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Sharon Harvey Rosenberg
Special to the Herald
Posted on Mon, Apr. 29, 2002
As president of First Miami Securities, a municipal bond firm, James Klotz occasionally felt overlooked by the market. Although his company executed billions of dollars in bond trades each year and enjoyed a reputation as a strong regional firm, his personal commentaries on the tax-free debt market were largely dismissed as statement stuffers in client transaction reports.
But in March 2000 his public profile changed. That's when his firm launched FMSbonds.com, an online muni-bond trading operation. With the establishment of the online municipal bond trading website, First Miami has been able to target a national bond audience without opening additional brick and mortar offices. What's more, Klotz's market commentary found a new audience.
"It has been overwhelming," Klotz says of the responses he gets. He now spends up to two hours a day responding to e-mail from website readers, including those who disagree with his market insights.
Clearly, the Internet has enhanced the financial fortunes of First Miami Securities, a municipal bond firm based in North Miami Beach and Boca Raton. In the site's first full year of operation, First Miami has traded $40 million in bonds over its website and is on track to double that performance this year, says Klotz, a 54-year-old resident of Weston. The site has increased transaction volume by 10 percent, and the firm expects a 40 percent increase during the next few years.
The online expansion represents a well-timed move for a muni-bond firm. With the stock market in turmoil, many investors have been looking for so-called safer havens to invest hard-earned cash. Hence, muni bonds -- once mere wallflowers at the stock market party -- have earned newfound respect and visibility in the investment community.
Municipal bonds are securities issued by local governments and hospitals to finance projects such as the construction of new roads. As tax-free instruments, muni bonds typically yield less than corporate bonds, but their tax savings can boost the effective yield to levels on par with taxable securities that sport higher interest rates. Consider this: For investors in the highest tax rate, a muni-bond yielding 5.5 percent equals the return on a taxable bond paying 8.96 percent.
Klotz and Paul Feinsilver, co-founders of First Miami Securities, relocated from New Jersey in 1972 in order to open a Florida branch office for their then employer, a New Jersey-based municipal bond firm. Six years later, however, their employer decided to diversify into other areas of investments. Klotz and Feinsilver disagreed with the decision and quickly launched their own operation in an office on 167th Street in North Miami Beach.
With two other staff members, First Miami Securities made its debut in 1978 with a few customers, such as Bernard Lewis, a now 89-year-old retired inventor and entrepreneur from North Miami, who followed the pair when they switched firms.
As the owner of a substantial investment portfolio, Lewis has done business with several major Wall Street firms, and he gives First Miami Securities high marks for integrity and honesty.
"They are the premier bond organization in the country," says Lewis. "They own the bonds they sell."
Well, maybe not quite the best in the country, but it certainly is coming on as a strong regional player.
Kevin Olson, executive director of MunicipalBonds.com, a San Francisco-based service that promotes fair disclosure and provides bond-market data, identifies First Miami Securities as a "strong regional player" making inroads into other markets, especially on the Northeast seaboard.
The firm now has 40 brokers and an overall staff of 125. A high ratio of support staff to brokers enables First Miami to respond quickly to client requests, says Klotz. Checks can be delivered in an hour and bond documents can be shipped overnight.
"They have a very high level of service," says Dennis Richard, a Miami attorney and a client of the firm. Richard was referred to First Miami by attorney Aaron Podhurst.
"I trust them with a not insubstantial portfolio," says Richard, who says the firm's account statements are clear and easy to understand.
From the outset, First Miami Securities sought to be a niche player in order to compete with large full-service firms that typically place a greater emphasis on the equity market. Hence, First Miami's co-founders decided to provide research and market data to bond investors seeking experts in that corner of the market.
In 1986, the company opened an office in Boca Raton and 10 years later established a marketing presence on the Internet, in what was then a novel move for the normally staid municipal bond industry. Although the initial site was not interactive, it broke new ground by providing market information and investment data to the muni bond investor, a corner of the market that had been largely overlooked by traditional Wall Street investment firms. The development and launch of that website was featured in the Bond Buyer, an industry trade publication.
Increasingly, Klotz and Feinsilver began to view the Internet as a way to expand their regional firm into a national force without the costly expense of traditional offices. The co-founders then sought to develop an interactive site that offered investors the ability to buy and sell bonds online. With that objective, FMSbonds.com was launched in March of 2000.
"We sought integration between our regular operation and the Internet," Klotz says.
In addition to online trading, the website is designed to provide education, commentary and bond-market data. By offering free commentary and research on the bond market, the firm seeks to gain a stronger foothold in the market. Without paying a fee or registering, website cruisers can view the firm's inventory of bonds for sale.
The company won't disclose its profits, but it did say that on each trade firm earns a profit of 0.5 percent to 1 percent, depending on the length of bond maturity.
About 18 months ago, in a move to enhance its research capability, First Miami Securities hired Jay Abrams, a former college professor and a senior vice president and analyst at the New York bond-rating agency Standard & Poor's.
"It's very unusual that a firm like First Miami would want to hire a bond analyst," says Abrams, who was with S&P for 13 years.
Last year through mutual contacts, Abrams -- who has family in South Florida -- heard that First Miami planned to hire a bond analyst. He was impressed by First Miami's position in the muni-bond world, which he describes as a "small fraternity" in which competitors keep close tabs on market peers. He also thought that First Miami staffers, such as head trader Terry O'Grady, were frequently quoted in the Bond Buyer.
"I knew First Miami was developing a reputation as a strong and growing firm in the municipal-bond industry," says Abrams, who has since relocated to South Florida.
As chief municipal credit analyst, Abrams travels to various municipalities. For example, 10 days ago, he was in Jupiter to check out a water main and sewer project financed with municipal bonds.
"It helps me make an assessment on whether the bonds and the project are good," says Abrams, who writes reports for the company's website and speaks directly to investors.