©Copyright 2010, Pershing Advisor Solutions LLC, a subsidiary of The Bank of New York Mellon Corporation, member FINRA, SIPC. Clearing, custody or other

©Copyright 2010, Pershing Advisor Solutions LLC, a subsidiary of The Bank of New York Mellon Corporation, member FINRA, SIPC. Clearing, custody or other brokerage services may be provided by Pershing LLC, member FINRA, NYSE, SIPC. Pershing Advisor Solutions relies on its affiliate Pershing to provide execution services. Trademark(s) belong to their respective owners. For professional use only. Not for distribution to the public. The information contained herein, including any attachments, is proprietary to, and constitutes confidential information of Pershing Advisor Solutions LLC. It may not be reproduced, retransmitted or redistributed in any manner without the express written consent of Pershing Advisor Solutions.

What the 2010 Financial Performance Study Reveals About Advisory Firms

November 2010

Mark TibergienCEO Pershing Advisor Solutions

2Your Business Without Limits®©Copyright 2010, Pershing Advisor Solutions LLC, a subsidiary of The Bank of New York Mellon Corporation, member FINRA, SIPC. Clearing, custody or other brokerage services may be provided by Pershing LLC, member FINRA, NYSE, SIPC. Pershing Advisor Solutions relies on its affiliate Pershing to provide execution services. Trademark(s) belong to their respective owners. For professional use only. Not for distribution to the public. The information contained herein, including any attachments, is proprietary to, and constitutes confidential information of Pershing Advisor Solutions LLC. It may not be reproduced, retransmitted or redistributed in any manner without the express written consent of Pershing Advisor Solutions.

Business Revolution

> Professional management is one of the fast-track career developments

> A new picture of a performance-driven culture is emerging

> Advisory firms are learning to “sell” again

> Firms with multiple owners outperformed the average


But There Are Symptoms of Strain

> Productivity decline

> Increases in Malfeasance and Misfeasance

> Higher staff turnover

> Expenses rising faster than revenue


Root Causes

> Span of control

> Poor recruiting, training and delegation

> Inattention to profit levers

> No clear strategy or positioning

> Absence of effective leadership and management


Trends to Continue Aggravating Operations

> Greater compliance burden

> Multiple locations

> Rapid client growth

> Talent shortage

> Rising human capital costs


What Are the Top Performing Firms Doing?

> Investing in management and leadership development

> Organizing workflow to reflect new reality

> Matching the right people to the right jobs

> Managing to profitability


77777

Separating from the Masses

How Are the Top Performing Firms Making Strides?


Top Performers Produced Lower Gross Profit Margins

Source: Moss Adams/InvestmentNews 2010 Financial Performance Study of Advisory Firms. Top performers are defined as the top 25% of respondent firms based on a combination of profitability, owner compensation and productivity.

Gross Profit, 53.2%

Direct Expenses, 46.8%

Top Performers

Gross Profit, 57.7%

Direct Expenses,

42.3%

All Other Firms


Source: Moss Adams/InvestmentNews 2010 Financial Performance Study of Advisory Firms. Top performers are defined as the top 25% of respondent firms based on a combination of profitability, owner compensation and productivity.

Operating Profit, 18.2%

Overhead Expenses, 35.0%

Direct Expenses, 46.8%

Top Performers

Operating Profit, 11.1%

Overhead Expenses,

46.6%

Direct Expenses,

42.3%

All Other Firms

But Produced Better Net Margins


Expenses at the Average Advisory Firm Trending Up

Median Overhead as a % of Revenue

39.341.9

39.1

44.9

0

5

10

15

20

25

30

35

40

45

50

2003 2005 2007 2009

Source: Moss Adams/InvestmentNews 2010 Financial Performance Study of Financial Advisory Firms


Top Performers Spend More on the Client Experience

Per Client Expense Is 15% Higher

Median expense per client

$4,306

$3,735

$0

$1,000

$2,000

$3,000

$4,000

$5,000

Top Quartile All Others



Top Performers Spend More on People

Median People Cost as % Exp. (Prof + Non-Prof Comp Expense)

61.2%

70.3%

0%

25%

50%

75%




Yet, Top Performing Firms Are More Productive and More Cost Conscious

Overhead as % of Revenue (Total)

48.6%

29.3%

0%

10%

20%

30%

40%

50%




Top Quartile Get a Better Return on Labor

High-Performing Firms Surround Their Professionals With the Types of Individuals and Processes That Help Them Be More Productive

Median revenue/professional

$540,000

$353,000

$0

$200,000

$400,000

$600,000

Top Performer All Others



$230,000

$145,000

$0

$100,000

$200,000

$300,000

Top Performer All OthersSource: Moss Adams/InvestmentNews 2010 Financial Performance Study of Advisory Firms. Top performers are defined as the top 25% of respondent firms based on a combination of profitability, owner compensation and productivity.

Median Revenue per Staff (Total Headcount)


Top Performing Firms Are More Productive and More Cost Conscious

Smaller Staff + Streamlined Infrastructure = More Work Completed

Median clients/total staff

37

33

0

10

20

30

40




$600,000

$430,000

$0

$200,000

$400,000

$600,000

Top Performer All OthersSource: Moss Adams/InvestmentNews 2010 Financial Performance Study of Advisory Firms. Top performers are defined as the top 25% of respondent firms based on a combination of profitability, owner compensation and productivity.

Median Revenue per Client


63%

82%

33%

46%

60%

18%

0%

20%

40%

60%

80%

100%

Per

cen

t of f

irm

s w

ith m

ore

than

on

e o

wn

erTop Quartile Firms Had More OwnersTop-Quartile Firms on Average Had More Owners, Paid Them Better, and Seemed to Be Getting More From Those Owners in Terms of Management Skill and Engagement

TQ Firms(All)

AO Firms(All)

TQ Ensembles

AO Ensembles

TQ Solos

AO Solos



Greater Reliance on Non-Advisors

Source: Moss Adams LLP


2020202020

Action Steps

What Are Top Advisors Planning to Do Now?


Fee Increases as Profitability Driver (by firm size)

7

12

7

1211 11

6

13 1214

20

8

2021

0

5

10

15

20

25

150-250 250-500 500-1M 1-2M 2-3M 3-5M 5M+

Raised Fees to Drive Profitability in 2009 Will Raise Fees to Drive Profitability in 2010

Advisors Are Raising Fees

Larger Firms Will Continue to Increase Fees for Their Smaller Clients



Owners Plan to Spend More Time on Business Development

A Systematic and Strategic Approach to Business Development Will Be Critical to Future Success

% of Firms Allocating More Partner Time to Business Development

2320

26

3235

393533

42

35

4340

53

39

0

10

20

30

40

50

60

150-250 250-500 500-1M 1-2M 2-3M 3-5M 5+

Time for BD in 2009 Time for BD in 2010



Referrals Still Reign Supreme in Business Development65%

14%8%

4% 4% 2% 2% 1%0%

10%

20%

30%

40%

50%

60%

70%

Referrals (alltypes)

ExternalBusiness

DevelopmentEfforts of

Principals (notreferralrelated)

PersonalContact orCommunityInvolvement

with the firm'sprincipals ornon-principalprofessionals

ExternalBusiness

DevelopmentEfforts of Non-

Principalprofessionals(not referral

related)

Advertising,marketing

collateral orInternet

presence

Mediaappearances

byprofessionals

of the firm

Clientspurchased

from anotherfirm

Clientsresulting froma merger withanother firm

Refer Madness

Referrals Still Reign Supreme in Business Development



But Relying on Pure Salespeople Not a Good Option

Firms Using Dedicated BDOs Did Not Necessarily Outperform



Other Big Challenges

Becoming the Employer of

Choice

Improving Workflow

Managing RiskCreating a

Differentiating Message

Improving Gross Profit

Margin


26Page 26

The Best Invest in Leadership and Management

Success Starts With Commitment and Culture

Documents

©Copyright 2010, Pershing Advisor Solutions LLC, a subsidiary of The Bank of New York Mellon Corporation, member FINRA, SIPC. Clearing, custody or other