The State of the Financial Services Industry · 2011-10-21 · The State of the Financial Services Industry FPA East Bay Chapter Meeting September 9, 2011 Charles “Chip’ Roame

The State of the Financial Services Industry

FPA East Bay Chapter Meeting

September 9, 2011

Charles “Chip’ Roame

Managing Partner, Tiburon Strategic Advisors

11.10.12 – Tiburon CEO Summit XXI © Tiburon Strategic Advisors, LLC™ 1

Context Setting

– Leading News Stories

– Top Ten Fundamental Trends

Broad Market Environment

– World Events

– Economy & Markets

– Unequal Consumer Wealth Recovery with Lasting

Attitudinal Changes

– Financial Services Industry (Continuing) Stumbles

– Regulatory Agenda & the 2012 Elections

Financial Services Industry Strategies

– Market & Distribution Channel Evolution

– Product Trends

– Financial Services Industry & Financial Advisor Key

Tactics

– Strategic Activity

Outline


Source: 8/26/11 Joyce Financial Management Conversation (Joyce); Tiburon Research & Analysis

World Events

9/11 Ten Year Anniversary

Osama bin Laden Killed

Arab Spring (& Summer)

East Coast Natural Disasters

Hurricane Irene

Earthquake

World Events


Economy & Markets

Corporate Profits Strong

Economic Issues

Continual High Unemployment Rate

Weak Consumer Sentiment

European Sovereign Debt Crisis

High US Debt

Mixed Views on the Future of the Economy

Fed to Keep Interest Rates Low Until 2013 (Jackson

Hole)

QE3? (September FOMC Meeting)

Economy & Markets



Economy & Markets (Continued)

Stock Markets

Negative Returns (-1% to -7% YTD)

Volatile Returns

Mixed Views on the Future of the Stock Markets

S&P 500 down 23.4% for the 2000s decade, up in early 20102, but

now off again

Over or undervalued?

Housing Market Still Struggling

Largest investment for most US households

Decline was not just 2008 like stock market but continued into 2009-

2011

Yuri Milner perspective

Economy & Markets

(Continued)

Source: 8/26/11 Joyce Financial Management Conversation (Joyce); 4/11/11 Fortune; 4/7/11 TD Ameritrade Email (Schweiss); 4/3/11 Advisor

Perspectives; 4/1/11 ETF Trends; 3/28/11 Morningstar Web Site; 12/22/10 Investment News; 9/22/10 Morningstar Web Site; 9/7/10 Carson Wealth

Management Group Presentation (Carson) (Yahoo; Barron’s; Market Watch); 8/11/10 Morningstar Web Site; Tiburon Research & Analysis


Unequal Consumer Wealth Recovery with Lasting Attitudinal

Changes

Unequal Consumer Wealth Recovery

with Lasting Attitudinal Changes

Source: 8/26/11 Joyce Financial Management Conversation (Joyce); 4/14/11 Edelman Financial Services Presentation (Edelman); 4/8/11 Fidelity

Investments Email (Graham); 4/7/11 Bridgewater Email (Milliman); 4/7/11 TD Ameritrade Email (Schweiss); 4/7/11 Shah & Associates Email

(Shah); 4/7/11 Impact Communications Email (Swift); 12/13/10 Advisor One; Tiburon Research & Analysis

Context Setting

Double whammy - stock market & home values hit consumer investable

assets (inverse of 1990s wealth effect)

Investable assets are ~22% & retirement plan assets are ~16% of

household assets for $100,000-$1.0 million households

Principal residences are ~23%, small businesses are ~16%, & other

real estate holdings are ~14% of household assets for $100,000-$1.0

million households

Investable assets (stock market) back but not housing and small

business valuations

Numbers of high net worth prospects slowly recovering as well

8.4 millionaire households still down from 9.2 in 2007



Changes (Continued)



(Continued)

Issues

Wealth gap widening

Biggest impact is on moderate net worth households where real estate is

dominant asset

First baby boomers turn 65 in 2011 (birth years 1946 to 1964)

Many unprepared for retirement (57% have less than $100,000)

Average life expectancy reaches 78

And its +10-20 years for those who reach retirement age

Assets expected to be liquidated (home & retirement accounts) are down in

value

Inheritances not materializing (~2% of baby boomers to receive over $100,000)

And now… the twin threats of elder care and the kids moving back in






Changes (Continued)



(Continued)

Attitudinal Changes

Scarred

Consumer fear is back (albeit lessened)

Skeptical

Still believe in their financial advisors but cynical regarding

financial services industry

Wary of putting trust back in the system (conservative

choices; online tools & advice)

Increasingly Proactive

Evolving from neophyte to educated





Financial Services Industry (Continuing) Stumbles

Galleon Group (with Goldman Sachs and McKinsey & Company)

Primary Research (Expert Networks)

Berkshire Hathaway

Provident Royalties & Medical Capital (Securities America)

2008 Economic Crisis Federal Reserve Borrowings (Goldman

Sachs Group, Etc.)

UBS & Barclays (LIBOR Manipulation)

SAC (Steve Cohen)

Bob Kelly (BNY Mellon)

Gundlach-TCW

Financial Services Industry (Continuing) Stumbles

Source: 8/26/11 Joyce Financial Management Conversation (Joyce); 4/7/11 Turning Point Email (Vigeveno); 4/7/11 TD Ameritrade Email (Schweiss);

4/4/11 Business Wire; 2/19/09 Grail Partners Presentation (Putnam) (Saint Louis Federal Reserve); Tiburon Research & Analysis


Regulatory Agenda & the 2012 Elections

Macro Level

Federal Government Debt Ceiling Disaster and the Standard & Poors US

Downgrade

Deficit Reduction Panel

Tax Rates Likely Going Up

Financial Services

Healthcare Reform Stalled (and Likely to be Overturned if Republicans

win in 2012)

Dodd Frank…

Investment Banks…

Retail Banks…




Regulatory Agenda & the 2012 Elections (Continued)

2012 Elections

Obama Mixed Reviews

Osama bin Laden, Libya

Economy (Especially Jobs) (Jobs Plan this Week)

But… Republican Party Candidate Not Emerging

Tea Party Impact?


(Continued)



Markets & Distribution Channels Evolution

Basics

Financial advisors > institutional > self-serve

Financial Advisors

Supply of financial advisors stagnant for a decade while

baby boomers needs growing and financial advisor base

was aging

Self-serve models (Schwab, Fidelity) filled gap

IBDs surpassed wirehouses in number of financial advisors

Growth is in hybrid advisors



Investments Email (Graham); 4/7/11 Turning Point Email (Vigeveno); 4/7/11 Shah & Associates Email (Shah); Tiburon Research & Analysis


Markets & Distribution Channels Evolution (Continued)

Wirehouses

Continual decline of wirehouses

Number of financial advisors, market share, brand value

Issue is more the firms than the brokers -> Brands tarnished and strategies

seem stagnate (sales forces trimmed; consolidation complete; brokers

bought)

Sallie is 0 for 2

Break-Away Brokers

Break-away broker trend not yet in full-force

Waiting on more landing pads (e.g., HTA)

Data hugely suspect (from where? circumstances? to where?)

Former wirehouse CEOs backing the independents

Wild card… Signing bonuses (350%!!!)


(Continued)





Independent Advisors

Independent financial advisor channels continue to grow ($3.7 trillion versus

$4.8 trillion in wirehouses)

Hybrids driving growth

AUM under custody model (Schwab at $800 billion)

Polarization of IBDs (Private Equity Versus Failures)

LPL, Cetera, HD Vest, First Allied versus Gunn Allen, QA3, Etc)

IBD core model threatened

Low interest rates eliminate money market fund payments

Recruiting challenges & competition (Commonwealth on payouts; Cetera

on administrative fee waving)

Movement to fee-only (Ron Carson)

Repositioning of IBDs (NFP Securities -> NFP Advisor Services Group)


(Continued)




Source: Tiburon Research & Analysis


Insurance Agents

Few remaining captive sales forces

Northwestern Mutual at 8,500

Amazingly high sales force turnover rates

80% within five years

Still a commission business

Investments a side light

Often paid more modest payouts


(Continued)



Self-Serve Channels

Dual impact of younger generation preferences and loss of confidence

in financial advisors

Young wealthy to skip financial advisors?

Intersection of financial services, technology, & media companies

Face Book as the bank, brokerage firm, insurance company, etc.

Financial institutions not yet paying enough attention

Mint.Com (2.0 million users)

TD Ameritrade’s Amerivest

Fidelity at 12.0 million accounts

Add price competition at ~40bps

Schwab IBO -> Love It!


(Continued)

Source: 8/26/11 Joyce Financial Management Conversation (Joyce); 4/14/11 Edelman Financial Services Presentation (Edelman); 4/7/11 Turning Point

Email (Vigeveno); 4/7/11 Shah & Associates Email (Shah); Tiburon Research & Analysis


Source: 8/26/11 Joyce Financial Management Conversation (Joyce); 5/16/11 Russell Investment Group Conversation (Winnick); 4/14/11 Brandes

Investment Partners Presentation (Brandes); 4/7/11 TD Ameritrade Email (Schweiss); Tiburon Research & Analysis

Product Trends

Product Trends

Commissions to fee-accounts is the obvious trend; its simply the

new pricing mechanism, with all the same underlying investment

vehicles

All channels now > 50% fee-account AUA

Net flows often >75% fee-accounts

UMAs - obvious solution

Active versus passive

Super slow transition

Retirement income solutions

Leading news story for next 10-20 years


Source: 8/26/11 Joyce Financial Management Conversation (Joyce); 6/28/11 Russell Investments Brochure; 5/16/11 Russell Investment Group

Conversation (Winnick); 4/14/11 Brandes Investment Partners Presentation (Brandes); 4/7/11 TD Ameritrade Email (Schweiss); Tiburon Research

& Analysis

Product Trends (Continued)

Investable Assets (Package Products)

Mutual funds have more assets than all other packaged products

combined

Mutual funds also had higher flows than all other packaged

products combined in 2010 but negative flows again in 2011

Exchange traded funds to slowly take share now

Black Rock now largest money management firm with

combination of ETFs & hedge funds

Vanguard > Fidelity Investments ($1.6 trillion; became #1 in 2010

Importance of independent advisors (Black Rock, T. Rowe

Price Group, & DFA benefiting too)

Product Trends

(Continued)


Source: 8/26/11 Joyce Financial Management Conversation (Joyce); 4/14/11 Edelman Financial Services Presentation (Edelman); 4/13/11 Hellman *

Friedman Presentation (Thorpe); 4/11/11 Morningstar Email (Hannan); 4/8/11 Fidelity Investments Email (Graham); 4/7/11 Bridgewater Email

(Milliman); 4/4/11 Wall Street Journal; Tiburon Research & Analysis


Mutual Funds

Remain the kingpin in investable assets & retirement plan assets

$8.4 trillion in long-term mutual fund AUM (~21% of all

investable assets)

Overall AUM down $1.3 trillion 2006-2010

Some signs of renewed flows

Q4/10 was first quarter since Q1/08 (eleven quarters or three

years) in which both long term & money market fund flows were

positive

Q1/11 $81 billion positive flows

Leaders distancing themselves

Product Trends

(Continued)


Source: 4/14/11 Edelman Financial Services Presentation (Edelman); 4/13/11 Hellman * Friedman Presentation (Thorpe); 4/11/11 Morningstar Email

(Hannan); 4/8/11 Fidelity Investments Email (Graham); 4/7/11 Bridgewater Email (Milliman); 4/4/11 Wall Street Journal; Tiburon Research &

Analysis


Mutual Funds (Continued)

Target date mutual funds rebounded nicely

Institutional class mutual funds increasingly

important

Mutual fund wrap account programs growing quickly

Fast growing fee-based financial advisors (RIAs)

market still heavily reliant on mutual funds

Shift to exchange traded funds to continue

Product Trends

(Continued)




Separately Managed Accounts & Co-Mingled Investment

Funds

$7.9 trillion AUM

Second largest market to mutual funds

Includes ~$1.0 trillion in separately managed

account programs led by Morgan Stanley Smith

Barney

Limited flows ($37 billion in 2010)

Product Trends

(Continued)


Source: 4/5/11 Money Management Executive; Tiburon Research & Analysis


Indexing

80% of assets still actively managed

Vanguard passed Fidelity Investments (2010) ($1.3 trillion AUM)

(led in 2010 flows $49 to $3 billion with 80% to index products)

Trillions managed to Russell indexes

Powerful Views

Active is a zero sum game (and less than zero sum after

taxes & expenses) ($102 billion spent on active management)

Low expenses = most reliable indicator of mutual fund

performance

Control what you can - expenses & taxes

Product Trends

(Continued)


Source: 4/5/11 Money Management Executive; Tiburon Research & Analysis


Indexing (Continued)

Active will always exist

Increased client skepticism and growth of fee-based

financial advisors (RIAs) channel will drive indexing

trend

Side impact… Shining light on expenses everywhere

Product Trends

(Continued)


Source: 8/26/11 Joyce Financial Management Conversation (Joyce); 4/11/11 Morningstar Email (Hannan); 4/6/11 RIA Biz; 4/5/11 Money Management

Executive; Tiburon Research & Analysis


Exchange Traded Funds

Exchange traded funds reached $1.0 trillion (actually all

exchange traded products)

Black Rock, State Street, & Vanguard = 84% market

share

$121 billion net flows (~50% of mutual funds)

Higher net flows than mutual funds in some categories

Product Trends

(Continued)


Source: 4/11/11 Morningstar Email (Hannan); 4/6/11 RIA Biz; 4/5/11 Money Management Executive; Tiburon Research & Analysis


Exchange Traded Funds (Continued)

Schwab & Fidelity ETF price war

Vanguard gaining on Black Rock & State Street

New niche entrants (e.g., Russell Investments)

Schwab acquisition of Windhaven Investment

Management

TD Ameritrade emphasis on Amerivest

RIAs at 16% ETFs; other FAs at 8%

Product Trends

(Continued)


Source: 4/8/11 Fidelity Investments Email (Graham); 4/5/11 ETF Trends; Tiburon Research & Analysis


Active ETFs – Really?

Risks of transparency & disclosing day-to-day holdings

Susceptible to front running & free riding schemes

Large mutual fund companies entering

ETFs-of-ETFs: Black Rock

Fixed Income: Alliance Bernstein, Eaton Vance,

Janus Capital Group, T. Rowe Price Group

Equities: JP Morgan Chase, Legg Mason, The

Dreyfus Corporation

Product Trends

(Continued)


Source: 8/16/11 Joyce Financial Management Conversation (Joyce); 4/14/11 Edelman Financial Services Presentation (Edelman); 4/13/11 Hellman &

Friedman Presentation (Thorpe; 4/7/11 Bridgewater Email (Milliman); 4/3/11 Wall Street Journal; 2/11 Credit Suisse Analysis; 8/30/10 Morningstar

Presentation (Mansueto); Tiburon Research & Analysis


Hedge Funds

Alts! Alts! Alts!

$1.7 trillion

Above high water mark

Only $22 billion in net flows

Mediocre 2010 returns: average 8.0% versus 12.7% for

S&P 500 but huge paydays again

John Paulson ($4.9 billion); Ray Dalio ($3.1 billion);

James Simons ($2.5 billion)

Product Trends

(Continued)


Source: 4/14/11 Edelman Financial Services Presentation (Edelman); 4/13/11 Hellman & Friedman Presentation (Thorpe; 4/7/11 Bridgewater Email

(Milliman); 4/3/11 Wall Street Journal; 2/11 Credit Suisse Analysis; 8/30/10 Morningstar Presentation (Mansueto); Tiburon Research & Analysis


Hedge Funds

Flight to Quality -> Start-ups emerging again but assets flowing

to more established firms

Pricing pressure -> Losing pricing control; institutional

investors driving down pricing

Retailization -> Mutual fund hedge funds to surpass limited

partnership hedge funds ($150 billion AUM)

Enforcement -> +3.00% (Khuzami) (promotes slow & steady

growth just like Bernie)

Product Trends

(Continued)




Insurance

Cash value is ~9% of household assets for $100,000-$1.0

million households

Persistency is the key

Longevity insurance

Product Trends

(Continued)


Source: 4/13/11 Hellman & Friedman Presentation (Thorpe); 4/7/11 Shah & Associates Email (Shah); Tiburon Research & Analysis


Annuities

Retirement income (retirement paychecks)

Need to annuitize payouts

Variable annuities -> $1.5 trillion assets under management with $50

billion net flows (larger market than exchange traded funds but with

only half the flows)

Tax efficient frontier (akin to efficient frontier that optimizes risk &

return)

Opportunities

Guaranteed income solution for middle class (potential for

mandate or large plan market adoption)

Tax deferral opportunity for high net worth households

Product Trends

(Continued)


Source: 4/7/11 Shah & Associates Email (Shah); 12/17/10 Advisor One; Tiburon Research & Analysis


Wealth Management

Aggregation

Financial planning (growing in importance)

529 plans - college savings’ answer to 401K plans

Impact Investing -> Intersection of capital markets &

philanthropy) (address social & environmental issues)

Estate planning

Charitable giving

Product Trends

(Continued)


Financial Services Industry & Financial Advisor Tactics

Sales & Marketing

Marketing

Operations & Technology

TAMPs

Outsourcing Firms

Financial Advisor Aggregators

Financial Services Industry & Financial Advisor Tactics



Strategic Activity

Context Setting

Financial Services Institutions Matter (in the Economy)

32% of All Corporate Profits

Financial Services Institutions’ Market Capitalization is Confusing

European Firms Continue to Have Substantial Cross-Holdings (e.g., BNP

Paribas – Axa Group)

Many Leading Insurance Companies Remain Mutuals

Few Public Wealth Management Firms

All Financial Services Indices Down in 2011 (22%-29%)

Bank Market Capitalization Greater than Insurance Companies, Brokerage

Firms, & Asset Managers (Combined!)

P/E Ratios in Reverse Order

Many Financial Services Institutions are Cash Poor and Open to Acquisition

Discussions

Strategic Activity

Source: 4/7/11 TD Ameritrade Email (Schweiss); Tiburon Research & Analysis


Strategic Activity (Continued)

Wealth Management Mergers & Acquisitions

Private Equity (Smart Money) Buys Up IBDs

HD Vest – Parthenon

First Allied – Lovell Minnick

Securities America – Ladenburg & Thalmann

Other Private Equity Bets on RIAs

The Mutual Fund Store – Warburg Pincus

Carlyle Group – Avalon Advisors

The Edelman Financial Group Becomes First Publicly Traded Wealth

Manager

Emergence of the Financial Advisor Aggregators (HTA; FFP)

E*Trade Financial sells Kobren (Exits FA M&A)

Strategic Activity

(Continued)

Source: 8/26/11 Joyce Financial Management Conversation (Joyce); 4/14/11 Edelman Financial Services Presentation (Edelman); 4/7/11 TD Ameritrade

Email (Schweiss); Tiburon Research & Analysis



Markets & Distribution Channels

Buffett Blesses Bank of America Corporation

Capital One – ING Direct

Sterne Agee – SWS

Schwab – Options Express

Followed TD Ameritrade – Think or Swim (Mainstreaming of

Options)

Investment Products

American Century – CIBC

Schwab – Windhaven Investment Management

Genworth Financial - Altegris

Strategic Activity

(Continued)

Source: 8/26/11 Joyce Financial Management Conversation (Joyce); 4/14/11 Edelman Financial Services Presentation (Edelman); 4/13/11 Hellman &

Friedman Presentation (Thorpe); 4/7/11 Shah & Associates Email (Shah); 4/7/11 TD Ameritrade Email (Schweiss); 4/6/11 RIA Biz; Tiburon

Research & Analysis


Source: 4/7/11 Triton Pacific Email (Michie); 4/1/11 Wall Street Journal; Tiburon Research & Analysis


Strategic Activity

(Continued)

Financial Services Industry Venture Capital & IPOs

2009-2010:

Wealth Management: LPL, ENV, FENG

Other: Blackstone, KKR, Fortress, Ochs Ziff, &

Apollo,

Open IPOs to Capture Big Market Share in 2012 if IPO

Market Opens?


Context Setting




– World Events



Attitudinal Changes





– Product Trends


Tactics


Outline


Source: 8/29/11 The Charles Schwab Corporation Conversation (McCool); 12/10 Envestnet Annual Report; Tiburon Research & Analysis

Top Ten Fundamental Trends

Markets & Distribution Channels

Independence

Self-Serve Channels (and

Partial Serve)

Fundamental Shift Defined

Contribution Business

Top Ten Fundamental Trends

Product Trends

Fee-Based Pricing

Indexing & ETFs

Retirement Income

Longevity Insurance

Tactics

Outsourcing

Strategic Activity

Financial Advisor Aggregation


Context Setting




– World Events



Attitudinal Changes





– Product Trends


Tactics


Outline


222,570

230,210

234,117

242,419

250,000

300,000

500,000

830,000

900,000

1,000,000

Haiti Earthquake (2010)

Indian Ocean Tsunami (2004)

Haiyuan Earthquake (1920)

Tangshan Earthquake (1976)

Antioch Earthquake (526)

India Cyclone (1839)

Bhola Cyclone (1970)

Shaanxi Earthquake (1556)

Yellow River Flood (1887)

China Floods (1931)

The Japanese Earthquake & Tsunami, with 15,000-30,000 Lost Lives, was Devastating, But

it is Dwarfed in Scale by Other Natural Disasters, Even as Recently as Last Year in Haiti

Natural Disasters

By Lives Lost

Source: 4/7/11 Impact Communications Email (Swift); 4/4/11 Insurance Newscast; 4/4/11 Gather Web Site; 4/4/11 National Oceanic & Atmospheric Administration

Web Site; 4/4/11 Wikipedia Web Site; 4/3/11 Yahoo News; Tiburon Research & Analysis


$25

$28

$30

$31

$40

$45

$80

$100

$125

$200

H urricane A ndrew (1992)

West C o ast o f Japan Earthquake (2004)

C entral C o ast o f C hile Earthquake & T sunami

(2010)

Yangtze R iver & H arbin, C hina F lo o ds (1998)

H urricane Ike (2008)

N o rthridge, C alifo rnia Earthquake (1994)

Sichuan P ro vince, C hina Earthquake (2008)

Ko be, Japan Earthquake (1995)

H urricane Katrina (2005)

Japan Earthquake & T sunami(Estimate) (2011)

The Japanese Earthquake & Tsunami (~$200 Billion) is Likely to Surpass Hurricane

Katrina as the Costliest Natural Disaster in Terms of Economic Losses

Natural Disasters

By Economic Losses

($ Billions)

Source: 4/11/11 Fortune; 4/7/11 Impact Communications Email (Swift); 4/7/11 Shah & Associates Email (Shah); 4/4/11 Business Wire; 4/3/11 Yahoo News;

Tiburon Research & Analysis


Context Setting




– World Events



Attitudinal Changes





– Product Trends


Tactics


Outline


6.0%5.7%

5.4%4.9%

4.4%5.0%

7.4%

10.0%9.5%

8.8%

2002 2003 2004 2005 2006 2007 2008 2009 2010 1Q/11

Unemployment Rate

The Unemployment Rate Remains at a Substantial 8.8%...

Source: 4/7/11 Impact Communications Email (Swift); 4/7/11 Bridgewater Email (Milliman); 4/7/11 TD Ameritrade Email (Schweiss); 4/3/11 Advisor Perspectives;

4/1/11 Wall Street Journal; 4/1/11 San Francisco Chronicle; 4/1/11 ETF Trends; 12/13/10 Advisor One; 9/7/10 Bureau of Labor Statistics Web Site; 9/7/10

Carson Wealth Management Group Presentation (Carson) (Bureau of Labor Statistics); Tiburon Research & Analysis


8.8%

15.7%

Official Unemployment Rate (U-3) Unemployment Rate Including

Discouraged Workers (U-6)

Adjusted Unemployment Rate

… And if Discouraged Workers are Included, the Unemployment

Rate is Still 15.7%

Source: 4/7/11 Impact Communications Email (Swift); 4/7/11 Bridgewater Email (Milliman); 4/4/11 Bureau of Labor Statistics Web Site; 4/2/11 Advisor

Perspectives; 12/13/10 Advisor One; 9/7/10 Carson Wealth Management Group Presentation (Carson) (Bureau of Labor Statistics); Tiburon Research &

Analysis


The Dow Jones Industrial Average Has Lost 1% in 2011 After Gains

of 19% & 14% in 2009 & 2010

Source: 9/4/11 Morningstar Web Site; 4/14/11 Brandes Investment Partners Presentation (Brandes); 4/7/11 TD Ameritrade Email (Schweiss); 4/1/11 ETF

Trends; 3/28/11 Morningstar Web Site; 11/5/10 Wall Street Journal; 9/22/10 Morningstar Web Site; 4/15/09 Zebra Capital Management Presentation

(Ibbotson); 4/3/09 Morningstar Web Site; 9/30/08 Charles Schwab Statement; 5/20/08 Wall Street Journal Web Site; Tiburon Research & Analysis

Dow Jones Industrial Average

Market Returns

-6% -7%

-17%

9%

2%

-1%

16%

6%

-31%

19%

14%

-1%2003 2004 2006 2007 2009 2010

2000 2001 2002 2005 2008 2011

http://www.djindexes.com/jsp/index.jsp


Standard & Poor’s 500

Average Excess Real Returns

By Presidential Cycle Year

If You are Seeking Some Hope… the S&P 500 Historically Performs

Best in the Third Presidential Year

Source: 2/06 Morgan Creek Capital Management Presentation (Yusko) (EMO); Tiburon Research & Analysis

-5.5%

-3.8%

9.5%

-0.3%

Year 4

Year 3

Year 2Year 1


$20

$54

$98

$145

$160 $165 $170

$185

$205

$225 $230$220

$195$185

$170

$156

1970 1980 1990 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1Q/11

Median Home Price

($ Thousands)

The Median Home Price Has Dropped to $156,000, Down About 33%

from its Peak of $230,000 in 2006

Source: 4/11/11 Fortune; 4/7/11 TD Ameritrade Email (Schweiss); 4/3/11 Advisor Perspectives; 12/31/09 Federal Reserve Flow of Funds Report; 3/12/09 Federal

Reserve Flow of Funds Data; 4/1/08 National Association of Realtors Web Site; 3/17/08 Barron’s; 12/31/07 Federal Reserve Flow of Funds Report;

3/31/07 Federal Reserve Flow of Funds Report; 4/11/05 Business Week; 9/20/04 Fortune (HSBC); Tiburon Research & Analysis


69%

61%

57% 58% 57% 55% 54%

58% 59%57%

50%

39% 40% 39%

1985 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Consumer Households

Equity as a Share of Household Real Estate

Consumers Households Now Own Just 39% of the Value of their

Homes, Down from 59% in 2005 and 69% in 1985

Source: 4/3/11 Advisor Perspectives; 12/31/09 Federal Reserve Flow of Funds Report; 3/12/09 Federal Reserve Flow of Funds Data; 12/31/07 Federal Reserve

Flow of Funds Report; 3/31/07 Federal Reserve Flow of Funds Report; 4/11/05 Business Week; 9/20/04 Fortune (HSBC); Tiburon Research & Analysis


Context Setting




– World Events



Attitudinal Changes





– Product Trends


Tactics


Outline


Context is Important… Consumer Households Have Over $28 Trillion of Investable

Assets, Over $70 Trillion of Total Assets, and Over $56 Trillion of Net Worth…

Consumer Households Net Worth

($ Trillions)

$70.7

$28.3

$56.8

$13.9

$13.0

$23.1$6.2

Source: 4/8/11 Fidelity Investments Email (Graham); 4/7/11 TD Ameritrade Email (Schweiss); 12/31/10 Federal Reserve Flow of Funds Report; 6/30/10 Federal

Reserve Flow of Funds Report; Tiburon Research & Analysis


$15.9

$18.4

$21.9

$28.3$29.7

$28.5

$23.7

$26.0

$28.3

2002 2003 2004 2005 2006 2007 2008 2009 2010

Consumer Households Investable Assets

($ Trillions)

Consumers Households Have $28.3 Trillion in Investable Assets,

Up 75% Since 2002




$8.2

$9.7$10.6

$11.4

$12.7$13.4

$10.4

$11.9

$13.0

2002 2003 2004 2005 2006 2007 2008 2009 2010

Consumer Households

Retirement Plan Assets

($ Trillions)

Consumers Have $13.0 Trillion in Retirement Plan Assets, Up 60%

Since 2002 and Close to its Peak in 2007




$7.8$8.3

$9.3

$10.4$10.9

$9.6$8.9

$6.3 $6.3

2002 2003 2004 2005 2006 2007 2008 2009 2010

Consumer Households

Real Estate Equity

($ Trillions)

Consumer Households Lost $4.6 Trillion in Real Estate Equity After

the Peak in 2006 and Has Been Relatively Consistent




Consumer Investments in Privately Owned Businesses

($ Trillions)

Consumer Households Lost $2.6 Trillion in Private Business

Valuations After the Peak in 2006

$5.0$5.4

$6.4

$8.4$8.8 $8.7

$7.3

$6.4 $6.2

2002 2003 2004 2005 2006 2007 2008 2009 2010




Consumer Households

With $500,000+ Financial Assets

(Millions)

The Number of Consumer Households with Over $500,000 in Financial Assets Declined

28% in 2008 to 11.3 Million But Has Recovered Less than Half that Amount in 2009-2010

Source: 3/15/11 Spectrem Group Report; 4/14/11 Edelman Financial Services Presentation (Edelman); 6/30/10 Federal Reserve Flow of Funds Report; 5/21/09

Wall Street Journal; 5/14/09 1st Global Presentation (Batman) (Spectrem); 3/16/09 Money Management Executive (Spectrem); 3/13/09 American Banker

(Spectrem); 3/13/09 Financial Advisor (Spectrem); Tiburon Research & Analysis

9.1

10.5

13.114.0

15.3 15.7

11.3

12.713.5

2002 2003 2004 2005 2006 2007 2008 2009 2010


Baby Boomers’ Pending Retirement will Still Drive More Assets into

the Investable Assets Market

Consumer Households Assets

($ Trillions)

$70.7

$28.3

$13.0

$23.1

$6.2




“They are permanently

scarred… But maybe that is not

a bad thing… They are more

cautious and need to be

convinced more”

Financial Advisor

Comment on the Financial Crisis

Many Financial Advisors Believe that Clients Have Been

Permanently Impacted by the Financial Crisis

Source: 10/20/10 The Shira Ridge Conversation (Nardone); Tiburon Research & Analysis


“Prospects seem more skeptical

quizzing us how our strategies

would have fared better than

where they were in 2008-2009”

Financial Advisor


Many Financial Advisors Report Prospects are More Skeptical

Source: 10/19/10 Waypoint Wealth Partners Conversation (Bowes); Tiburon Research & Analysis


“I think that it is possible that we are

going to see more prospects inclined to

do it themselves. We as financial

advisors can easily convince ourselves

of our value but many prospects seem

skeptical of the whole industry”

Financial Advisor


…And Other Financial Advisors are Even Worried that Some

Prospects May Become Self-Directed

Source: 10/19/10 Waypoint Wealth Partners Conversation (Bowes); Tiburon Research & Analysis


“Clients are becoming more

sophisticated and want to be more

involved”

Financial Advisor


And Some Financial Advisors Note that, in Parallel, Prospects Have

Become More Sophisticated

Source: 11/3/10 Rockland Conversation (Barker); Tiburon Research & Analysis


Context Setting




– World Events



Attitudinal Changes





– Product Trends


Tactics


Outline


Source: 4/7/11 Bridgewater Email (Milliman); 4/4/11 Financial Times; 4/4/11 Wall Street Journal; 4/4/11 New York Times; 4/4//11 San Francisco Chronicle;

4/3/11 Wall Street Journal; 4/1/11 Wall Street Journal; 3/29/11 Advisor One; Tiburon Research & Analysis

Galleon Group

Biggest ever insider trading scandal

Made $45 million (Akamai Technologies; Google; Hilton

Hotels; Polycom)

Three guilty pleas -> Danielle Chiesi, Roomy Khan, & Adam

Smith

Rajaratnam found guilty

Related issues

Large management consulting firms under microscope as

unwieldy

More reason for some to hate Goldman Sachs Group

Expert networks (Gerson, Lehrman) questioned

Galleon Group

(Raj Rajaratnam)


“They are going to guide down (give stock analysts

lower earnings estimate). I just got a call from my

guy (Kieran Taylor at Akamai Technologies). I played

him like a finely tuned piano.”

Galleon Group

(Raj Rajaratnam)

Galleon Group

Source: 4/1/11 San Francisco Chronicle; Tiburon Research & Analysis

Danielle Chiesi to Raj Rajaratnam

July 24, 2008

[Rajaratnam subsequently shorted 500,000

shares]


Source: 4/4/11 New York Times; 4/4/11 Wall Street Journal; 4/4/11 Argyle Executive Forum Email (Doe); 4/1/11 Wall Street Journal; Tiburon Research &

Analysis

Berkshire Hathaway

Dave Sokol invested $10 million in Lubrizol (after asking Citi

investment bankers to inquire about interest in acquisition)

Presented in fiduciary capacity as a Berkshire Hathaway

employee

Recommended the acquisition to Warren Buffett

Fired

Prior scuffles

Mid-American Energy (1999): Changed accounting

method to eliminate minority shareholders; judgment

against for $32+ million

The Snowball: Pursued author Alice Schroeder to reveal

source of memo sent to 3,000 Net Jets executives; lawsuit

dropped after Sokol resigned

Berkshire Hathaway


“Lose money for the firm and I will be

understanding; lose a shred of reputation

for the firm and I will be ruthless”

Berkshire Hathaway

Berkshire Hathaway

Source: 4/1/11 San Francisco Chronicle; Tiburon Research & Analysis

Warren Buffett

1991


The Term Insider Trading May Have Taken on a New Meaning…

Insider Trading



Many Consumers are Skeptical of the Financial Services Industry;

Three-Quarters Believe that Bernie Madoff Type Behavior is Common

Source: 3/09 Journal of Financial Planning; Tiburon Research & Analysis

Consumers

By Propensity to Believe that Bernie Madoff

Type Behavior is Common Among

Financial Advisors & Financial Institutions

Not Common

24%

Common

76%


Context Setting




– World Events



Attitudinal Changes





– Product Trends


Tactics


Outline


Source: 6/28/11 Russell Investments Brochure; 5/16/11 Russell Investment Group Conversation (Winnick); 4/7/11 Turning Point Email (Vigeveno); 4/7/11

Shah & Associates Email (Shah); 4/7/11 TD Ameritrade Email (Schweiss); 4/4/11 Financial Times; 4/3/11 Advisor Perspectives; Tiburon Research

& Analysis

US Debt Ceiling

US Debt Ceiling

Social Security & Medicare (44% of federal

spending)

May cut SEC spending by $200 million

Tax Hikes on the Horizon in 2013

Tax deferral more important

Renewed interest in SMAs with active tax

harvesting

US Debt Ceiling


“Dodd-Frank does not impact

smaller firms so much but larger

firms now have higher costs of

compliance”

The Dodd-Frank Wall Street Reform & Consumer Protection Act of

2010 Primarily Impacts Larger Financial Services Firms

Source: 11/3/10 Cambridge Appleton Conversation (O’Neal); Tiburon Research & Analysis

Industry CEO

Comment on Dodd-Frank Targets


“Nearly everything is in play – the

fiduciary issue, 12B-1s, the

independent contractor status, etc.”

Industry CEO

Comment on Outstanding Regulatory Issues

Many Investment Management Executives Realize that Many Issues

are in Regulatory Play…

Source: 1/10/11 First Allied Conversation (Marks); Tiburon Research & Analysis


Context Setting




– World Events



Attitudinal Changes





– Product Trends


Tactics


Outline


Consumer Households Control Almost Three-Quarters of All Investable

Assets, Two-Thirds of that Invested Via Financial Advisors

Consumer Assets

Invested Via

Financial Advisors

45%

Consumer Assets

Invested Directly

21%

Retirement Plans,

Endowments, &

Foundations

34%

US Markets & Distribution Channels

By Broad Market Segment




326,500 324,500

351,845

2007 2009 2010

Financial Advisors

There are 351,845 Financial Advisors Across All Channels, Up

Almost 10% in 2010 After Being Down from 2007-to-2009

Source: 1/20/11 Google News Alerts; 9/1/10 RIA Biz (Cogent Research); Tiburon Research & Analysis


Wirehouse, Regional,

& Boutique Brokers

28%

Life and P&C

Insurace Agents

15%

Bank Brokers &

Trust Officers

13%

Independent Reps

32%

Partners at Fee-

Based Financial

Advisor Firms

9%

Discount Broker &

Mutual Fund

Company Reps

3%

Financial Advisors

By Market

The Numbers of Independent Reps Now Leads All Other Financial

Advisor Markets



Financial Advisors

2007 – 2009 Growth

By Market

Nearly All the Growth in Financial Advisors is in the Independent

Broker/Dealer and Bank Channels

21,000

11,568

476

-2,626

-4,324

Independent

Broker/Dealer

Reps

Bank

Broker/Dealer

Reps

RIAs

Wirehouse

Reps

Regional

Broker/Dealer

Reps

Source: 9/1/10 RIA Biz (Cogent Research); Tiburon Research & Analysis


Wirehouse, Regional,

& Boutique Brokers

24%

Retail Banks & Bank

Trust Departments

27%

Independent Reps

9%

Fee-Based Financial

Advisors

10%

Life and P&C

Insurance

Companies

14%

Discount Brokers &

Mutual Fund

Companies Direct

16%

Consumer Households Investable Assets

By Market

Wirehouses & Other Captive Brokerage Firms Have Been Surpassed (Temporarily)

by the Banks in Assets and May Soon be Caught by Independent Advisors



$61

$93

$102

$119

Wells Fargo

Advisors

Morgan Stanley

Smith Barney

Merrill Lynch

UBS

UBS Financial Advisors Manage the Biggest Books

Wirehouses

Average Assets Under Administration

Per Financial Advisor

($ Millions)

Source: 4/1/11 Advisor One; Tiburon Research & Analysis


$613,000

$742,000

$854,000

$898,000

Wells Fargo Advisors

Morgan Stanley

Smith Barney

Merrill Lynch

UBS

UBS & Merrill Lynch Financial Advisors are the Biggest Revenue

Generators

Wirehouses

Average Revenues Per Financial Advisors

($ Trillions)

Source: 4/1/11 Advisor One; Tiburon Research & Analysis


Became RIA

7%

Became

Independent Rep

20%

Move to Regional

Broker/Dealer

23%

Move to Another

Wirehouse

40%

Break-Away Brokers

By Destination

Two-Thirds of Wirehouse Brokers Move to Other Wirehouses or Regional Broker/Dealers When they do

Move while the Other One-Third Go Independent as Independent Reps or Fee-Based Financial Advisors

Source: 12/20/10 Investment News; 12/1/10 Financial Planning; 6/1/10 RIA Biz; 10/09 Registered Rep; 9/29/10 Registered Rep Email (Konig); 7/31/09 Securities

Technology Monitor; 5/18/09 Inside Information; 5/13/09 Wealth Management Letter (Discovery); 11/19/07 Investment News (Moss Adams); Tiburon

Research & Analysis


The Charles Schwab Corporation’s Schwab Institutional Custodies $800

Billion of Fee-Based Financial Advisor Assets, Up 1,500% Since 1995

Schwab Institutional

Fee-Based Financial Advisor Assets Under Administration

($ Billions)

$4$51

$220

$287$348

$503

$584

$800

$407

1990 1995 2000 2003 2004 2005 2006 2007 2011

Source: 11/11/08 Schwab Institutional Web Site; 6/08 Harvard Business Review; 4/21/08 Forbes; 5/5/08 Registered Rep; 3/26/08 Business Wire; 3/26/08 Charles

Schwab Press Release; 3/25/08 Investment Advisor; 3/25/08 New York Times; 2/4/08 The Charles Schwab Corporation Web Site; 1/08 Investment

Advisor; 12/31/07 Charles Schwab Annual Report; 11/07 Registered Rep; 4/1/07 Registered Rep; 2/07 Financial Advisor; Tiburon Research & Analysis


“I worry about the sustainability of

the IBD model. It is a perfect storm.

Our margins are under attack.

Business growth is stagnant. And

our basic premises are being

challenged”

Independent Broker/Dealer CEO

Summary Comment

The Independent Broker/Dealer Model is Short-Term Threatened…

Source: 1/10/11 First Allied Conversation (Marks); Tiburon Research & Analysis


“Banks are not viewed with a lot of

favor”

Financial Advisor

Comment on Competitive Playing Field

One Bank Executive was Relatively Blunt About Banks

Specifically…

Source: 11/3/10 Wells Fargo Corporation Conversation (Hayes); Tiburon Research & Analysis


Context Setting




– World Events



Attitudinal Changes





– Product Trends


Tactics


Outline


Retirement Plan

Assets

16%

Insurance &

Annuities

9%

Principal

Residence

23%

Privately Held

Business

16%

Other Real Estate

Assets

14% Investable Assets

22%

Consumer Household Assets

$100,000-$1.0 Million in Investable Assets

By Product

Consumers Households with $100,000 to $1.0 Million in Investable

Assets Have Less than Half of their Assets in Financial Assets

Source: 5/29/06 Investment News (Spectrem Group); Tiburon Research & Analysis


56% 53% 51%

44% 47% 49%

Wirehouses Regional Broker/Dealer Independent

Broker/Dealer

Fees

Commission

Markets & Distribution Channel

Assets Under Administration

By Pricing Method

Wirehouses, Regional Broker/Dealers & Independent Broker/Dealers Now Have

Greater than Half of their Assets Under Administration in Fee-Accounts



28%

89%

72%

11%

Assets Under Administration Net Flows

Fees

Commission

Morgan Stanley Smith Barney

Assets Under Administration & Net Flows

By Pricing Method

Morgan Stanley Smith Barney Has Just 28% of its Assets Under Administration

in Fee-Accounts But Now Gathers Nearly All New Assets in Fee-Accounts



$36$91 $100

$140$210

$300

$410

$608 $578

$782

$1,013$1,082

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Exchange Traded Fund Assets

($ Billions)

Exchange Traded Fund Assets Reached $1.0 Trillion in 2010

Source: 4/11/11 Morningstar Email (Hannan); 3/28/11 Investment Company Institute; 3/11 National Stock Exchange; 2/26/11 Wall Street Journal; 1/6/11 USA

Today; 8/30/10 Morningstar Presentation (Mansueto); 2/22/10 Money Management Executive (Financial Research Corporation); 3/1/09 Research

(National Stock Exchange); Tiburon Research & Analysis


Hedge Funds Have $1.7 Trillion Assets, Back Equivalent to their

Peak and Up 20% Since their Bottom in 2008-2009

Source: 4/5/11 Barclay Hedge; 8/30/10 Morningstar Presentation (Mansueto); 3/8/10 Money Management Executive (Hennessee Group); 3/3/10 Money

Management Executive (Hennessee Group); ; 4/15/09 Zebra Capital Management Presentation (Ibbotson) (HFR; Van Hedge Fund Advisors;

Morningstar); 10/14/08 Morningstar Presentation (Mansueto); 3/16/08 Money Management Executive (Invest Hedge); Tiburon Research & Analysis

Hedge Fund Assets

($ Trillions)

$0.5$0.6

$0.7

$0.9

$1.1

$1.5

$1.7

$1.4 $1.4

$1.7

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010


London International Vintners Exchange

100 Index

The Price of Fine Wines is Up 75% After a Decline of 15% in 2008

Source: 4/5/11 Liv-Ex Web Site; 4/8/10 Liv-Ex Web Site; 3/31/09 New York Times; Tiburon Research & Analysis

$94 $99 $100 $98$115

$171

$240

$205

$237

$300

$359

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


“My clients are middle America and need

guarantees”

Financial Advisor

Comment on Products & Services

Many Financial Advisors Believe that their Middle America Clients

Need Guarantees

Source: 1/26/10 Park Place Wealth Advisors Conversation (Gannett); Tiburon Research & Analysis


“Variable annuities are needed most by

non-investment savvy people which is

unfortunate because they are complex

products”

Financial Advisor

Comment on Products & Services

Other Financial Advisors Worry About Variable Annuities…

Source: 1/26/10 Park Place Wealth Advisors Conversation (Gannett); Tiburon Research & Analysis


529 Plans Have $138 Billion Assets Under Management, Up Over

1,300% Since 2001

$9 $11

$26

$44

$100

$119

$138

2001 2002 2003 2004 2006 2009 2010

529 Plan

Assets Under Management

($ Billions)

Source: 4/4/11 Wall Street Journal; 11/18/10 Plan Adviser; 6/10 Kiplinger’s Personal Finance; 2/10 Journal of Financial Planning ; 5/7/06 New York Times;

1/12/05 Wall Street Journal (UNC Wilmington); 9/13/04 Investment News (Financial Research Corporation); Tiburon Research & Analysis


Context Setting




– World Events



Attitudinal Changes





– Product Trends


Tactics


Outline


Source: 4/8/11 Fidelity Investments Email (Graham); Tiburon Research & Analysis

Financial Services Industry & Financial Advisor Key Tactics

Sales & marketing challenge

Top three firms focus on moderate net worth

households; most others focus on high net

worth households

Better staffing & compensation models to

emerge

Technology & outsourcing to be key

Margins to be challenges

Process, technology, & outsourcing plus

marketing to be the keys

Financial Services Industry & Financial Advisor

Key Tactics


The Edelman Financial Group’s Edelman Financial Services Has

$6.5 Billion Assets Under Management, Up Over 100% Since 2004

Source: 6/20/11 Investment News; 5/10/11 Sanders Morris Harris Group Press Release; 4/14/11 Edelman Financial Services Presentation (Edelman); 3/25/11 RIA

Biz; 10/21/09 RIA Biz; 10/15/09 RIA Biz; 8/31/09 RIA Biz; 1/22/09 Sanders Morris Harris Group Press Release; 12/19/08 Edelman Financial Services

Email (Conti); 3/08 Registered Rep; 4/23/07 Barron’s (The Winner’s Circle); 6/13/05 Barron's; 9/20/04 Barron's; Tiburon Research & Analysis

Edelman Financial Services


($ Billions)

$2.4$2.6

$3.3 $3.4$3.8

$5.5

$6.5

2004 2005 2007 2008 2009 2010 2011


$1.6

$5.1

$5.9

$6.5

2006 2009 2010 2011

The Mutual Fund Store Has Gathered $6.5 Billion Assets Under

Management, Up from $1.7 Billion in 2006

The Mutual Fund Store


($ Billions)

Source: 6/8/11 The Mutual Fund Store Web Site; 5/31/11 The Mutual Fund Store Web Site; 5/31/11 The Charles Schwab Corporation Email (Salesky); 5/30/11

Investment News; 5/30/11 Kansas City Star; Tiburon Research & Analysis

Kansas City,

MO & Saint

Louis, Mo

account for 50%

assets under

management in

2006


Source: 6/28/11 Russell Investments Brochure; Tiburon Research & Analysis

Sales & Marketing Strategies

Nationwide Approach

Moderate net worth

Seminars

Self promotion (articles,

books, radio, & television)

Advertising (direct mail,

print, web, radio, television)

Public relations

Measurement (offices,

financial advisors, leads,

closure rate, touches, client

retention)

Sales & Marketing Strategies

Local Approach

High net worth

Professional referrals

Client referrals

Target marketing


Private Business

Owners

32%

Corporate

Executives

27%

Inheritors

4%

Blue Collar

Workers

3%

Professional

Occupations

23%

Institutions

11%

But the Home Run is Proactive Segment Marketing…

Fee-Only Financial Advisor Clients

by Occupational Segment

Source: 3/1/04 First Trust Advisor Conversation (Sloane); 2/27/04 First Trust Advisor Conversation (Tomlinson); 2/26/04 First Trust Advisor Conversation

(Kaiser); 2/26/04 First Trust Advisor Conversation (Tripp); 2/25/04 First Trust Advisor Conversation (Brodeski); 2/2404 First Trust Advisor

Conversation (Caldwell); 2/24/04 First Trust Advisor Conversation (Cowles); 2/20/04 First Trust Advisor Conversation (Johnson); 2/20/04 First

Trust Advisor Conversation (Reed); Tiburon Research & Analysis


Outside Sales

(Vice Presidents)

12%

Inside Sales

(Account

Executives)

12%Client Operations

Associates

10%

Technology

10%

Institutional

6%

Research

4%

Trading

4%

Other Employees

23%

Investment

Counselors

19%

Fisher Investments Employees

By Job Classification

Fisher Investments’ Investment Counselors, Vice Presidents, Account Executives, &

Client Operations Associates Account for Over Half of its Employees

Source: 7/27/06 Fisher Investments Meeting (Ornani); Tiburon Research & Analysis

http://www.fi.com/us


500

15,000

20,000

14,000

22,000

2001 2006 2008 2009 2010

Envestnet

Financial Advisor Clients

Envestnet Serves 22,000 Financial Advisor Clients, Up Over 4,000%

Since 2001 and 40% Since 2006

Note: Another source said that prior to its acquisition, Portfolio Management Consultants served 500 financial advisor clients in 2001

Note: Another source said that Envestnet’s fiscal year end is at the end of the first quarter (e.g., 2009 ends at March 31, 2009)

Source: 12/30/10 Envestnet Email (O’Brien); 12/10 Envestnet Annual Report; 8/16/10 RIA Biz; 4/3/10 RIA Biz Email (Southall); 2/28/10 Google News Alerts;

2/2/10 Google News Alerts; 1/13/10 Google News Alerts; 12/27/09 Envestnet Web Site; 12/8/09 Google News Alerts; 2/12/09 Envestnet Email

(Apker); 6/08 Investment Advisor; 3/3/08 Envestnet Press Release; 11/6/06 Envestnet Press Release; Tiburon Research & Analysis


200

400

2008 2011

Orion Advisor Services

Accounts

(Thousands)

NorthStar Financial Services Group's Orion Advisor Services

Serves 400,000 Accounts, Up 100% Since 2008

Source: 8/3/11 Edelman Financial Services Conversation (Moore); 7/31/11 Orion Advisor Services Brochure; 9/25/08 Orion Advisor Services Web Site; 10/24/07

Orion Advisor Services Web Site; Tiburon Research & Analysis


Context Setting




– World Events



Attitudinal Changes





– Product Trends


Tactics


Outline


Financial Services Industry Net Profits

As a Percentage of All Corporate Net Profits

Financial Services Industry Earnings Have Traditionally Averaged About 25%-

35% of All Corporate Profits, with 2010 Results Back in Familiar Territory

Source: 4/13/11 Hellman & Friedman Presentation (Thorpe); 3/18/11 Wall Street Journal (US Department of Commerce); Tiburon Research & Analysis

26%27%

22%23% 23%

20%

0%

-10%

20%

25%

30% 30%

28%

25%

28%

32%

1Q/07 2Q/07 3Q/07 4Q/07 1Q/08 2Q/08 3Q/08 1Q/09 2Q/09 3Q/09 4Q/09 1Q/10 2Q/10 3Q/10 4Q/10

4Q/08


Financial Services Industry

Keefe, Bruyette, & Woods

Large Cap Banks Index

Market Return

The Keefe, Bruyette, & Woods Large Cap Banks Index is Down 28%

in 2011, After Gains of 35% & 33% in 2009 & 2010

Source: 9/5/11 Keefe, Bruyette, & Woods Web Site; 4/1/11 Yahoo Finance Web Site; Tiburon Research & Analysis

17% 16%13%

33%

10%

-5%

17%

-32%

-55%

35%33%

-28%

2000 2001 2002 2003 2004 2006 2009 2010

2005 2007 2008 2011



Keefe, Bruyette, & Woods

Large Cap Insurance Companies Index

Market Return

The Keefe, Bruyette, & Woods Large Cap Insurance Companies Index

is Down 22% in 2011, After Gains of 57% & 36% in 2009 & 2010

11%

22%

11%

-10%

-64%

57%

36%

-22%

2004 2005 2006 2009 2010

2007 2008

Source: 9/5/11 Keefe, Bruyette, & Woods Web Site; 4/1/11 Yahoo Finance Web Site; Tiburon Research & Analysis

2011



AMEX Securities Broker/Dealer Index

Market Return

The AMEX Securities Broker/Dealer Index is Down 29% in 2011,

After Gains of 73% & 12% in 2009 & 2010

Source: 9/5/11 Wiki Invest Web Site; 4/1/11 Yahoo Finance Web Site; Tiburon Research & Analysis

35%

0%

-21%

74%

24%

39%34%

-16%

-98%

73%

12%

-29%

2000 2001 2003 2004 2005 2006 2009 2010

2002 2007 2008 2011


Retail Banks Have the Largest Market Capitalization in the Financial Services Industry at $29.5

Trillion, Twice the Size of Insurance Companies, Asset Managers, & Brokerage Firms Combined


Market Capitalization

By Segment

($ Trillions)

Source: 4/6/11 Yahoo Finance Web Site; Tiburon Research & Analysis

$29.5

$8.2

$2.2

$4.9

Retail Banks Insurance

Companies

Brokerage Firms Asset Managers


Asset Managers Have the Highest Average Price-to-Earnings Ratios

Compared to Other Industry Segments


Price-to-Earnings Ratios

By Segment

Source: 4/7/11 TD Ameritrade Email (Schweiss); 4/6/11 Yahoo Finance Web Site; 2/23/04 Business Week; 12/29/03 Business Week; 1/22/02 Wachovia

Presentation; Tiburon Research & Analysis

6.1x

17.7x

23.3x

25.7x

Retail Banks Insurance

Companies

Brokerage Firms Asset Managers


7

10

13

14

18

153

Fiduciary Network

Wealth Trust

United Capital

Financial Partners

Spire Investment

Partners

Focus Financial

Partners

National Financial

Partners

National Financial Partners is the Leading Financial Advisor

Aggregators with 153 Acquisitions

Financial Advisor Aggregators

By Financial Advisor Acquisitions

Source: 8/8/10 LPL Analysis; 3/10/05 Business Wire; 9/27/02 Harris Voicemail (Roush); 8/15/02 Wallace & Mackenzie Conversation (Jessiman); 5/02 Registered

Rep; 4/15/02 Investment News; 1/2/02 Wealth Trust Letter (Benton); 12/31/01 The Daily Deal; 10/01 Bloomberg Wealth Manager; 9/7/01 Moss Adams

Conversation (Tibergien); 7/30/01 The Daily Deal; 6/01 Investment Advisor; 12/10/99 MDE Group Conversation (Eichen); Tiburon Research & Analysis



Tiburon Strategic Advisors

• Focus on corporate-level strategy

- Serve senior executives only at financial

services companies

- Key services: market seminars, market

research, & strategy consulting

- Served over 300 corporate clients and

completed over 1,300 projects since 1998

- Host semi-annual CEO Summits, offer free

weekly research releases, and offer free

business benchmarking tools for all types of

advisors

• Chip Roame background

- McKinsey & Company

- Charles Schwab & Company

- Tiburon since 1998

Comments

Documents

The State of the Financial Services Industry · 2011-10-21 · The State of the Financial Services Industry FPA East Bay Chapter Meeting September 9, 2011 Charles “Chip’ Roame