How preferred stock tool keeps advisors alert

This article was produced in partnership with BNK Invest.

For financial advisors seeking to carve out a niche or distinguish themselves amid the proliferation of low-cost, index-tracking ETFs, BNK Invest believes it offers an invaluable tool for the discerning professional.

As advisors face mounting pressure to provide more granular asset allocation and portfolio construction—demonstrating value, justifying fees, and working more closely with clients—preferred stocks remain an underutilized security.

Typically considered a hybrid between stocks and bonds, preferred stocks offer investors fixed dividend income and priority claims over earnings, compared with common shareholders. While they may not have the cachet of the “Magnificent Seven” or Nvidia, BNK Invest’s preferredstockalerts.com is capitalizing on this niche with a website and newsletter that keeps subscribers informed when new preferreds come to market, when they are trading below par, and when there is insider buying.

The value of the “alert” is both simple and fundamental. A preferred stock does not immediately list on its ultimate destination exchange; before that occurs, it trades under a temporary symbol over the counter on the OTC market. This window is significant: regardless of market conditions, investors can often secure the best price during this period, as underwriters seek to move shares into public hands. “If you know about this temporary trading window,” said Ben Nobel, BNK’s chief technology officer, “you get a jump on anything you might want to buy.”

Whether it’s a preferred trading below par or an instance of insider buying, this is valuable intelligence for advisors, offering a way to keep clients updated and engaged. Highlighting the unique characteristics of preferreds also provides a point of differentiation from ETF bundles.

“You could simply buy an average ETF and own a basket of preferred stocks,” said Adam Menzel, BNK’s chief operating officer. “But an advisor can point out, for example, that the top holdings in these ETFs are non-cumulative securities, and the client might want to reconsider that. Advisors can construct their own model portfolios and demonstrate how they are adding value.”

BNK concedes that preferreds are not for everyone. They do not command headlines like common stocks and are, by nature, less speculative. However, in light of the Federal Reserve’s recent interest rate cuts, the timing has piqued the curiosity of self-directed investors and finance professionals alike.

“It is a really interesting time right now,” Nobel said. “With interest rates coming down, we’re seeing a lot of people seeking a higher, safer yield.”

Years in the making

The genesis of preferredstockalerts.com dates back several years, but the catalyst for BNK’s recent redesign and outreach efforts was the discovery that a significant number of their subscribers were advisors from large investment firms, mingling among the do-it-yourself crowd.

BNK operates a network of financial websites focused primarily on dividend and income investing. It also publishes a paid newsletter and runs Contrarian Outlook, a site featuring authors who specialize in income- and dividend-producing stocks.

preferredstockalerts.com was added to BNK’s portfolio when the concept’s architect, Doug Le Du—a regular speaker at BNK’s conferences—announced his retirement and the closure of his original site, the CDx3 Notification Service (named for its aim to generate returns three times those of a bank CD).

“When we saw that news, Adam reached out and said, ‘Let’s talk. Maybe there’s a way our company can keep your concept going,’” Nobel recalled. A deal was struck, a new name proposed, and the concept lives on. In addition to a popular book, Le Du established a 10-point scoring system, which BNK continues to use to help investors screen the preferred stock market and flag those that violate his rules.

The site also features a screening tool, enabling advisors to model portfolios based on their chosen criteria, and the ability to set up multiple watch lists to monitor preferreds of interest. For instance, some clients may have a higher risk tolerance and seek higher yields, while others may be more cautious due to their investment time horizon. Advisors can also organize watch lists by industry and sector.

“There are many preferreds issued by banks, so you could get lost in the banking sector,” Nobel explained. “But our site offers a breakdown by industry and sector, so you can build a balanced model portfolio. I don’t think there are any preferred ETFs out there that do that right now; you couldn’t even mimic that with an ETF.”

He added, “This is a niche area, and there is definitely an upper limit to it. But anyone with a portfolio of income-generating stocks probably has preferred stocks in there. We also cover all the exchange-traded debt instruments. It’s called Preferred Stock Alerts, but there are baby bonds as well. There’s a huge universe of people who could benefit from knowing about the service.”