Leading-Edge Investment Strategies & Associated Risks Fiduciary & Investment Risk Management Association 21 st Annual National Training Conference April

Leading-Edge Investment Strategies& Associated Risks

Fiduciary & Investment Risk Management Association21st Annual National Training Conference

April 16, 2007

207.04.16 – Tiburon Market Seminar © Tiburon Strategic Advisors, LLC™

Today’s Presentation Will Address Trends in Both Market-Linked Products and Traditionally Named Alternative Investments

Source: Tiburon Research & Analysis

Polarization of Investments Process

Polarization

Market-Linked Products

Alternative Investments

Indexed Separate Accounts

Exchange Traded Funds

Index MutualFunds

Hedge Funds

Other Alternative

InvestmentsReal Estate

Venture Capital & Private Equity


The State of the Investment Advice Market

– The Market Opportunity: Consumer Wealth, Baby Boomers, & the Pending Liquefaction

– The Challenge: The Competitive Playing Field

– Winning Business Strategy: Designing Leading-Edge Investments Offers

The State of the Alternative Investments Markets

– Market Linked Products: Index Funds & Exchange Traded Funds

– Alternative Investments: Hedge Funds, Venture Capital & Private Equity, Real Estate, & Other Alternative Investments

Summary Tiburon Conclusions

Outline


Consumer Households Have Over $17 Trillion of Investable Assets and $46 Trillion of Total Assets

Source: 1/22/04 McKinsey Quarterly; 5/22/02 Wachovia Presentation (Doe) (Spectrem; McKinsey & Company); 5/9/02 Wachovia Presentation (Blythe); 5/9/02 Spectrem Presentation (Doe); 8/14/01 Wall Street Journal; 7/01 Registered Rep (Cerulli); 6/19/00 Investment News; 12/97 Federal Reserve Bank Flow of Funds Accounts & Consumer Finance Survey; Tiburon Research & Analysis

Consumer Households Net Worth($ Trillions)

$46.5

$17.1

$39.7

$6.8

$7.5

$12.4

$9.6

InvestableAssets

RetirementPlan Assets

PersonalAssets

Other IlliquidAssets

TotalHousehold

Assets

TotalHouseholdLiabilities

TotalHouseholdNet Worth


Baby Boomers are the Key Market for the Next Two Decades for Five Reasons, Including their Retirement & Pending Liquefaction


Reasons Baby Boomers are the Critical Market for Success

Peak Earnings &Savings Years

Wealth Transfer(Receiving)

Retirement & Liquefaction Years

Longer Lives (Retirement Income

Planning)

Social SecurityPrivatization


The Bad News is… Three-Quarters of Baby Boomers Over the Age of 55 Have Less Than $100,000 in Investable Assets…

Source: 2/3/05 New York Times; Tiburon Research & Analysis

Baby Boomers Over Age 55 by Investable Assets

<$100,00079%

>$100,00021%


7.0%

8.0% 8.0%

7.0%

8.0% 8.0% 8.0%

5.0%

6.0%

3.3%

2.4% 2.4%2.1%

1.3%

0.2%

1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2001 2002 2003 2004

… And the Consumer Household Savings Rate Continues to Hit New All Time Lows

Consumer Household Savings Rate

Source: 1/26/05 New York Times (Federal Reserve); 12/30/04 Wall Street Journal; 11/4/04 US Department of Commerce Web Site; 8/1/01 San Francisco Chronicle; 12/00 SunAmerica Brochure; 10/10/00 San Francisco Chronicle; 7/22/96 Business Week; Tiburon Research & Analysis


… And the Median Value of a Baby Boomer’s Inheritance is Only $48,000; Very Few Received More Than $100,000

Inheritance >$100,000

2%

Inheritance <$100,000

98%

Source: 2/04 Journal of Financial Planning; 8/12/01 US Bancorp Piper Jaffray Web Site (Gallup); 12/00 SunAmerica Brochure; 7/96 Commonwealth Club Newsletter; 2/19/96 US News & World Report; Tiburon Research & Analysis

Baby Boomers by Size of Inheritance


The Good News… Boomers’ Pending Retirement Will Drive More Assets Into the Investable Assets Market

Source: 1/22/04 McKinsey Quarterly; 5/22/02 Wachovia Presentation (Spectrem; McKinsey & Co.); 5/9/02 Wachovia Bank Wealth Management Presentation (Blythe); 5/9/02 Spectrem Presentation; 8/14/01 Wall Street Journal; 7/01 Registered Rep (Cerulli); 6/19/00 Investment News; 12/97 Federal Reserve Bank Flow of Funds Accounts and Consumer Finance Survey; 12/97 First Manhattan Consulting Group; Tiburon Research & Analysis

Consumer Households Net Worth($ Trillions)

$46.5

$17.1

$7.5

$12.4

$9.6

InvestableAssets

RetirementPlan Assets

PersonalAssets

Other IlliquidAssets

TotalHousehold

Assets


Beyond the Liquefaction, Another Opportunity is Presented by the Risk of Living Too Long

Source: 11/03 Institutional Investor; 3/11/03 First Quadrant Presentation (Arnott); Tiburon Research & Analysis

Individual Life Expectancy by Birth Year

6369 70 72 74 75 77 78 79 80

1940 1950 1960 1970 1980 1990 2000 2010 2020 2030


Even More Critical is the Fact that More than Half of 65 Year Olds Will Reach Age 85 and Over One-Third Will Reach 90

Source: 12/11/06 Investment News; 8/12/01 US Bancorp Piper Jaffray Web Site; 8/12/01 Allstate Brochure; 12/00 SunAmerica Brochure; 7/22/96 Business Week; Tiburon Research & Analysis

100+6%

90-9418%

85-8920%

95-9911%

65-8445%

65 Year Old Person Life Expectancy


100% 97%91%

76%

50%

22%

70 75 80 85 90 95

And Amongst 65 Year Old Couples; there is a 50% Chance that One (or Both) Will Live Another Twenty-Five Years

Share of American Couples at Age 65 Where One Spouse Will Reach Certain Age

Source: 2/07 American Funds Brochure; Tiburon Research & Analysis










Outline


All Types of Competitors are Increasingly Chasing the Emerging Affluent and the Wealth Management Business

Source: 5/22/02 Wachovia Presentation (Doe); Tiburon Research & Analysis

Competitive Playing Field

Insurance Agents, CPAs & Lawyers

• Entering the business• Relying on fee-account

programs at the high-end

Emerging Affluent & Wealth Management

Business

Full-Service Brokers• Segmenting offers• Moving to fee-based

accounts

Boutique & Upscale Firms

• Moving down market• Testing new models

Retail Banks• Up-selling banking

customers• Rebuilding trust

departments

Discount Brokers & Online Financial Services

• Adding help & advice• Moving up market

Independent Advisors• Expanding investment

offers• Extending services to

wealth management


Retail Banks $5.4 Trillion

32%

Independent Advisors $2.1

Trillion12%

Discount Brokers $1.4

Trillion8%

Insurance Companies $0.3 Trillion

2%

Mutual Fund Companies $1.7 Trillion

10%

Wirehouse, Regional, & Boutique

Brokers $6.2 Trillion

36%

Consumer Households Investable Assets by Market

Full-Service Brokers and Banks Have Historically Dominated Control of Consumer Investable Assets

Source: 3/02 Open Finance (Tower Group); 8/13/01 On Wall Street Web Site; 7/13/01 Cerulli Presentation (SIA); 11/6/00 Investment News (Cerulli Associates); 12/97 Securities Industry Yearbook; 12/97 S&P’s Securities Dealers of North America; 7/22/97 American Banker; 6/97 Financial Planning; 6/97 Dow Jones Investment Advisor; 5/12/97 Pensions & Investments; 4/12/97 American Banker; Tiburon Research & Analysis


But Independent Advisors Collectively Continue to Outgrow the Competition…

Annual Client Assets Growth Rate by Market(1995 - 2006)

Source: 7/19/04 Federal Reserve Bulletin; 12/97 Securities Industry Yearbook; 7/22/97 American Banker; 5/12/97 Pensions & Investments; 3/97 Federal Reserve Bulletin; 12/96 ACLI Life Insurance Factbook; 11/95 Best’s Review; Tiburon Research & Analysis

16%

13%

11%

7%

3%2%

IndependentAdvisors

Discount Brokers Full-ServiceBrokers

Mutual FundCompanies

Banks InsuranceCompanies










Outline


Individual Securities Account for the Largest Share of the Investable Assets of High Net Worth Households

Source: 2/04 Worth (Spectrem Group); Tiburon Research & Analysis

Investable Asset Distribution Amongst High Net Worth Investors

Individual Securities

30%

Separately Managed Accounts

26%


9%

Other17%

Deposits & Cash9%

IRAs9%


And at Banks, there are Now Nearly Four Million Personal Trusts, More Than Twice the Number That Existed in 1997

Source: 7/6/98 San Francisco Examiner; Tiburon Research & Analysis

Personal Trusts(Millions)

1.71.9 2.0

2.9 3.0

3.4

3.8

1997 1998 1999 2000 2001 2002 2003


Irrevocable Trust Assets Growth(Including and Excluding Market Appreciation)

Source: 5/01 Banking Strategies (VIP Forum); 3/26/01 Investment News; 1/99 Corporate Executive Board (Federal Financial Institutions Examination Council; VIP Forum); Tiburon Research & Analysis

But When Taking Market Appreciation Out, Irrevocable Trust Assets Have Been Declining at a Rate of 5.2%

8.7%

-5.2%

Growth WithMarket

Appreciation

Growth WithoutMarket

Appreciation


Banks40%

Brokerage Firms12%

Law Firms9%

Insurance Companies

8%

Independent Financial Advisors

7%

Independent Trust Companies

4%

Other Providers20%

Personal Trust Services Providersby Type

Source: 3/27/03 American Banker (Diversified Services Group); Tiburon Research & Analysis

And While Banks Still Control the Largest Share of the Personal Trust Business, Competition is Multiplying


Outside of the Trust World, Mutual Funds Have Grown to be an $11 Trillion Market….

Source: 9/25/05 ICI Web Site; 12/31/04 Investment Company Institute Fact Book; 3/05 ICI Web Site; 5/02 Merrill Lynch Presentation (Doe); 9/01 Financial Advisor; 7/01 Registered Rep; 5/1/01 EA Invest Presentation (Doe); 7/16/99 USA Today; Tiburon Research & Analysis

$1.1$1.6

$2.2

$3.5

$5.5

$7.0 $7.0$6.4

$7.4

$8.1$8.5

$10.4$10.8

1990 1992 1994 1996 1998 2000 2001 2002 2003 2004 2005 2006 2007

Mutual Fund Assets($ Trillions)


… And Become the Dominant Investment Product…

Source: 3/05 ICI Web Site; 7/19/04 Barron’s; 4/04 Research (MMI); 12/15/03 Investment News (Cerulli); 7/03 Ticker; 5/27/02 Merrill Lynch Presentation (Cerulli) (Doe); 10/01 Investment Consulting News; 7/13/01 Cerulli Presentation (Strategic Insight) (Cerulli); 7/11/01 RunMoney Conversation (Jorgensen); 7/2/01 RunMoney Quarterly Report; 7/01 Financial Advisor; 6/25/01 Investment News; 4/01 AIM Brochure (Cerulli); Tiburon Research & Analysis

Leading Investment ProductsAssets Under Management

($ Billions)

$503 $720

$1,800 $1,800

$10,800

ExchangeTraded Funds

SeparatelyManagedAccounts

Annuities Hedge Funds Mutual Funds


Beyond Mutual Funds & Individual Securities, there are Three Key Product Trends, Including Open Architecture, the Polarization, and Wealth Management Services & Family Office Services

Source: 11/8/02 EnvestnetPMC Conversation (Yanari); Tiburon Research & Analysis

Financial Advice Key Product Trends

Mutual Funds&

Individual Securities

Polarized Trends to Indexing & Alternatives

Open Architecture

Wealth Management

& Family Office Services


Banks Continue to Slowly Reposition their Investments Units as Asset Gatherers and Wealth Managers

Source: 1/04 Worth; 5/30/02 Wachovia Meeting (Kelly); Tiburon Research & Analysis

Asset Managers(Manufacturers)

Alternative Value Propositions

Asset Gatherers Wealth Managers

Medium/Low

Financial planning, asset allocation, solid performance, and wealth management services

Medium

Asset allocation and good performance

High

Top performance

Importance of Investment

Performance

Value Proposition

Alternative Value Propositions for Private Banking Units


Other Investment Products

96%

Separately Managed Accounts

4%

Source: 12/31/05 Money Management Institute Report (Dover Financial Research); Tiburon Research & Analysis

Bank Trust Departments Assets By Product

But the Banks are New to Open Architecture…


And Open Architecture Brings Issues… Issue #1: Asset Class Breakdown Shows the Dominance of Large Cap Equity in Separately Managed Accounts

Source: 11/03 On Wall Street (Cerulli); 9/22/03 Money Management Executive; 10/16/01 CDC Email (Jarrett); Tiburon Research & Analysis

Separately Managed Account Program AssetsBy Asset Class

Large Cap Equity60%

Balanced Portfolios24%

Specialty Groups 9%

Mid-Cap Portfolios 4%

Small-Cap Portfolios 3%


Issue #2: Three-Quarters of Full-Service Brokers Use One-to-Three Separate Account Managers Per Client, Hence Clients Get Limited Diversification

1 Manager40%

2-3 Managers35%

4-5 Managers15%

6 or More Managers

10%

Separately Managed AccountsBy Number of Managers Used

Source: 11/7/03 Legg Mason Advisor Conversation (Rosenfield); 11/7/03 Legg Mason Advisor Conversation (Castle); 11/7/03 Legg Mason Advisor Conversation (Graham); 11/6/03 Legg Mason Advisor Conversation (Barnhill); 11/6/03 Legg Mason Advisor Conversation (Davidov); 11/6/03 Legg Mason Advisor Conversation (Lopez); 11/5/03 Legg Mason Advisor Conversation (Rafalko); Tiburon Research & Analysis


Issue #3: Many Sponsors Send a Disproportionate Share of their Assets to their Own In-House Offerings

Source: 3/19/03 Wealth Management Letter (Cerulli); 7/01 Inside Institutions Newsletter; Tiburon Research & Analysis

Share of Separately Managed Account Assets Held with In-House Managers

49%

29%

Smith Barney Merrill Lynch


Issue #4: The Hype of Customization May Not be Fulfilled in Real Client Accounts; Less Than One-Fifth of Full-Service Broker Clients Customize Their Separately Managed Accounts

Separately Managed Account ClientsBy Propensity to Customize Accounts

Customize18%

Don't Customize

82%

Source: 11/7/03 Legg Mason Advisor Conversation (Rosenfield); 11/7/03 Legg Mason Advisor Conversation (Castle); 11/7/03 Legg Mason Advisor Conversation (Graham); 11/6/03 Legg Mason Advisor Conversation (Barnhill); 11/6/03 Legg Mason Advisor Conversation (Davidov); 11/6/03 Legg Mason Advisor

Conversation (Lopez); 11/5/03 Legg Mason Advisor Conversation (Rafalko); Tiburon Research & Analysis


Issue #5: The Tax Benefits of Separately Managed Accounts May Also be Overstated

Source: 5/03 Financial Planning; 1/23/03 Wealth Management Letter; 11/2/02 SunTrust Presentation (O’Reilly); Tiburon Research & Analysis

Special Year-End Tax

Treatment30%

No Special Year-End

Tax Treatment

70%

Full-Service Broker Clients Who Seek Customized Year-End Tax Treatment










Outline


As Noted Earlier… The Investments Process is Being Polarized with Twin Growth Patterns in Both Market-Linked Products and Alternative Investments


Polarization of Investments Process

Polarization

Market-Linked Products


Indexed Separate Accounts

Exchange Traded Funds

Index MutualFunds

Hedge Funds

Other Alternative

InvestmentsReal Estate

Venture Capital & Private Equity


Source: 9/04 Journal of Indexes (Bogle); 12/23/02 Forbes; 4/25/01 Smith Barney Presentation (Moszkowski) (Strategic Insight); 11/19/01 Investment News; Tiburon Research & Analysis

Created in 1973, Index Funds Continue to Grow as a Share of All Dollars Invested in Mutual Funds

Index Mutual Fund Assets as a Shareof All Equity Mutual Fund Assets

1%

5%

9%

11% 11%

17%

1991 1996 2001 2002 2003 2004


Index Mutual Fund Wins

70%

Active Investment

Strategy Wins30%

Over the Long Haul, Index Mutual Funds’ Combination of Low Fees and Low Turnover Has Beaten Active Management Strategies Almost Three-Quarters of the Time

Winning Investment Strategyby Type of Management

Source: 11/23/03 Hudson City Star-Ledger; 6/03 Journal of Indexes; 3/03 Kiplinger’s; 2/3/03 Forbes; 4/24/02 Wall Street Journal; 11/19/01 Investment News; 11/26/01 Wall Street Journal; 8/26/01 San Francisco Chronicle; Tiburon Research & Analysis


And Now… Exchange Traded Funds are a Fundamentally Important Product Innovation…

Source: 1/8/07 Investment News (SSGA); 1/23/06 Ignites Email (ICI); 1/18/06 Dow Jones Email (Ryan); 12/19/05 Rydex Investments Brochure (ICI); 11/30/05 ICI Web Site;11/9/05 Morgan Stanley Analyst Report; 10/24/05 Investment News; 10/05 Research; 9/12/05 New Millennium Advisors Presentation (Carty) (ICI); 8/29/05 Investment News (ICI); 8/05 Morgan Stanley Analyst Report (Bloomberg); 7/12/05 IIR Conference Brochure; Tiburon Research & Analysis

Exchange Traded Fund Assets($ Billions)

$1 $7 $20 $36$70 $83

$102

$151

$226

$290

$407

$503

1993 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007


Traditional Index Funds69%

Exchange Traded Index Funds

31%

Index Fund Assets by Product Type

Exchanged Traded Funds Have Made Ground on Index Funds in the Market-Linked Products Market, Already Accounting for One-Third of Its Assets

Source: 6/6/05 Business Week (Financial Research Corporation); Tiburon Research & Analysis










Outline


More Traditional Alternative Investments Vary on Their Risk & Reward Parameters; They Need to be Considered Individually

Source: 3/20/00 John Hancock Brochure;7/23/99 Hedge Fund Research Meeting (Burney); 7/12/99 Investment News; 6/30/99 Hedge Fund Research Presentation (Burney); 6/30/99 John Hancock Meeting (Aborn); Tiburon Research & Analysis

Alternative Investments MarketsRisk & Return Curve

Return

Risk

• Traditional Real Estate

• Agricultural Land (Farmland)

• Timberland

• Leveraged Buyout Funds

• Mezzanine Finance

• Venture Capital

• Collateralized Loan Obligations

• Convertible Bond Arbitrage

• Statistical Arbitrage Hedge Funds

• S&P 500

• Macro/Opportunistic Hedge Funds

• Energy Properties• Collateralized Bond Obligations

• Multi-Strategy Hedge Fund-of-Funds

• Event Drive Hedge Funds• Fixed Income Arbitrage

• Hedged Equities Hedge Funds

• Non-Hedged Equities Hedge Funds

• Collateralized Mortgage Obligations

• Distressed Securities

• Short-Selling Hedge Funds


Source: 3/20/00 John Hancock Brochure; 9/15/99 Windermere Investment Associates Brochure; 7/23/99 CMS Meeting (Landman); 7/12/99 Investment News; 7/99 Investing in Hedge Funds; 6/30/99 Hedge Fund Research Presentation (Burney); 6/28/99 Business Week; 5/99 Institutional Investor; 5/99 Dynamic Offerings Web Site; 1/13/99 Ivy Funds Letter; 12/14/98 Business Week; 11/2/98 Barron’s; Tiburon Research & Analysis

Each of the Four Types of Alternative Investments Also Has a Different Positioning

Uncorrelated Investments

Incremental Asset Classes

Incremental Asset Classes

Unique Securities

Client Need

AlternativeInvestments

Hedge FundsVenture Capital

&Private Equity

Real EstateOther

AlternativeInvestments

Alternative Investments Types


Source: 12/99 Dow Jones Investment Advisor; 7/23/99 CMS Meeting (Landman); 7/22/99 Greenrock Research Meeting (Malone); Tiburon Research & Analysis

And The Four Main Types of Alternative Investments May Need to be Seen Differently in Asset Allocation

Representative Asset Allocation

Private Equity & Venture Capital

Real Estate

Hedge Funds

Structured Debt

Cash Fixed Income

EquitiesOther

Hedge Funds

Other Alternative Investments


Hedge Funds, Relatively Stagnant for Fifty Years, Have Gained Huge Assets Since the Mid-1990s

Hedge Fund Assets($ Billions)

Source: 3/6/06 Business Week (Hedge Fund Research); 12/5/05 Money Management Executive (Hedge Fund Research); 10/15/05 Financial Times; 6/8/05 Wall Street Journal; 1/5/05 Wall Street Journal (Hennessee); 9/2/04 Financial Times; 5/24/04 Forbes (Hedge Fund Research); 4/29/04 Financial Times (Alternative Fund Services Review); 3/29/04 Barron’s (Tass); 3/04 Tremont Presentation (Schulman); Tiburon Research & Analysis

$55

$435$500

$600$750

$980 $1,000

$1,400

$1,800

$200

1990 1995 2000 2001 2002 2003 2004 2005 2006 2007


79%

66%61% 63% 61%

21%

34%39% 37% 39%

2001 2002 2003 2004 2005

Hedge Funds-of-Funds

Hedge Funds

Source: 12/14/05 Financial Times (Hedge Fund Research); 12/5/05 Money Management Executive (Hedge Fund Research); 10/15/05 Financial Times; 6/8/05 Wall Street Journal; 1/5/05 Wall Street Journal (Hennessee); 9/2/04 Financial Times; 5/24/04 Forbes (Hedge Fund Research); 4/29/04 Financial Times (Alternative Fund Services Review); 3/29/04 Barron’s (Tass); Tiburon Research & Analysis

Hedge Fund Assets by Fund Type

Hedge Funds-of-Funds Now Account for Nearly 40% of Hedge Fund Assets


Most Hedge Funds are Relatively Small; 65% of Hedge Funds Have Less Than $50 Million Assets Under Management

Source: 12/02 Putnam Lovell/New River Research Report; 12/11/01 Goldman Sachs Presentation; 12/11/01 AXA Rosenberg Presentation (Martin)(Van Hedge); 6/28/99 Business Week; 5/99 Institutional Investor; 10/1/98 New York Times (Cerulli Associates); Tiburon Research & Analysis

Hedge Funds by Assets Under Management

$50 Million or Less

65%

$50-$500 Million

30%

$500 Million or More

5%


Hedge Funds Have at Least Three Data Integrity Issues, Including Cherry Picking and Survivor Bias

Source: 3/11/03 Deutsche Bank Presentation (Lamm); 11/8/02 EnvestnetPMC Conversation (Yanari); Tiburon Research & Analysis

Hedge Fund Data Integrity Issues

Cherry Picking

• Self reporting creates high returns bias, as poor performing funds do not report

Survivor Bias

• May need to lower average returns 3-4%

Multiple Data Sources

• Databases all have different data


10.7%

6.4%

Returns as Reported by TASSResearch

TASS Returns Adjusted forCherry Picking

One Study Suggests Cherry Picking by Hedge Funds Distorts the Reported Performance Results

Hedge Fund Annual ReturnsAs Reported & Adjusted for Cherry Picking

Source: 9/27/04 North Bay Business Journal (Free Business Journal of Amsterdam); Tiburon Research & Analysis


Source: 3/3/07 Wall Street Journal (Thomson Financial); 12/2/99 CMS Companies Presentation (Harvard Study); Tiburon Research & Analysis

The Future of the Private Equity Market is Less Clear… Returns Vary Widely…

Investment Performance DifferenceBetween Top & Bottom Quartile Managers

15%-30%

3%-5%

0%-1%

Fixed Income Public Equities Private Equity


All that Said, Investments May Matter Less than Wealth Management Services…

Source: 5/5/04 NFP Presentation (Montgomery); 2/10/04 SEI Email (Smith); 1/7/04 SEI Conversation (Smith); 9/23/03 SEI Presentation (Smith); Tiburon Research & Analysis

Baby Boomer Financial Phases of Life

Accumulation (Peak Earnings & Savings Years)

Liquefaction (Retirement & Distribution Planning)

Estate Planning

• 30s-50s

• Marriage• Children• Early earnings years• Business ventures• Wealth accumulation• Early divorces• Peak earnings• Peak savings• Vacation homes• Late divorces• Children's college• Children’s marriage• Aging parents• Grand children

• 60s-70s

• Retirement• Liquefaction• Rollovers• Stock options• Sales of homes• Wealth transfer (received)

• 80s-90s

• Long-term care• Disability• Death of spouse• Wealth transfer (sent)• Charitable giving

Approximate Ages

Key Life Events


Nearly Half of Consumers Fear that They Will Outlive Their Savings, Creating a Large Potential for Retirement Income Products

Fear They Will Outlive Their

Savings48%

Feel Their Savings Will Be

Sufficient52%

Consumers by Propensity to be Concerned About Retirement Savings

Source: 2/9/04 American Banker (American Bankers Insurance Association); Tiburon Research & Analysis


Retirement Distribution Portfolios Will Call for Avoiding Volatility Through Annutization and Low Volatility Investment Strategies

Source: 2/07 American Funds Brochure; 6/2/03 National Underwriter; 5/19/03 Investment News; 1/2/03 Ernst & Young Report; Tiburon Research & Analysis

Low Volatility Investment Strategy

• Average investment returns become less meaningful and the timing of returns grows in importance in the distribution phase

• Declines that are compounded by a dwindling capital base can lead to irreconcilable losses

• Must insulate from downside risks

Retirement Distribution Portfolio Strategies

Annutization

• Income annuities or annutization to generate monthly income flow to add to clients’ social security and traditional pension payments

• Interest from CDs or other accounts, sales of assets, and part-time jobs

• Monthly payments from reverse mortgages

• Systematic cashing-out of T-bills, other bonds, and CDs

• Systematic withdrawals from mutual funds and annuities

• Withdrawals from cash value life policies

• Good focus for later!


Annuity Sales by Funding Method

But Over Three-Quarters of Annuity Sales Represent Transfers From Existing Policies

Source: 12/18/06 Investment news (NAVIA);12/00 Bloomberg Wealth Manager; 5/25/99 San Francisco Gate Web Site; Tiburon Research & Analysis

15%21%

85%79%

2005 2006

Actual New Sales

Existing Policy Transfers (1035

Exchanges)


And Finally… Life Insurance May Play an Increasingly Important Role; About Half of Consumer Households Say that They Need More Life Insurance

Consumer Households By Perceived Need for Life Insurance Coverage

Source: 8/15/05 Investment News (Hayden Financial); Tiburon Research & Analysis










Outline


The Opportunity for Financial Institutions to Win is Now!


Comments

• Boomers will start to liquefy wealth, creating many new (and larger) investors

• But at the same time, boomer investment needs will shift

- Investment strategies may shift more defensive- Retirement income will become a challenge for many- Subsequently, investment management focus will

give way to a broader wealth management focus

• High net worth and moderate net worth households are the sweet spot for most types of advisors…

• Financial institutions will seek to distinguish themselves through superior investments offerings…


Product & Service Offerings Will Broaden, Creating Numerous New Risk Issues…


Comments

• Separately managed accounts are growing nicely but use is still concentrated and many are incorrectly managed…

• Index funds & ETFs have emerged as cost competitive alternatives

• Hedge Funds… that’s 1% and 20%… got to get deeper than that and understand the risks – not funds-of-unknown-funds… and valuing securities… and…

• Lots of other alternatives to be packaged soon (e.g., venture capital, private equity, real estate)… return spreads are wide…


Tapping Into Tiburon Research; Three Free Follow-Ups…


Free Tiburon Research

• Obtain Copy of Today’s Slides- Business Card with Email Address (preferred) or

send me an email – [email protected]

• Encourage Your Financial Advisors to Benchmark their Businesses & Receive Free Comprehensive Report

- www.BrokerBestPractices.Com- www.IndependentRepBestPractices.Com- www.BankBrokerBestPractices.Com- Thirteen total tools…

• Receive Free Weekly Research Releases- Business Card with Email Address or Sign Up

Online at www.TiburonAdvisors.Com



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 almost 300 corporate clients and

completed almost 1,000 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

Leading-Edge Investment Strategies & Associated Risks Fiduciary & Investment Risk Management Association 21 st Annual National Training Conference April