It was a fine spring morning in 2013. A low-pressure, clear-sky day. The kind we get on the Mid-Atlantic East Coast perhaps less than a dozen times a year.
Jeff Chang, my co-founder at Vest, a company we had started only recently, had beaten me to our windowless office in the Northern Virginia suburbs of Washington DC. The office was barely large enough for the desk on which we balanced our laptops. While far from ideal, it was an upgrade from the basement of my house, made possible by having just closed our seed round of financing. The exhilaration of a successful capital raise was already behind us. We had moved on from telling the world that we were a legitimate, funded company to focusing on a recent filing we had made for a unit investment trust with buffered downside and capped upside.
Launching a new investment product in the U.S. for public investors requires regulatory approval. Asset managers submit a detailed filing to the Investment Management Division of the Securities and Exchange Commission (SEC), respond to examiner questions and requested changes, and once the SEC is satisfied, the fund is approved to launch. That day, we had a call scheduled with our attorneys at Chapman & Cutler LLP to discuss the latest comments from the examiner.
Because the weather was so unusually nice, we decided to take the call outside, standing in the parking lot. Our filing disclosed the use of a relatively obscure kind of option known as a FLEX option. Our attorneys explained that we would likely need to delay the launch of the product. The examiner was unfamiliar with FLEX options and would require additional disclosures around risks specific to them. Then came a reasonable question from the attorney: “Would you want to replace FLEX options with standardized listed options?”
The implication was clear. Standardized options were familiar to the examiner and routinely used in UITs. Switching would likely allow us to launch sooner. But it would also mean giving up the precision that FLEX options can afford – the potential to define exact buffers and caps – and instead offer a product with only approximate outcomes.
It’s funny how memory works. I recall that moment vividly. Not least because of the odd setting of taking a regulatory call in a parking lot, but because it was the first of many decisions where business pragmatism would come into direct conflict with an attribute of the product we wanted to put into the hands of investors.
Jeff and I didn’t hesitate. Even though that decision ultimately delayed the launch of our FLEX-based buffer fund by nearly three years, we chose the ability to seek precision over speed. In that moment, we committed to what has since become a core principle at Vest. We make meticulously thoughtful investment products which are built with precision, care, and respect for the people who trust them.
There are early decisions in the life of a company that quietly shape its values for decades. More than ten years later, Vest has helped design over 300 funds, and investors have committed more than $50 billion of their savings to these products. Making meticulously thoughtful investment products has remained our north star.
What Care Looks Like
There is something unmistakable about a well-made object. You feel it immediately. Sometimes before you can explain why. The weight is right. The edges are considered. Nothing feels accidental. Whether it’s a piece of software, a watch, a chair, or a building, the best creations carry the imprint of someone who cared deeply about how the thing would be used, not merely that it worked.
Jony Ive has spoken about the care Apple took in something as trivial-seeming as how the charging cable is wrapped inside the box of a newly purchased iPhone, so that it emerges cleanly and untangled. He describes a kind of spiritual connection between the person who designs a product and the person who uses it. That connection is perceptible. The user can sense the care that went into the craft. It isn’t enough to solve the functional problem. A well-designed product elevates the experience. It moves the species forward.
Most industries openly celebrate this kind of craft. Engineers talk about elegance. Designers talk about restraint. Builders talk about pride in their work. Finance, by contrast, rarely speaks this way about investment products. Products are “launched,” “distributed,” “scaled.” They are categorized, benchmarked, and commoditized. The language of care—the idea that an investment product might be beautifully made—feels almost out of place.
And yet, investment products are not commodities. They are designed artifacts. And like any well-made object, whether software, architecture, or art; the best ones are built with care, judgment, and love for the user.
The challenge, of course, is that most investors don’t talk about “design” when they evaluate an investment product. They talk about performance, fees, or ratings. But design reveals itself in quieter ways: how the product behaves, how it feels to own, and how reliably it delivers on its stated objectives.
Friction is the first giveaway. Most well-designed products are easy to buy and easy to sell. Liquidity is there when you need it, bid–ask spreads are tight and execution is predictable. You don’t feel trapped. You don’t worry about whether you’ll be able to exit when conditions are less forgiving.
Precision is the next signal. A carefully designed product does what it says it will do. Tracking error is minimal. Outcomes align closely with expectations. There is little gap between the stated objective and the realized experience. When markets move up or down, the product responds in ways that feel intuitive rather than surprising.
Tax efficiency is another quiet but powerful expression of care. Investors may not notice it day to day, but over time it compounds. Well-designed products minimize unnecessary distributions, manage turnover thoughtfully, and avoid creating tax liabilities that have little to do with economic return.
Structural integrity matters too, even if it’s invisible most of the time. Products that rely on embedded credit risk, discretionary behavior by an issuer, or fragile market plumbing eventually reveal their weaknesses – often at the worst possible moment. Sound design favors robustness or reliability over cleverness.
Finally, there is the emotional experience of ownership. The best products reduce anxiety rather than amplify it. They behave consistently across environments. They fit seamlessly into the investor’s life. They don’t surprise investors at precisely the wrong time. This, too, is a form of design, rooted in empathy for how real people experience markets.
Few innovations in finance embody these principles as clearly as the exchange-traded fund.
The ETF as a Design Template
The exchange-traded fund did not begin as a bold attempt to reinvent investing. Its origins were almost modest. By the late 1980s and early 1990s, index investing had already taken hold. John Bogle’s mutual funds had demonstrated that low-cost, rules-based exposure could outperform most active managers over time. But mutual funds carried frictions that were increasingly hard to ignore: once-a-day liquidity, tax consequences driven by other investors’ behavior, and access to liquidity that often arrived precisely when markets were most stressed.
The question that began to circulate was deceptively simple: what if an index fund could trade like a stock? The earliest answers came not from large asset managers, but from market-structure thinkers—people who understood exchanges, settlement systems, and how liquidity was actually provided. Their breakthrough was to let a diversified portfolio of securities operate inside the stock-market infrastructure rather than alongside it. By structuring the fund as an exchange-traded security, ETFs could leverage decades of investment in equity-market plumbing: continuous pricing, transparent order books, and a network of brokers and market makers already optimized for intraday trading.
This single design choice changed the investor experience. Liquidity was no longer rationed to a single NAV print. Investors could enter and exit when they wanted, in the size they wanted, at prices set by the market rather than by a centralized administrator.
But liquidity alone wasn’t the real genius. The deeper innovation lay in the creation and redemption mechanism. Instead of forcing the fund itself to transact when investors traded, authorized participants could exchange baskets of securities for ETF shares, and vice versa. This decentralized liquidity provision kept prices tightly anchored to underlying value and dramatically reduced tracking error. Arbitrage became a stabilizing force rather than a flaw.
Just as importantly, this structure shifted costs to where they belonged. In mutual funds, the activity of one investor imposes costs on all others. In ETFs, those costs are largely borne by the investors who trade. Long-term holders are insulated. Tax efficiency emerged naturally as well, as in-kind transactions minimized the realization of capital gains. Once again, care showed up in the details.
What’s striking in retrospect is how little enthusiasm ETFs initially generated. Early products attracted few assets and were widely dismissed as niche or academic. Advisors questioned whether investors really wanted intraday liquidity. Asset managers doubted the structure would scale.
However, good design compounds. As markets became faster, more global, and more volatile, the potential advantages of ETFs became impossible to ignore. Liquidity generally held up under stress. Over time, ETFs didn’t just compete with mutual funds. They became the default interface for delivering investment ideas. They absorbed active strategies, alternatives, factors, and eventually, derivatives-based outcomes.
In hindsight, this success can feel inevitable. But it wasn’t driven by marketing or timing. It was driven by design; a series of small, deliberate choices that reduced friction and respected the investor’s experience. This is what thoughtful product design looks like in finance. And it remains a powerful template for what comes next.
Speed vs. Craft
Another pivotal decision in Vest’s history came with the launch of the first FT Vest Buffer ETFs, in partnership with First Trust. By 2019, Vest had already designed and managed the world’s first buffer strategies; first in unit investment trusts, then in mutual funds. We spent six years building the category. Now the market structure had finally matured enough to bring buffer strategies into the ETF wrapper.
By then, the ETF industry had increasingly become an arms race. Intellectual property protections in asset management are limited, and speed often matters more than originality. The first product to market frequently becomes the default choice for investors, advisors, and platforms. Early asset gathering creates powerful network effects: higher assets lead to better liquidity, tighter bid–ask spreads, and greater visibility, which in turn attract more flows. By the time competing ETFs arrive, the category leader may already be entrenched. “Second best” can be a very difficult place to be.
We invented the buffer fund concept, filing our first patent in 2013 and launching the first mutual fund in 2016. Being first with buffer ETFs mattered. The rapid rise of ETFs over the prior decade meant this was the largest prize in the buffer-product battle. Competitors had begun filing products that resembled our registration statements. The race was on.
But, there was a complication. To deliver an ETF seeking true tax efficiency, Vest was working with the options exchange, Cboe, to pursue a special rule filing that would allow for the in-kind creation and redemption of options. As discussed earlier, this mechanism is the deeper innovation of the ETF structure. It is what confers much of its tax efficiency. At the time, however, exchange rules did not permit in-kind delivery of options. Without the rule change, buffer ETFs would have to transact options in cash, introducing taxable events and undermining the investor experience.
The rule filing would take time. We faced a familiar choice. We could rush to market, likely beat competitors, and accept tax inefficiency as a tradeoff. Or we could wait, risk losing the “first-mover” headline, and deliver a product that fully embodied the design principles that made ETFs so powerful in the first place.
In partnership with First Trust, we returned to our north star. We chose the investor experience over speed.
The rule filing eventually came through. The cost of waiting was real. Another manager claimed the headline. We claimed the track record, having the longest operating history of buffer ETFs without a single taxable distribution.
Somewhat selfishly, it also brought a sense of joy to those of us working behind the scenes. Product developers rarely stand in the spotlight. We toil quietly, advocating for details that most investors will never notice but will nonetheless feel. Those priorities are often subordinated to commercial urgency. To our great satisfaction, First Trust shared this commitment. Together, we tried to honor that subtle, “almost spiritual” connection (as Ive puts it) between the people who design investment products and the people who ultimately trust them with their savings.
What we were doing wasn’t merely a technical choice. It was an act of care. It was the quiet insistence that if a product is going to become part of someone’s financial life. It should deserve the same devotion that a craftsman pours into an object meant to be held, used, and trusted. I think of the designers who obsess over a cable’s curve or the satisfying click of a clasp, not because anyone demands it, but because the maker knows the user will feel it. This connection transcends explanation, and lands as a feeling of trust, ease, and confidence.
Why Derivatives Matter: Additional Degrees of Freedom
I fell in love with derivatives long before Vest existed, and long before I thought about building products for anyone other than the trading desk I sat on. Early in my career, working as a structurer on an investment bank’s derivatives desk, I began to see markets differently. Not as monolithic exposures to be owned or avoided, but as raw material that could be taken apart, reshaped, and recombined.
Derivatives are one of the most fungible tools in the investment product developers’ tool kit. In trained hands they are like clay, allowing creative product developers to shape investment products for a wide range of use cases. Paul Graham said famously about software engineers in his book Hackers & Painters;
“What hackers and painters have in common is that they're both makers. Along with composers, architects, and writers, what hackers and painters are trying to do is make good things. They're not doing research per se, though if in the course of trying to make good things they discover some new technique, so much the better.”
The same could be said about financial engineers, a term often used to describe the kind of work that structurer like me did. Sitting at the intersection of trading, risk management and client servicing, and building products that meet investing clients’ needs. To understand a client’s investment dilemma and go through a creative and analytical process to produce an investment product that is a best match solution for the dilemma is a beautiful thing.
Derivatives make this possible because they introduce degrees of freedom that simply do not exist in more traditional investment instruments. A stock, held outright, is a blunt object. You own all of it: the upside, the downside, the volatility in between, the timing of cash flows, the financing implicit in holding it. There is no separation. Everything comes bundled together.
Derivatives allow you to unbundle. Upside and downside can be separated and priced independently. Cash flows can be reshaped – smoothed into income streams or compressed into bullet payments. The economic exposure of a stock can be recreated synthetically without ever owning the underlying shares. Financing can be isolated from market exposure, borrowed implicitly through options rather than explicitly through margin or loans. Time itself becomes a design variable. Volatility becomes something you can sell, buy, or transform.
Once you see this, it is hard to unsee. On the derivatives desk, a payoff was never just a payoff. It was a set of building blocks. A put spread here. A call overwrite there. A forward, a swap, a box, a collar. Each piece did one very specific thing. And because each piece had a well-defined role, they could be assembled with intention, like components in an engineered system, rather than accepted wholesale.
What struck me most was how surgical these tools could be. With the right structure, you could remove just the part of the risk you didn’t want while preserving the part you did. You could trade away upside beyond a certain point to fund protection below another. You could reshape outcomes without changing the underlying asset at all. This wasn’t financial alchemy. It was engineering.
Of course, with freedom comes constraint. Derivatives-based product design does not happen in a vacuum. It happens within a complex and evolving framework of regulation and taxation. In the U.S., the Investment Company Act of 1940 (and more recently, Rule 18f-4) defines how derivatives can be used responsibly inside registered funds. The tax code adds another layer, where small structural choices can have large downstream consequences depending on how income and gains are characterized. Market rules, exchange mechanics, margin frameworks, and clearing requirements all impose their own boundaries.
I’ve come to see these constraints not as limitations, but as part of the craft. Good design rarely emerges from infinite freedom. It emerges from working thoughtfully within boundaries, understanding which constraints are immovable, which are flexible, and where creativity can safely express itself. The best derivative-based products are not those that push every limit, but those that respect the spirit of the rules while discovering new combinations inside them.
This is where judgment matters most. Not every degree of freedom should be exercised. Not every structure that can be built should be built. The temptation to over-engineer is always present, especially when the tools are powerful. Craft lies in knowing when to stop. When the product is precise enough, simple enough, and aligned enough with the investor’s needs.
At Vest, this philosophy has become central to how we approach product design. We aren’t trying to showcase complexity. We are trying to harness flexibility in service of clarity. Derivatives give us the ability to design outcomes that traditional funds cannot, i.e. buffers without credit risk, income without surrendering ownership, financing without fragile leverage, but, only if we exercise restraint alongside creativity.
This, to me, is the art of financial engineering. It is not about cleverness for its own sake. It is about using powerful tools with humility. About understanding that every additional degree of freedom carries responsibility. And about remembering that behind every payoff diagram is a real person, trusting that what we have designed will behave as intended when it matters most.
Derivatives make it possible to design investment products. Craft determines whether those products deserve to exist.
Precision Without the Promise
Early in our journey building Vest, Jeff and I became fixated on what we saw as the Achilles’ heel of structured notes: credit risk. A structured note is ultimately a promise from a bank. And that promise is only as good as the bank’s ability to make good on it when the payoff comes due. In 2008, investors who held Lehman Brothers–issued notes learned this lesson the hard way.
Yet, there was something about structured notes that we deeply admired. When the issuing bank survives, the note delivers with remarkable precision. There is no tracking error. No approximation. No slippage between what is promised and what is delivered. The payoff arrives exactly as specified at issuance. In that sense, structured notes represent a kind of gold standard in outcome fidelity, even if they achieve it through a fragile wrapper.
At first glance, the asset-management framework seems ill-suited to deliver that level of precision. Unlike structured notes, funds are not backed by promises; they are backed by securities—options, in particular. And funds are subject to a host of real-world frictions that can erode outcomes over time: transaction costs, funding mismatches, rebalancing drag, operational frictions. It is reasonable, even expected, to see some tracking error relative to a predefined outcome.
But again, this is where design matters. With careful structuring, disciplined execution, and a willingness to obsess over details others accept as inevitable, much of this slippage can be engineered away. Vest has a proven track record of delivering on the outcomes advertised at the start of the outcome period and has made diligent efforts to avoid this slippage.
This is not a trivial claim. A study published in the Winter 2023 Special Edition of The Journal of Beta Investment Strategies, titled “Evaluating Target Performance for Downside Buffer ETFs,” examined realized outcomes across major buffer-fund managers. It found that managers other than Vest delivered negative tracking error, in some cases as large as –0.48%.
Is a –0.48% shortfall catastrophic? Probably not. It is more likely an annoyance than a disaster. But, it reveals something important. It betrays a lack of care. Not malice. Not incompetence. Just acceptance.
At Vest, we chose not to accept it. We didn’t seek to eliminate tracking error in response to client complaints, nor as a post-hoc fix. We did it proactively, because we believed investors deserved an experience comparable to what they had come to expect from structured notes and index annuities: precision, reliability, and trust that the outcome would match the design.
It isn’t especially hard to remove this source of slippage. In fact, we’re now seeing other issuers update their practices to do better going forward. But our approach was deliberate from the start. It was motivated not by competition or optics, but by a simple conviction: if we were going to offer defined outcomes, we owed investors the dignity of delivering them.
Craft, Responsibility, and the Future of Investment Design
For those of us who build investment products, our craft is invisible much of the time. There is neither packaging to admire nor interface to touch. Most investors never know our names. Yet when a product behaves with clarity, when it delivers what it promises without unexpected friction, when it feels reliable even in stress—that is our design showing itself. That quiet, faithful reliability is a form of love.
If there is a single idea that runs through this essay, it is that investment products are not discovered. They are made. And like all things that are made, the difference between something that merely functions and something that endures lies in the care with which it is designed.
Derivatives give us an extraordinary set of tools. They allow us to decompose risk, reshape outcomes, and introduce precision where none previously existed. They offer degrees of freedom that can elevate investing from blunt exposure to intentional design. But power alone is not what determines quality. Judgment does. Restraint does. Empathy does.
The history of finance is littered with examples where powerful tools were deployed carelessly. Where complexity was mistaken for sophistication, and speed for progress. What makes this moment different is not the novelty of derivatives, but the maturity of the ecosystem around them. We now have the regulatory frameworks, market infrastructure, and product wrappers to use these tools responsibly and at scale. What remains is a choice about how we use them.
The most meaningful progress in this space will not come from being first, loudest, or most clever. It will come from being deliberate. From building products that do what they say, without surprise. From respecting the trust investors place in structures they may never fully see, but deeply feel.
The most important work ahead will not happen on launch days. It will happen quietly, inside design documents, regulatory filings, risk committees, and long conversations about tradeoffs. It will happen in the discipline to say no, in the patience to wait, and in the resolve to put the investor's experience above all else.
This is how enduring products are made. This is how trust is earned.
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Disclaimer: Past performance is no guarantee of future results. The opinions and forecasts expressed belong to the author, may not actually come to pass, and should not be construed as a recommendation of any specific security or strategy. All content has been provided for informational or educational purposes only.
