P E R S O N A L F I N A N C I A L S E R V I C E S

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P E R S O N A L F I N A N C I A L S E R V I C E S

  1. 1. P E R S O N A L F I N A N C I A L S E R V I C E S Jason M. Reilly, CFA Vice President & Portfolio Manager 700 Brickell Ave Miami, FL 33131 305-789-6275 [email_address] Prepared for : FIN 4324 Commercial Bank Management October 16, 2006 © 2006 Northern Trust Corporation northerntrust.com
  2. 2. <ul><ul><li>Investment Management: </li></ul></ul><ul><ul><li>An Overview for FIN 4324 </li></ul></ul><ul><ul><li>In this game, the market has to keep pitching, but you don’t have to swing. You can stand there with the bat on your shoulder for six months until you get a fat pitch.” </li></ul></ul><ul><ul><li>Warren Buffett </li></ul></ul><ul><ul><li>Jason M. Reilly, CFA </li></ul></ul><ul><ul><li>Vice President & Portfolio Manager </li></ul></ul><ul><ul><li>Northern Trust </li></ul></ul><ul><ul><li>700 Brickell Ave </li></ul></ul><ul><ul><li>Miami, FL 33131 </li></ul></ul>
  3. 3. BIO <ul><li>EDUCATIONAL </li></ul><ul><ul><li>Bachelor of Science in Business Admin. UCF 1995 </li></ul></ul><ul><ul><li>Master of Business Administration UCF 1998 </li></ul></ul><ul><ul><li>CFA Charter 2001 </li></ul></ul><ul><li>CAREER </li></ul><ul><ul><li>Northern Trust – Miami, FL </li></ul></ul><ul><ul><ul><ul><li>Vice President & Portfolio Manager </li></ul></ul></ul></ul><ul><ul><li>SunTrust Personal Asset Management - Orlando, FL </li></ul></ul><ul><ul><ul><ul><li>Vice President & Senior Portfolio Manager </li></ul></ul></ul></ul><ul><ul><li>AmSouth Bancorp - Birmingham, AL </li></ul></ul><ul><ul><ul><ul><li>Trust Investments Officer & Equity Analyst </li></ul></ul></ul></ul><ul><ul><ul><ul><li>AVP & Portfolio Manager </li></ul></ul></ul></ul><ul><li>MEMBERSHIP </li></ul><ul><ul><li>The CFA Institute </li></ul></ul><ul><ul><li>Past President - The CFA Society of Orlando </li></ul></ul><ul><ul><li>Adjunct Finance Instructor – University of Central Florida </li></ul></ul><ul><ul><li>CFA Exam Grader & Senior Exam Grader, Levels II and III </li></ul></ul>
  4. 4. Investment Management Overview <ul><li>Commercial Bank Asset Management may include any or all of the following investment related products and services: </li></ul><ul><ul><ul><ul><li>Traditional Trust Services </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Bank Managed Mutual Funds </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Single stock concentration strategies. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Customized Portfolio Management & Administration </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>High Net Worth Individuals & Families </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Pension & Profit Sharing Plans </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Endowments & Foundations </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>Natural Resources and Real Estate Management </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Private Banking </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Brokerage & Insurance </li></ul></ul></ul></ul>
  5. 5. Importance of Providing Sophisticated Asset & Wealth Management Services <ul><li>RECURRING FEE INCOME! </li></ul><ul><ul><li>Traditional banking products (loans and deposits) are becoming increasingly more commodity like and cyclical. </li></ul></ul><ul><ul><li>Loan growth and quality is falling. Recurring fee income helps smooth earnings volatility and the risks of shortfall. </li></ul></ul><ul><ul><li>Adding asset management and trust services increases bank’s “menu” of products and services thus improving customer retention. </li></ul></ul><ul><ul><li>These types of services: wealth management, trust, brokerage, etc. pose very little risk to capital (unlike lending). Thus, margins are high (50%-70%) and profits flow directly to the bottom line. </li></ul></ul><ul><ul><li>Changing Demographics! </li></ul></ul>
  6. 6. Demographics Forces Dictate Significant Growth For Asset Managers <ul><li>Current Trends </li></ul><ul><ul><li>Life Expectancy: Increasing. </li></ul></ul><ul><ul><li>Fertility Rates: Decreasing </li></ul></ul><ul><ul><li>Population: Aging </li></ul></ul><ul><li>Life Expectancy has gone from age 70 in 1960 to a projected 80 in 2020. </li></ul>
  7. 7. Banks With Higher Levels of Non-Interest (Fee) Income Typically Command Higher Valuations in the Marketplace. <ul><li> Fee Income / </li></ul><ul><li>Bank Current P/E Current P/Book Net Interest Income </li></ul><ul><li>State Street 21.25 3.27 4.50x </li></ul><ul><li>Northern Trust 21.19 3.45 4.84x </li></ul><ul><li>Bank of New York 17.27 2.73 2.77x </li></ul><ul><li>Mellon 19.28 3.82 8.45x </li></ul><ul><li>AmSouth 14.40 2.88 0.50x </li></ul><ul><li>Wachovia 12.77 2.20 0.81x </li></ul><ul><li>BankAmerica 13.28 1.97 0.68x </li></ul><ul><li>SunTrust 13.68 1.66 0.74x </li></ul>
  8. 8. Largest Asset Management Firms Globally <ul><li>RANK Advisor AUM ($ Billions) </li></ul><ul><li>1 Barclay’s Global Advisors $1,500 </li></ul><ul><li>2 State Street Global Advisors $1,400 </li></ul><ul><li>3 Fidelity Investments $1,207 </li></ul><ul><li>4 Capital Group Cos. $1,165 </li></ul><ul><li>5 Legg Mason $858 </li></ul><ul><li>6 JP Morgan Asset Mgmt $847 </li></ul><ul><li>7 AXA Group $728 </li></ul><ul><li>8 Allianz Global $710 </li></ul><ul><li>9 Mellon Financial Corp $708 </li></ul><ul><li>10 Northern Trust Global Investors $663 </li></ul><ul><li>11 Vanguard $618 </li></ul><ul><li>12 Merrill Lynch Investment Advisors $539 </li></ul><ul><li>13 Wellington Capital Mgmt $521 </li></ul><ul><li>14 Goldman Sachs Asset Mgmt $496 </li></ul><ul><li>15 Morgan Stanley Invest Mgmt $488 </li></ul><ul><li>Source: Institutional Investor </li></ul>
  9. 9. Careers in Investment Management: Portfolio Manager <ul><li>Duties and Activities </li></ul><ul><ul><li>Charged with carrying out the day to day investment decisions of assigned accounts. (I.E. purchase or sale of specific stocks, bonds, derivatives, mutual funds, etc. for a specific portfolio). </li></ul></ul><ul><ul><li>Portfolio managers typically manage 150 - 250 relationships, any of which may be the following: </li></ul></ul><ul><ul><ul><li>Private Client Investment Portfolios </li></ul></ul></ul><ul><ul><ul><li>Profit Sharing Plans </li></ul></ul></ul><ul><ul><ul><li>Pension Plans, Endowment & Foundation Portfolios </li></ul></ul></ul><ul><ul><ul><li>Mutual Fund Portfolios </li></ul></ul></ul><ul><ul><li>Utilizes both in-house and “Street” research for the investment decision making process. </li></ul></ul><ul><ul><li>PM decisions must be within specified guidelines with respect to investment style, approved securities, and pre-determined asset allocation objectives. </li></ul></ul>
  10. 10. Careers in Investment Management: Portfolio Manager <ul><li>Changing scope of portfolio manager responsibilities. </li></ul><ul><ul><li>Job functions moving from opaque “back room” investment only duties to significantly increased client servicing and new business related responsibilities. </li></ul></ul><ul><ul><li>Traditional portfolio management now encompasses 50-60% of managers time. Other 40-50% involves servicing existing clients and helping bring new ones into the firm. </li></ul></ul><ul><ul><li>Open Architecture: Many firms are “packaging” outside managers with specific investment disciplines (i.e. small cap, mid cap and international) into a “wrap” products that may be combined with proprietary products. </li></ul></ul><ul><ul><li>Increasing importance on interpersonal skills in addition to technical and analytical acumen. </li></ul></ul>
  11. 11. Careers in Investment Management: Portfolio Manager <ul><li>Keeping Score </li></ul><ul><ul><li>Investment performance </li></ul></ul><ul><ul><ul><li>Generally compared to some pre-specified benchmark consistent with the manager’s style (growth, value, large cap, small cap, etc). </li></ul></ul></ul><ul><ul><ul><li>Always compare relative, not absolute performance on an “apples to apples” basis. </li></ul></ul></ul><ul><ul><ul><li>Account dispersion vs benchmark portfolio. </li></ul></ul></ul><ul><ul><li>Account Retention : </li></ul></ul><ul><ul><ul><li>Portfolio Manager becoming increasingly responsible for keeping clients with the firm. </li></ul></ul></ul><ul><ul><ul><li>Poor retention can have a negative impact on PM’s total comp. Hence the importance of effectively servicing existing clients. </li></ul></ul></ul>
  12. 12. Careers in Investment Management: Equity Security Analyst <ul><li>Duties and Activities </li></ul><ul><ul><li>Typically covers the companies within one or more economic sectors (technology, capital goods, health care, utilities, etc.) making buy or sell recommendations accordingly. </li></ul></ul><ul><ul><li>Generally provide best investment ideas for their respective sectors which in-turn the PMs may purchase in their portfolios. </li></ul></ul><ul><ul><li>Buy Side vs. Sell Side Analyst </li></ul></ul><ul><ul><ul><li>Buy side analysts cover sectors and stocks for mutual fund companies, bank trust departments, etc. </li></ul></ul></ul><ul><ul><ul><li>Sell side analysts are the talking heads we see on CNBC that generally work for large investment banks. </li></ul></ul></ul>
  13. 13. Careers in Investment Management: Equity Security Analyst <ul><li>Keeping Score </li></ul><ul><ul><li>Analysts are typically judged against the performance of the stocks they pick. Again, relative performance here is key. </li></ul></ul><ul><ul><li>Analysts who cover electric utilities will have the performance of the stocks they have chosen compared against a basket of stocks consisting of solely electric utilities for a similar time period. </li></ul></ul><ul><ul><li>Sell Side analysts may also be ranked using both quantitative and qualitative factors by a major investment publication (I.E. WSJ, Barron’s, Institutional Investor). Up until recently, investment banking fee income was a major factor </li></ul></ul>
  14. 14. Investment Professional Compensation <ul><li>The median total compensation for investment professionals is $170,000. Total compensation has increased in some areas due to positive market conditions and disequilibrium between supply and demand for highly qualified investment professionals. </li></ul><ul><li>Source: CFA Institute & Russell Reynolds Associates - 2005 Investment Management Compensation Survey </li></ul>
  15. 15. Career Progression: First Step <ul><li>Management Training Programs </li></ul><ul><ul><li>Generally, the easiest and most effective way to get into the investment management business right out of college. </li></ul></ul><ul><ul><li>Programs generally focus on other areas of the bank as well (retail, operations, commercial lending, & trust). </li></ul></ul><ul><ul><li>Those with a sincere interest and desire generally get offers in the respective areas they choose, including asset management. </li></ul></ul><ul><li>Internships </li></ul><ul><ul><li>Can be completed with “boutique” firms locally to gain applicable experience. </li></ul></ul>
  16. 16. Career Progression <ul><li>Example: Management Associate Program to Trust Department </li></ul><ul><ul><li>Immediately enroll for Level I of the CFA Exam and begin study program as soon as possible there after. </li></ul></ul><ul><ul><li>Begin developing analytical skills by following assigned sector(s) under the supervision of senior officer to recommend stocks for addition or deletion from departmental “Buy List”. </li></ul></ul><ul><ul><li>Progress to Junior PM still covering a sector(s) but begin to manage mutual fund only portfolios to get familiar with trust department policies and procedures and get some client contact experience. </li></ul></ul><ul><ul><li>Progress to Trust Investments Officer thus handling larger more complex individual equity and fixed income portfolios. </li></ul></ul><ul><ul><li>Time Line: 1 - 2 years. </li></ul></ul>
  17. 17. Management Training Program Interview Tips <ul><li>Different keys can open the same lock! </li></ul><ul><ul><li>Banking is increasingly becoming more of a commodity business. What’s sets banks apart is the quality of their people. </li></ul></ul><ul><ul><li>Banks are looking for people with excellent interpersonal skills, these are skills that can’t easily be taught. </li></ul></ul><ul><ul><li>Technical skills (good grades) are important, but, they can teach most of what you need to know on the job. Banks are just as likely to hire Liberal Arts majors for an MA program as Finance / Business majors! </li></ul></ul>
  18. 18. Management Training Program Interview Tips <ul><ul><li>SIGN UP FOR EVERYTHING! Future business leaders, customers, and decision makers are the people you meet today in social clubs, intramural sports, business fraternities, etc. </li></ul></ul><ul><ul><li>Network, Network, Network! You’ll have to do it through your entire career, so get good at it early! </li></ul></ul><ul><ul><li>Accentuate the positives: extra-curricular involvement, related internships, related classes. Just having high grades doesn’t guarantee a great job upon graduation! </li></ul></ul><ul><ul><li>ALWAYS SELL YOUR SELF….ALWAYS ! </li></ul></ul>
  19. 19. Useful Courses for Careers in Banking and Investment Management <ul><li>Financial Models </li></ul><ul><li>Financial Markets </li></ul><ul><li>Security Analysis </li></ul><ul><li>International Investments </li></ul><ul><li>Commercial Bank Management / Management of Financial Institutions </li></ul><ul><li>Real Estate Investment Analysis </li></ul><ul><li>Micro and Macro Economics </li></ul><ul><li>Quantitative Analysis </li></ul><ul><li>All of Dr. Smith’s classes. </li></ul>
  20. 20. Three More Years of Hell: The CFA Designation <ul><li>MBA is no longer enough for those wishing to seriously pursue a career in investment management. </li></ul><ul><li>The Chartered Financial Analyst (CFA) designation is now more important than ever as competition in the job market increases. </li></ul><ul><li>Three year program, with one exam given per year. Pass or fail. Fail and wait until next year to re-take the exam. </li></ul><ul><li>Take Level I as soon as possible after graduating, during senior year, or during grad school. A lot of the information on the Level I exam comes from finance, economics, and statistics courses taught at the senior and graduate level. Levels II and III become progressively more challenging. </li></ul><ul><li>Very difficult and grueling curriculum. Pass rates generally around 50% for each level, but well worth the effort </li></ul>
  21. 21. Resources For Careers In Investment Management <ul><li>Local Bank Management Training Programs </li></ul><ul><ul><ul><li>www.amsouth.com Follow links to careers @ AmSouth </li></ul></ul></ul><ul><ul><ul><li>www.suntrust.com Follow links to careers @ SunTrust </li></ul></ul></ul><ul><ul><ul><li>www.northerntrust.com Follow links to careers @ Northern </li></ul></ul></ul><ul><li>Information on Becoming a CFA Candidate </li></ul><ul><ul><ul><ul><li>www.cfainstitute.org </li></ul></ul></ul></ul><ul><li>General Job Sites Frequented by HR Professionals </li></ul><ul><ul><ul><ul><li>www.monster.com </li></ul></ul></ul></ul><ul><ul><ul><ul><li>-www.cfainstitute.org/jobs </li></ul></ul></ul></ul><ul><ul><ul><ul><li>www.hotjobs.com </li></ul></ul></ul></ul><ul><li>Popular Financial Websites Used by Professional Investors </li></ul><ul><li>www.cnnfn.com www.pimco.com </li></ul><ul><li>www.bloomberg.com www.barrons.com </li></ul><ul><li>finance.yahoo.com moneycentral.msn.com </li></ul><ul><li>www.iimagazine.com www.thestreet.com </li></ul><ul><li>www.economist.com www.morningstar.com </li></ul><ul><li>www.firstcall.com www.stockcharts.com </li></ul>

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