult to create in this type of agreement, in this type of arrangement. So we found some things socially to stay connected so we’re just not a hundred percent talking about business on all of our interactions and engagements. And in addition to that, I would say that we’ve probably just refined and tightened up some of our agendas as it relates to some of the work focus.

Ryan Morfin:

And where do you think we are right now in kind of the economic recovery? There’s been a V shaped stock market rebalance, mainly led by technology stocks, but do you see the underlying economy on okay footing, or what’s your perspective on kind of this bounce-back?

Greg Bruce:

I think that what’s interesting to-

PART 3 OF 4 ENDS [00:24:04]

Ryan Morfin:

… perspective on this bounce back.

Greg Bruce:

I think what’s interesting to watch is the separation between the economic indicators and the correlation of where the market’s going. I think that’s very interesting to continue to take a look at. As I’ve been following our CIO, Larry Adam, he’s been very focused on a number of those types of considerations. And we can send you to monitor that as a interesting perspective for us.

Ryan Morfin:

Do you guys see rates going sideways for a while or did they go negative? Any thoughts on that?

Greg Bruce:

I don’t. I think that I’ll follow the Fed’s recommendations and what they’ve shared and that’s how we’re strategically positioning our business or this to be an extended rate environment for the foreseeable future. And that’s how we’re coordinating our businesses going forward.

Ryan Morfin:

Yeah, yeah, no, it’s a very interesting period for interest rates. If they go negative, which a lot of people say they won’t, but if they do, it could be a very dire situation to get out of. We’re following that very carefully. As it relates to, I’d say, silver linings in the US economy, are there any silver linings that you see either in the industry or the US economy that keep you optimistic?

Greg Bruce:

Well, I’m going to continue to be excited about the R&A space. I think this is an ideal time, and an opportunity for advisors to do research and do their due diligence to determine whether this is a consideration for them. Although, many in the beginning of this crisis maybe thought that they needed to pull back, focus their clients and really stop all types of maybe external investigations. I think what they found now is that there’s the ability to take a deeper look. There’s additional ability to communicate with their clients, given that many of them are still staying at home during this period of time in order to share what might be the future evolution of their business, what might be the business model that allows them to serve their clients in a better way going forward.

Greg Bruce:

So I would encourage advisors to continue to look at their options, and I think that that’s happening in the marketplace. So very optimistic about what’s happening there.

Ryan Morfin:

And as it relates to some of the wirehouse advisors that are out there, you mentioned people have been working from home longer and it seems to be working out for some of them, growing double digits. Do you see a continued secular trend towards independence from the wirehouses now that maybe the crutch of commercial real estate is no longer as valuable as it used to be?

Greg Bruce:

Yeah. I think what we’re looking at now is you can really have any flavor of this independence that you’re looking for. And if you embrace the independent model and are looking to really have a high degree of entrepreneurial spirit and do all of the elements of running your business, I think that’s always been the option, but then there’s the other options of outsourcing a variety of different services there that create the capability for those, that may have less comfort in certain areas, whether it be compliance or technology or insurances or IT work or hardware, leases, all of those things now at third party solutions that can provide some level of expertise that I think creates the model to be more attractive than it’s ever been.

Ryan Morfin:

Yeah. Now, the ecosystem has gotten very sophisticated with a lot of these compliance technology and administrative solutions, even outsource CFOs. I guess one of the last questions I have for you is through the summer, what have you been reading? Any good books or listening to podcasts or newsletters that you’ve been reading to chart your recovery, but also your firm’s recovery through this new normal?

Greg Bruce:

I continue to be intrigued by listening to podcasts with a lot of industry leaders. I think that there’s the opportunity there to gain perspective around how different business cultures are adapting to this environment. I find that fascinating in regards to how they’re strategically managing this process, what pivots they’re looking to make as it relates to growth, the managing of their balance sheet. What they’re looking at in terms of capitalization. Are there opportunities for acquisitions and other things in this environment that might be uniquely appealing? I think there’s such a broad disparity of opinion and thought process that I just find that very interesting as we think about how leadership is reacting to this environment.

Ryan Morfin:

Yeah, no, it’s definitely a different perspectives. It’s not a homogenous view today. I think a lot of people are differentiating their views based on their personal perspective of where they’re sitting and I do see some huge opportunities that I think the secular shifts in our industry are definitely going towards the trend of independence. And so, Greg, I appreciate you joining us today and I appreciate your insights and we’d love to have you come back on the show at some point.

Greg Bruce:

I’d love the opportunity. Thanks for having me.

Ryan Morfin:

Thank you, Greg. Thank you for watching Non-Beta Alpha. Before we go, please remember to subscribe, like, and leave us a review on Apple Podcasts, YouTube, or Spotify. This is Non Beta Alpha, and now you know.

Speaker 1:

All price references and market forecasts correspond to the date of this recording. This podcast should not be copied, distributed, published, or reproduced in whole or in part. The information contained in this podcast does not constitute research or recommendation from Non-Beta Alpha Inc, Wentworth Management Services, LLC, or any of their affiliates to the listener. Neither Non-Beta Alpha Inc, Wentworth Management Services, LLC, nor any of their affiliates make any representation or warranty as to the accuracy or completeness of the statements or any information contained in this podcast. And any liability, therefore, including in respect of direct, indirect, or consequential loss or damage is expressly disclaimed. The views expressed in this podcast are not necessarily those of Non-Beta Alpha Inc or Wentworth Management Services, LLC. And Non-Beta Alpha Inc and Wentworth Management Services, LLC are not providing any financial, economic, legal, accounting, or tax advice or recommendations in this podcast.

Speaker 1:

In addition, the receipt of this podcast by any listener is not to be taken as constituting the giving of investment advice by Non-Beta Alpha Inc, or Wentworth Management Services, LLC, to that listener, nor to constitute such person a client of any affiliate of Non-Beta Alpha Inc or Wentworth Management Services, LLC. This does not constitute an offer to buy or sell any security. Investments and security may not be suitable for all investors and investment of any security may involve risk and the potential loss of your initial investment. Investors should review all risk factors before investing. Investors should perform their own due diligence before considering any investment. Past performance is not indicative of future results. Investment products, insurance, and annuity products are not FDAC insured, not bank guaranteed, not insured by a federal government agency, and may lose value.

PART 4 OF 4 ENDS [00:31:18]

 

Share This Episode

Subscribe To Our Podcast!

COPYRIGHT 2020 ALL RIGHTS RESERVED. THIS DOES NOT CONSTITUTE AN OFFER TO BUY OR SELL ANY SECURITY; INVESTMENTS IN SECURITIES MAY NOT BE SUITABLE FOR ALL INVESTORS. AN INVESTMENT IN ANY SECURITY MAY INVOLVE RISK AND THE POTENTIAL LOSS OF YOUR INITIAL INVESTMENT. INVESTORS SHOULD REVIEW ALL “RISK FACTORS” BEFORE INVESTING. INVESTORS SHOULD PERFORM THEIR OWN DUE DILIGENCE BEFORE CONSIDERING ANY INVESTMENT. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. INVESTMENT PRODUCTS, INSURANCE AND ANNUITY PRODUCTS ARE NOT FDIC INSURED/NOT BANK GUARANTEED/NOT INSURED BY A FEDERAL GOVERNMENT AGENCY/MAY LOSE VALUE. SECURITIES OFFERED THROUGH CABOT LODGE SECURITIES, LLC [CLS] MEMBER FINRA / SIPC 200 VESEY STREET, 24TH FLOOR, NEW YORK, NY 10281, 888.992.2268.

Recommended For You

View Transcript

Ryan Morfin: Welcome to Non-Beta Alpha. I'm Ryan Morfin. On today's episode, we have Pini Althaus, CEO of USA Rare Earth, talking to us about the supply chain glut in rare earth minerals. This is Non-Beta Alpha.

Ryan MorfinPini, Welcome to the show. Thank you for coming on today.

Pini AlthausThank you for having me, Ryan. Good to be here.

Ryan Morfin: So you're an investor and a miner in rare earth minerals. Can you share with our listener base, what are rare earth minerals? Why are they important and why is there a geopolitical race going on globally?

Pini AlthausYeah, I mean, rare earths are an extremely ubiquitous part of all advanced manufacturing or technology manufacturing today's day and age. Several years ago, I had not heard too much about rare earths myself. I was not that familiar with it and being involved in this sector, in this company, for the past few years has given me an education of course. And I mean, I was sad to hear that 50% of all imports into the United States contain are earth elements and it runs the gamut from consumer electronic devices that we use every day. Our cell phones, our laptops, most communication devices, medical equipment. So there's a tie with COVID, which we can touch on at your discretion. Electric vehicles, defense equipment. So pretty much anything or everything high tech today has a rare earth element or critical minerals contained within them.

Ryan MorfinAnd what are some of the names of some of the more important rare earth? I know there's lithium for batteries, but what else is considered in this category, critical?

Pini Althaus: Yeah, so lithium is a separate category to battery material. The rare earths are 17 rare earths. The four, let's call it, key rare earths that we're focused on at our company, the four rare earths that go into the permanent magnets. And these are the magnets that are found, there are a number of them in your back of your cell phone or an iPad. But if you look at an F35 striker jet, you've got about a ton of rare earth magnets in those. And we've got two heavy rare earths and two light rare earths is part of the permanent magnets. You've got dysprosium, ytterbium are the heavies, and then you've got neodymium, praseodymium as the two light rare earths. So those would be key rare earths that are the focus.

Ryan MorfinAnd you use these in, I guess, in military applications as well, but historically, where has the United States sourced the rare earth for supply chain?

Pini AlthausYeah. And that's the shocking part. We've been securing those materials from China. So China controls the rare earth sector and has done so for the past 30 years or so. And it was a significant misstep on the part of the United States, allowing China to have this control. And actually this wasn't a question of China coming in and doing anything nefarious as far as stealing IP or anything. The US government made a conscious decision about 30 years ago to allow China to come to the United States and acquire the processing capabilities for rare earths. So just as part of some background, you've got the rare earth materials containing various mining projects, but once you extract them, you have to then process them and they go through certain phases before they get to the magnet phase. And China, the thought process was let China do the mining, let China do the processing.

Pini AlthausWe don't need to do that here. And we'll buy the materials from China cheaply and the premier of China at the time, Deng Xiaoping made the comment, he said, "The Middle East has oil. China has rare earths." And unfortunately we weren't smart enough to understand what he was saying. And the Chinese understood that the future of manufacturing is going to revolve around control of the rare earth and critical mineral supply chain. So if you think about it today, Ryan, we cannot build... Forget about consumer electronics and medical equipment. We cannot build the equipment that the US Pentagon or the US armed forces require, whether it's F35 fighter jet, Tomahawk cruise missile, communications equipment, without going to China and obtaining those materials. And it's obvious to all that this should be extremely alarming. We've seen China use this as a weapon, if you will, as far as how it interacts with other countries back in 2010, when there was a dispute between China and Japan on the East China Sea.

Pini AlthausSo China cut off rare earth exports from Japan for 40 days. Japan obviously being a significant user of rare earth elements for their high-tech manufacturing sector, that was stopped after 40 days. But in fact, it was President Obama that first made the United States aware of this, formed a division within the Department of Defense to handle this issue, but not much has happened. And we continue to be relying on China for these materials. And what has been made about trade war with China and whether the trade war is really the impetus for China withholding rare earth exports. And that is a huge misnomer. Whilst China had been talking or implying that they would cut off rare earth exports, the truth of the matter is that China, under it's made in China, 2025 mandate, its belt and road initiatives and others. And you seem to control the critical minerals and rare earth supply chain so that it can continue its dominance as a manufacturer or a global supplier of these materials and finished products.

Pini Althaus: It's the backbone of its economy. And in fact, China has become a net importer of rare earths from different countries like Miramar and others. So with that, they are decreasing the exports to countries like the United States, Japan and others.

Ryan Morfin: And was it ever a risk that the Chinese were going to turn off the exports of rare earth to the US during the trade war? How close were we to that? And was that ever some saber rattling that went down during trade negotiations?

Pini AlthausYeah, I think it was saber rattling. I think it would be paramount to an act of war. I can't say with any authority that that would not happen, but it would be probably, aside from war itself, it would be one of the most significant acts of war cutting the United States off from the ability to procure rare earths. But that being said, I mean, if you look at, as an analogy, the oil and gas sector and the reliance of the United States had for many, many years on OPEC countries to supply us with the oil. And we had embargoes and we had price manipulation by OPEC. This is far more significant given the ubiquity of where these rare earths go. And yes, we're always under the threat that China can cut off exports under the guise of a trade war or for any other nefarious reasons.

Pini AlthausBut I think even more importantly, to just as the natural run of the course of things with regards to their business and their desire to maintain themselves as the global leader in manufacturing and exporting of goods, China is in a position now where it actually requires these materials for their own domestic consumption and can legitimately cut off rare earth exports by stating that they need it for manufacturing and that would actually be somewhat correct. So we're in an extremely dangerous position here with this reliance on China. And it wouldn't just be China. If it was another country, it would be similar issues, not to the same extent, but reliance on one country for these materials is dangerous.

Ryan Morfin: And it's been mentioned in the past that in 2010, China flooded the market to really kill all the competitors in the rare earth mining industry. Where was the World Trade Organization during this period? And how did that play out and how does that set the chess board for China to run the tables?

Pini Althaus:

Yeah. So the WTO stepped in when China cut off rare earth exports from Japan, I think it lasted for about 40 days because the US and Japan protested the WTO, and they stepped in and China resumed exports. While I'm not an expert on these trade matters, one thing that I am aware of is that one of the reasons why China had to resume the export of rare earths was it did not legitimately need all the rare earths for domestic consumption. So therefore it was a nefarious act, if you will, to cut off rare earth exports. Now that has changed, which means China have to cut off rare earth exports today, they have a legitimate case to say that they require these materials. There's a shortage of these materials and they require them for their own domestic purposes. It is the backbone of their economy and there's very little we could do about this today, which is why it's becoming an even more urgent issue.

Ryan Morfin:

And the US government started stockpiling some of these after that incident. Can you talk a little bit about what DOD and DOE has done to start making sure that there's not a critical supply shortage going forward, and is it enough?

Pini Althaus:

Yeah, again, there is a national defense stock pile, and there are materials still that the United States needs to procure in order to shore up its stockpile. There are magnets, the finished magnet products as well, the United States government needs to stockpile. Again, there's a limited amount that the United States government has. It requires approval from Congress, whether it's in the NDAA or other approvals from Congress, to allocate monies for the national defense stock pile of these materials. That being said, there's no endless supply of these materials. And unfortunately, the apparatus, the way it's set up right now with the US government, it's going to continue to require having a secure supply chain of those materials for many, many years to come. So it's not a question of stockpiling for 10 or 20 years, and then this complacency and saying, we'll kick the can down the road. But keep in mind as well, Ryan, that US government accounts for low single digits of overall rare earth imports into the United States.

Pini Althaus:

We're talking about defense contractors, we're talking about the manufacturing sector. The direct impact this has on the economy, jobs, the automotive sector, and others is significant. So it's not just limited to the United States government. If you look at over the past couple of weeks, the sanctions that China have put on Raytheon, Boeing, Lockheed, et cetera. I mean, the question is where are they going to get those materials? And if we go beyond that, you need rare earths for the 5G network. Now that Huawei has been banned from installing the network, not only in the US but other countries, we have to have the ability to get a secure supply of these materials as well. Which currently, again, trying to control the hundred percent. So it runs across the board, both for government, defense and manufacturing in this country.

Ryan Morfin:

Well, and so help me paint a picture for our audience. Does China have all the mines for rare earth, or they're the only ones who started mining it? Or are their mines globally dispersed and nobody's been doing the actual infrastructure to do the mining?

Pini Althaus:

Yeah. So finding rare earth projects or rare earth elements is not the difficult part. It's finding them in significant quantities that makes a project economically viable. And part of that consideration are the environmental rigors that companies in the West have to adhere to. And China, even by their own admission, have had a complete disregard for mining these materials and even for processing these materials. And in fact, just the last week or so, the BBC did an expose on this, 60 Minutes has done an expose on this. But the Chinese have not denied this and have talked about cleaning up their act, but it has an effect on the bottom line for what the costs of mining and processing are if you have no environmental standards to adhere to. So China have exploited those rare earth projects they have, primarily in inner Mongolia, and have brought a number of projects online and quite quickly, and in a significant way, with a complete disregard for the environment.

Pini Althaus:

So it was seen as an environmental no-no in the West for many years. Now, what's happened over the past few years is you're starting to see rare earth projects in different parts of the world sprout up. You've got the Mountain World project in Australia owned by Linus, which is a producer of Nd and Pr, neodymium and praseodymium. So two of the light rare earths. They may have some heavy rare earths coming online at some point in time. And you've got Arafura, which is another company in Australia that we're working with to assist them with their processing so they don't have to send the materials to China for processing. But really these are a drop in the bucket for what the requirements are for the United States. And certainly what the requirements are for allied countries, the EU, et cetera. So there is a race, if you will, worldwide to start bringing projects online. The Chinese are very active in trying to secure assets outside of China.

Pini Althaus:

So in Africa. They have ownership of a project in Greenland. So there is somewhat of a race. The Australian government has stepped in and has started limiting the ability for China to own, or have ownership in, or off takes for the Australian rare earth projects. And that's part of the strategic Alliance between Australia and the US. Canada, similar thing as well. There are a number of projects that are looking to come alive, but these projects are, for the most part, will take many, many years to come online. We have to expedite the process. We have to assist with a [inaudible 00:14:41] supply chain and the domestic rare earth sector, because previously investors have been scared off by things like China flooding the market, which is not a possibility at this point in time, given that China can't actually afford to flood the market. They are already very heavily subsidizing their mine to magnet supply chain there.

Pini Althaus:

This is more now a case of being able to get production from non-Chinese sources so that the United States and allies have a viable, secure supply chain of these materials. And it's a concern worldwide. We speak to governments all over the world, and we're all facing the same issue. Some more than others, especially countries like Japan, that don't have their own rare earth projects there and are reliant on Australia where they've made some investments there. And in the United States, they've made an investment recently in Africa. So there is this race, if you will. And I think we've got a five-year window here to at least stand up a few projects worldwide. Otherwise we've lost this race and we will be dependent on China for many, many years to come. And Ryan, it's a bit of a hypocrisy. If you look at it where you've got materials going through clean, green energy applications, like electric vehicles, wind turbines, et cetera.

Pini Althaus:

That we're sourcing these materials from China, where they've, again by their own admission, has been complete environmental devastation to water bodies around these mines and processing facilities, to the communities. People have been getting sick around these projects yet we're putting these materials into our electric vehicles or wind turbines. It makes no sense at all. And people are starting to wake up to this. And that's why the sector is starting to see a lot of support come out of Congress and bi-partisan support. And in fact, it's one of the only bi-partisan issues right now in Washington. And it's good to see that some things decided to move in the right direction.

Ryan Morfin:

And is there a special process? You talk about the expense, is it really difficult to mine these? You have to go through a special chemical process to extract and clean and purify. Is it a lot harder than, say, gold or silver or some of the other, we'll call, more traditional elements?

Pini Althaus:

Yeah. It's all about the processing to some extent. So if you look at MP Materials in California, which used to be Molycorp before they went through their bankruptcy. They are a miner of Cerium and Lanthanum, which are two of the light rare earths, the lower valued light rare earths. Given that they do not currently have processing technology, they are sending those materials to China for processing where China is tariffing those heavily. Linus is also, they're doing their processing work in Malaysia and elsewhere. So it's really about the processing at this stage. One of the things that we've done, after we put out our PDA last year with our upgraded resource, which now includes a significant amount of lithium. We make a decision that, based on the test work that we had done around our processing methodology, that we were not going to send our materials to China. That it's paramount for us to do this work in the United States and in a collaborative effort as well.

Pini Althaus:

We've been asked by some of our investors, "Well, why would you be looking to help other projects with their processing?" And the answer is simple. There's no one project or one company that's going to put China out of business or make a dent, or somehow be able to take care of the overall demand worldwide for rare earths and critical minerals. And it's very important for us to have processing capability in the West. So that was the impetus for us opening up our own rare earth and critical minerals processing facility earlier this year, which we did in Wheatridge, Colorado. And in fact, we've made some significant progress on the method that we're using for this. And we're starting to collaborate with Australian companies, Canadian companies. We're currently talking to a group over in Europe as well, because this has to be a collaborative effort.

Ryan Morfin:

How does Europe solve for these problems? Do they have this better under control than the US?

Pini Althaus:

No, they're in a far worse position than we are. The EU commission recently put out a report, I think, a couple of months ago that the requirement for rare earths is going to increase tenfold within a short period of time. Lithium 18 times. They don't really have rare earth projects. Again, there are the Greenland projects, which people have heard in the news recently. Those need to further development work so they don't have rare earth projects ready to come online there. There are a couple of lithium projects that are spread around Europe, but for the most part, Europe is in an even more precarious position. If you look at Germany with the auto manufacturers, you look at the big companies like ThyssenKrupp and others, all these countries and companies are looking for alternatives to China, because we've already seen in the news about China withholding or reducing exports of some of these rare earths that are required for these industries.

Ryan Morfin:

And you mentioned earlier the regulatory posture of the US makes it difficult to mine. Is it becoming a more bi-partisan issue that we need to maybe relax some regulation around the mining exercise, to incentivize private sector to come in and start producing this? Or is the Republican party versus the Democratic party on two separate pages of music?

Pini Althaus:

Yeah. Good question, Ryan. I mean traditionally the Republican party is obviously being more pro-mining and in favor of less regulation when it comes to these things. With regards to our project, we're on Texas state land. So we don't trigger federal environmental permitting at this point in time. And obviously Texas being Texas, a mining state and oil and gas state, things are a lot easier in Texas than they are on projects on federal land where the Bureau of Land Management controls the environmental process around that. But the thing is here, and I don't want to step into what other companies are doing, et cetera, but we do need to be reasonable about allowing projects to come online if they're adhering to environmental standards that are acceptable worldwide. And what we do know, is that China is destroying the environment and cities and water bodies around their mines and processing facilities.

Pini Althaus:

We have standards here in the United States, and I think what we need to do is make it easier for companies to mine, while at the same time protecting the environment. And there are ways to do that. And we're definitely seeing buy-in from Congress, from both sides, with regards to looking how we can stand up a secure supply chain. And, obviously under the Obama administration, they had very strict regulations when it comes to mining. And that's changed under the Trump administration. Hopefully what we start to see is some normal middle ground that'll allow other projects to come online.

Ryan Morfin:

And typically in these rare earth mines, is it amalgamation of different minerals that are all consolidated together and you have to separate them out? Or do you ever find pure play, Europium, I can't even pronounce some of these. Gadolinium, Cerium. I mean, are they all mixed together and you've got to filter and sift them through, or are they pure play mines?

Pini Althaus:

No, they're generally they have a mix. So they're polymetallic projects. They have a number of different materials. Some projects, you more to what we call the light rare earths like MP in California or Linus in Australia. Our project is actually on the opposite end of the spectrum. We have a very high concentration of heavy rare earths. That being said, we do have to go through a process of separating these materials. But the case of our project where we've got 30 materials. We're not going to produce 30 materials. We're not going to market 30 materials. So what we're doing is we're focusing on the key materials that are marketable, that we need for permanent magnets, lithium as well, and working on the separation and the optimization of those materials in particular. But we're all faced with the same processing challenges and that is something that can't be set.

Pini Althaus:

There's no easy way to do this. There are different technologies that have been used in different parts of the world. So predominantly there's a process called solvent extraction, but it's big, it's bulky, it's not benign. It's a bespoke solution for one particular project. So it doesn't work for feedstock from other projects. What we've done is we're using a processing technology that's actually been around since the 1940s. It was part of the Manhattan Project. It's called continuous ion exchange. In fact, the Chinese use it to increase the purities from 99.99 to four nines, five nines, and even six nines. So for some applications you require higher purity levels. It's a far easier processing method to scale up and to take feedstock from other projects. In fact, we've demonstrated for the Department of Energy that we can take coal waste from Pennsylvania and do high purity separation of rare earths using our processing methods. So it's not a step that can be skipped unless one needs to send it to China for processing, which is not going to help us with our objectives here.

Ryan Morfin:

How many other, we'll call it, going concerns on any other businesses that are doing this, that are trying to, I guess, start the development of these mines. Are you guys one of a few or are you one of many? And is it an international or just a US game? Who's leading the charge at going after this?

Pini Althaus:

Yeah, well, I'd say the Australians are leading it outside of China right now. You've got some really good projects in Australia. Again, more skewed toward the light rare earths. There's one more heavy rare earth project in Australia, which is not yet producing. The United States, you've got MP Materials, you've got Ucore in Alaska, you've got the Bear Lodge project in Wyoming, which is also another light rare earth project. So as far as a heavy rare earth project that looks like it will come online in the near term, that would be our project. In Canada there are a couple of projects there as well, and again, more skewed toward the light rare earths. But we really need to get as many of these projects online as possible. Because again, I don't see it as competition. We all have a problem doing supply agreements or offtake agreements for our materials.

Pini Althaus:

In fact, one of the things that we're going to have to consider is looking at potentially scaling up our production, based on the demand that we're already starting to see. And I think other companies would find that as well. So it's all about the economics of the project. You have projects that were economically viable back in 2012 or rare earth prices with 35% or so higher than they are today, and are not necessarily viable today. So that's the challenge as well, economically viable projects. And we've got to get as many of them online as possible. It takes many, many years. I mean, our project has had over $70 million put into it to get to where we are today, and we're close to getting to the production scenario. It all revolves around processing at this point in time.

Pini Althaus:

We'd be very happy to see another couple of projects come online, because this is extremely important for national security and for the economy as well. I mean, if you think about it, Ryan, if you've got a billion dollars of rare earth materials, that translates into a trillion dollars or I should say trillions of dollars of finished product. So you've got a magnet in your phone there that's worth a couple of dollars and the cell phone's a thousand dollars. And electric vehicles and defense applications even more.

Ryan Morfin:

Yeah, everyone has one of these iPhones now, and there's tremendous amounts of rare earth on the circuit boards here. And I think people take it for granted that that supply chain is not secure right now. So one question for you, there's talk of this maybe medium term to longterm, but there's talk about mining in space. Do you think that's a feasible option in the longterm, medium term? What are your thoughts on that?

Pini Althaus:

No, that's just ridiculous. I mean, we're trying to find ways to make mining on earth economically viable. I think the cost of going up to space would be more than what our capex will be bringing our entire project into production. I mean, we've got about a 350 to $400 million capex to bring 130 year mine life into production. I'm not an aerospace expert, but I think sending a rocket, building a rocket ship and sending it up, I think maybe on the fuel alone, you could bring a couple of projects into production. So unless we have a fortunate situation or an asteroid lands on earth, and fortunate if it lands somewhere where we don't care, I don't see how that happens. And if it's big enough, it's a problem as well. It's nonsense. And even, options aside of the deep sea mining for rare earths, I mean, you've got all sorts of environmental issues around that as well. I think we need to look at projects that we can bring online, that can be done so in an economic way, that can be done so in an environmentally responsible way.

Pini Althaus:

I mean, one of the things that we've done at our project is we've got in excess of 60% of the materials that have come out around top, will have a clean green energy applicability to them. So we're using the benign processing method. We're going to be using renewable energy on site. In fact, we will likely be putting a solar farm on site as well. We've talked to a couple of companies that have approached us about that, and we'll be a net producer of power for the surrounding area. So there are ways to do it which don't affect the environment. Obviously if there's a project that's situated on a sensitive area, that's a unique situation for that specific project. We've seen it with the Pebble project, which is not a rare earth project. The Pebble project in Alaska where their environmental concerns is we've been recognized by both Republicans and Democrats, but we have to be reasonable about the projects that don't have environmental concerns.

Ryan Morfin:

So Pini, in season two, we ask all of our guests a series of six questions. They're usually, yes, no questions, but trying to take a survey of our conversations. And if you want to add a little context to the yes or no, feel free, but here goes the first question. If there was a COVID vaccine available today, would you take it?

Pini Althaus:

Yes.

Ryan Morfin:

Who do you think is going to win the election?

Pini Althaus:

Which election?

Ryan Morfin:

The US election.

Pini Althaus:

Well, I think it looks like Joe Biden's going to win it, but I think what happens, if we go past January six from my understanding is that the house will vote on it and it's one vote per state. But I don't know if I see it getting there at this point in time. I really don't have a crystal ball.

Ryan Morfin:

Third question. What type of economic recovery are we in? What type of shape is it taking? A V-shape, W, U, L?

Pini Althaus:

Yeah, I think 2021 is going to be challenging. I think we've been, and rightly so. I mean, we've had no choice as of almost every other country. We've been printing money for the past year because of COVID. And I think we've got to brace ourselves that, at some point in time, the chickens come home to roost. It was a necessary step. People needed it on an individual level. Businesses needed it as well, but I think we've got to do whatever we can to stimulate the economy, give people confidence to go out and work again, employ people. So I think we've got to watch ourselves, especially in 2021. And I have some concerns, but long-term, I think the approach in the United States is a healthy one.

Ryan Morfin:

During lockdown this summer and quarantine, was there anything in particular that you accomplished that you're particularly proud of?

Pini Althaus:

Yeah. A great amount of family time, which, if you would've asked me a few years ago if I could sit at home and be at home for six months, I would have told you absolutely not. I wouldn't be able to do it for six days, but it has... I'm sure it's done this with a lot of families as well. It's brought families together. We had a baby actually last year on Thanksgiving. So I was doing a lot of travel at the time and thought I wouldn't get to see my daughter in her first year or couple of years too often. And being home with her every day is actually been just the most amazing experience. So thankful at least for some silver lining in COVID.

Ryan Morfin:

Are there any silver linings that you see in the economy going into 2021?

Pini Althaus:

Yeah, I think we've gone through an absolute beating and it looks like we've got the ability to come out of it. And I think that's a testament to how strong the economy was built up in the years preceding COVID. So overall I remain an optimist. I mean, we are a country built on opportunity and going out and making it happen. And we're not a socialist country sitting and waiting for people to send us paychecks or wealth distribution or anything like that. I think the American dream still lives on. I think if you go out and you're willing to work and put your head to it and heart in it, I think we do have the ability to climb out of it. So if we look at what the economy is doing over the past few weeks, it looks like it's starting to rebound. And to me, that's assuring because it could go completely one way as well.

Ryan Morfin:

And the last question is, is there anything that you're watching, or listening to, or reading today that has been impactful on your thinking that you'd like to share with our audience?

Pini Althaus:

Yeah, that's a good question. I think it's been more personal stories. The news, I sort of take that in context or with more than a grain of salt. In some cases stay off the news channels for a number of days at a time, it became quite repetitive. But I think on the personal side, talking to friends, my family's all back home in Australia, they've just come out of 110 day lockdown, which we can't relate to that. It's been very trying on them and seeing the fortitude that they've had to come out of that and stay intact. I think the mental health issues that will come out of COVID are going to have a far longer effect than the economic issues. I think we're going to have to focus on mental health issues in this country for a long time to come.

Pini Althaus:

The impact on kids has been significant with regards to lockdown or remote schooling, et cetera. But to see people come through it. I think it's a testament to people in general and to the country and other countries as well, to see got that fortitude and survival instinct to try to get through whatever adversity we can. So hearing the personal stories, the challenges that people have gone through, I think it's made me a lot more aware of things that I have to be thankful for and where we can help out other people as well. I think we have to be united going forward because there are things...

Pini Althaus:

I think one of the things that COVID has shown us is we can get into this complacency and life goes on and we go one day to the next. And all of a sudden we get hit by something that affects everybody equally. I mean, COVID, whilst there were groups of people, whether it was the elderly or people with underlying health conditions, that got hit the worst. I mean, we all got hit in some form or another. So really, this should be something that unites us, not divides us.

Ryan Morfin:

Well, Pini, I appreciate you coming on today to talk to us a little bit about the supply chain crimp on rare earth and we'll definitely keep an eye on it and would love to have you back in the future.

Pini Althaus:

Thank you, Ryan. Thanks for having me.

Ryan Morfin:

Absolutely. Thank you. Bye-bye. Thanks for watching Non-Beta Alpha. And before we go, please remember to like, and subscribe on Apple podcasts and our YouTube channel. This is Non-Beta Alpha, and now you know.

 

The unique history of a Maryland based distillery and craft secrets on how to make great American Bourbon w/ Admiral Scott Sanders Founder of Tobacco Barn Distillery

The unique history of a Maryland based distillery and craft secrets on how to make great American Bourbon w/ Admiral Scott Sanders Founder of Tobacco Barn Distillery

The unique history of a Maryland based distillery and craft secrets on how to make great American Bourbon w/ Admiral Scott Sanders Founder of Tobacco Barn Distillery

read more

Want to join our show?

Would you like to be a guest on the Non-Beta Alpha Podcast? Please click below and let us know that you are interested in being a guest on the podcast and we will get back to you shortly.

Skip to content