ITEM 1. BUSINESS
Business Overview
EF Hutton Financial Corp., a wholly owned subsidiary of the registrant, is developing an digital B2C financial platform that is to provide financial products, services and information, including, but not limited to, trading and investments. The digital platform will deploy advanced technology that is developed from a combination of licensed software and internal proprietary software and customized user interfaces. The platform will be available on OCs, tablets, mobile devices and all major electronic devices and is expected to be offered to the market in mid-2016. In addition to the B2C products and services, EF Hutton plans to provide services to institutions. EF Hutton will market nationwide through a combination of internal and external media.
The digital financial platform complements Gateway, the internet marketplace we have continued to develop over the last nine months. Gateway connects consumers with a wide range of financial providers and solutions. Gateway makes independent providers a viable choice for consumers by eliminating barriers that impede consumers from using independent providers, primarily through marketing to raise awareness of the independent sector and by standardizing and streamlining the process of selecting and engaging independent financial professionals. Financial providers who register with Gateway benefit by generating new client relationships.
History
The registrant was incorporated under the laws of the State of Colorado in March 2007 under the name Twentyfour/seven Ventures, Inc. On October 27, 2014, the registrant incorporated EFH Financial Corp. as a wholly owned subsidiary. On November 20, 2014, the name of the registrant was changed to EFH Group, Inc. On March 11, 2015, the name of EFH Financial Corp. was changed to EF Hutton Financial Corp.
The registrant incorporated Liberty Ventures, Inc. in the State of Colorado on November 16, 2014 as its wholly owned subsidiary. Liberty operates a specialty insurance agency that provides surety bonds underwritten by Bankers Insurance of Florida. On November 23, 2014, the assets and liabilities of the registrant were contributed at book value to Liberty and the registrant approved a spin-off of its shares in this subsidiary to its shareholders. The common shares of EF Hutton Financial Corp. were not included in the spin-off. The spin-off was approved in contemplation of asset purchase described below and the subsequent change of control of the registrant. The spin-off common shares are being held in escrow with J.M. Walker & Associates, Attorneys At Law until all state and federal requirements have been met by Liberty.
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On November 25, 2014, the registrant purchased certain assets of EFH Group, Inc., a Wyoming corporation. The assets consist of various trademarks and license rights, rights to computer programming code and other intellectual property. The registrant issued a total of 52,173,000 restricted common shares and 5,797,000 restricted Class B common shares as consideration for the EFH Wyoming asset purchase.
We have never declared bankruptcy, have never been in receivership, and have never been involved in any legal action or proceedings. We are not a blank check company as that term is defined in Rule 419(a) (2) of Regulation C of the Securities Act of 1933, because we have a specific business plan and purpose. The registrant has had informal exploratory discussions with some acquisition candidates, but does not have any present plans, proposals, arrangements or understandings with any representatives of the owners of any business or company regarding the possibility of an acquisition or merger.
Operations
Through its subsidiaries, EF Hutton Financial Corp. and EF Hutton Investments LLC, a registered investment advisor, the registrant is developing a range of services for individuals and institutions.
1.
Individuals
. EF Hutton is developing services that add-value to individuals.
a.
Self-Directed Clients. a B2C financial technology platform to offer financial products and services. The platform will allow self-directed investors to invest and manage their retirement funds and other investment portfolios.
b.
Advised Clients. EF Hutton plans to service a limited number of ultra-high networth clients serviced by our investment advisors.
2.
Institutions
. EF Hutton is developing services that solve financial and operational issues for institutions.
a.
Asset management services for institutions that require specialized solutions.
b.
Practise management services designed to enhance the efficiency of financial advisors.
3.
Information Services and Other Services
. EF Hutton is developing other services that add-value to clients and enhance its service.
a.
Investment research consisting of reports on companies and on the economy.
b.
Gateway, an internet service that connects consumers with independent financial services providers.
Each of the products and services described above is in a development stage and are expected to be made available commercially in stages during 2016. Timing is a function of company resources and coordination with third-party suppliers.
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Currently, Gateway is operational. In the last nine months it has been tested in live beta mode and there has not yet been actively marketed. Gateway is a B2C marketplace for financial services. Operationally, Gateway is a two-sided market network that connects consumers with independent financial service providers. The service will provide consumers with one website that they can use to identify and locate providers for all their financial needs. Consumers can engage providers for insurance, tax, real estate, lending, financial planning and other services.
The service is free to consumers and provides the convenience of accessing information on providers for all services from one single website. Consumers can choose a provider whose qualifications have been verified by the registrant. Verification of qualifications applies to all service levels except for the Basic Service and is conducted by our staff and contractors we may engage to assist in verification. The verification process involves checking regulatory status and provider credentials. The providers of services include: retirement, insurance, financial planning, tax, trusts and estates, real estate, and other financial services, including additional categories of service that will be added in future, see
www.efhutton.com
for specific set of service categories. Clients can book appointments with providers of their choice without leaving the website. The registrant provides a reward program that gives points to consumers that use service providers in the registrants network. Gateway receives a portion of service revenues and qualifies the service providers on the network.
Service providers benefit from a source of new clients, because registrant does the marketing. Management estimates that it typically costs more than $250 for financial service providers to acquire a new client.
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Financial Services Industry
In 2010, the financial services industry, excluding banks, accounted for $1.758 trillion, 12.1% of total GDP in the United States, according to the US Department of Commerce, Bureau of Economic Analysis. Independent providers of financial services direct to consumers are a segment of the total financial services market. Based on in-house research, management estimates that independent financial providers account for approximately 18% of the financial services market by revenue or $316 billion of annual GDP.
The financial services industry is highly fragmented and the independent sector is even more so. Approximately 2,320,000 professionals are employed in the sectors where most independents work. The number of professionals in each sector illustrates the size of the market. According to the IRS, there are over 1,130,000 employed for tax advice and preparation. According to US Bureau of Labor Statistics, there are over 440,000 insurance independent insurance agents. According to the National Association of Realtors there are over 420,000 independent real estate agents. According to the SEC, in 2011, there were over 275,000 investment advisor representatives.
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Based on a 170-page report from the McKinsey Global Institute,
The Social Economy: Unlocking and Productivity Through Social Technologies
which stated that client acquisition costs for banks are generally $70
to $300 in financial services.
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Snapshot of the Independent Financial Provider Segment:
Estimated Number of Firms
44,000
Tax Prep and Advice
1
87,577
Independent Real Estate Brokerages
2
38,500
Independent Insurance Agencies
3
9,581
Independent RIAs - employing 50 or fewer professionals
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179,658
Total
According to McKinsey
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, a thought-leader in financial services, retail financial
products are intangible and often complex; consumers find it difficult to make comparisons across offerings, even within the same category. Consumers do not always have full transparency into products or a clear understanding of how they work. So, rather than doing their own research and evaluation, consumers often place their trust in an advisor (either a professional or a knowledgeable relative or friend) or a brand.
According the McKinsey report, the largest opportunities in the value chain for consumer-facing financial institutions are in customer insights and sales and marketing. Value creation in these areas could amount to approximately $133 billion to $218 billion per year globally.
Operating Strategy
The registrant intends to expand its business by internal growth and by acquisition.
The registrant also intends to acquire related businesses that will complement the current financial technology business that can expand the range of services it offers. Prospective acquisition targets include existing financial firms, technology providers and marketing
companies. The registrant is presently evaluating several such businesses as potential merger or acquisition candidates, and anticipates expanding the scope of possible candidates.
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According to mynacc.org. See http://mynacc.org/6154/owntaxbusiness.html
2
According to National Assn of Realtors 2008 study and the Inman 2015 Special Report Shift to Independent Brokerages
3
According to 2012 Agency Universe Study by Future One and sponsored by Independent Insurance Agents & Brokers of America
4
According to a 2014 report A Profile of the Investment Advisor Profession by Investment Advisor Association
5
McKinsey Global Institute November 2012 How Social Technologies Create Value in Consumer Financial Services by Michael Chui, Et Al.
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The successful acquisition of related, complimentary businesses is expected to increase profits by providing a broader range of services in vertical markets which are consolidated under one parent, thus reducing overhead costs by streamlining operations and eliminating duplicitous efforts.
The registrant will seek out and evaluate related, complimentary businesses for acquisition. The integrity and reputation of any potential acquisition candidate will first be thoroughly reviewed to ensure that it meets with managements standards. Once a company has been targeted as a potential acquisition candidate, the registrant will enter into negotiations with the potential candidate and commence due diligence evaluation of each business, including its financial statements, cash flow, debt, personnel, and services.
Marketing Strategy
The registrant, through its subsidiary, uses a range of marketing strategies and techniques, including but not limited to: direct marketing via phone and mail, internet marketing, social media such as Twitter, Facebook and Linkedin, public relations, traditional media advertising. Marketing activities are enhanced by general consumer awareness of the EF Hutton brand.
The registrant plans to expand its marketing activities in 2016 with a range of sponsored media initiatives. The plan includes, but is not limited to, cable TV, internet, radio, and publishing in both digital and print form.
Gateway
Gateway is an internet marketplace that connects consumers with independent financial providers. We believe independent providers generally offer a high lever of customers care and a better overall value for consumers in each of their respective specialty service areas than many of the larger branded firms. However, the benefits of selecting independent providers are not widely known to consumers. Until Gateway, there has been no one nationally-branded firm that markets the independent segment as a choice for consumers. Additionally, until Gateway, there were barriers to consumers choice in this segment because the independent provider segment is diverse and fragmented. In the independent segment, there is no central source for information, standardization, service level standards or quality assessment resulting in extra effort by consumers to locate, evaluate and engage an independent provider.
We believe Gateway adds value by promoting the independent financial segment as a choice for consumers. As a two-sided market, Gateway must add value to both providers and consumers. For consumers, it removes barriers to consumer choice by streamlining the search and selection process and making independent providers a viable choice for a wide range of their financial needs. For providers, Gateway reduces the cost of customer acquisition by providing efficient scale economies in marketing and related operations that no provider could gain alone
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Revenues
Gateway is free for consumers to use to search for and select financial providers. Each independent service provider sets their own prices for services rendered to consumers.
Financial service providers receive a free 30-day trial. After that trial period, they can select any of three different tiers of service. Registration fees range from $99 per year for basic service to $399 per year for premium service. Higher service levels enable providers to raise their ranking in search results and to enhance the profile description displayed on Gateway. In addition, there are variable fees for client introductions. Pricing is subject to change based on market factors.
Competition
We compete for attention of consumers and of providers of financial products and services. Competitors operate within the traditional, offline business as well as with online. Competition is on the basis of a number of factors, including breadth of service provider listings, quality of providers, depth and timeliness of information, quality and availability of e-commerce marketplace offerings and strength and recognition of our brand. We also compete for a share of service providers overall advertising budgets with traditional, offline media companies and other Internet marketing providers on the basis of a number of factors, including return on investment, effectiveness and relevance of our e-commerce initiatives, our pricing and monetization strategies and recognition of our brand. Our competitors include:
Traditional, offline competitors
. We compete with a number of traditional, offline consumer financial service providers and information services, such as full service financial services companies and directories that list financial providers. Many of these competitors also provide consumer reviews and information about service providers online.
Online competitors
. We compete with free to consumer online websites that provide networking and referral services, such as Angies List, Thumbtack, Inc. and Yelp, Inc.
Intellectual Property
We use a variety of methods, such as trademarks, patents, copyrights and trade secrets, to protect our intellectual property. We also place appropriate restrictions on our proprietary information to control access and prevent unauthorized disclosures. Our brands are important assets, and we take steps to protect the value of these assets and our reputation.
Marketing
We launched Gateway in 2015 and will soon bring to market a range of other products and services. We estimate that we will spend as much as $5 million to market and promote our services, in 2016 and 2017.
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Employees
As a holding company, the registrant has no direct employees and it operates only through its subsidiary. The subsidiary employs six persons under various arrangements from contractors to employees. The subsidiary has outsourced certain functions to third-party service providers on an as needed basis. As such the subsidiary has access to dozens of staff when necessary in specialty areas such as administration, marketing and sales.