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Chip Roame MMI 130 4-20.ppt

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  • 1. Getting the Focus Right: Understanding Clients’ Needs It’s All About the Investor: Connecting Sponsors, Managers, & Advisors to Investor Needs MMI Annual Convention April 20, 2004
  • 2. Context Setting – Tiburon Strategic Advisors Source: Tiburon Research & Analysis
    • Focus on corporate-level strategy (not products or channels)
      • Serve senior executives only at financial services companies
      • Key services: market seminars, market research, & strategy consulting
      • Served ~250 corporate clients since 1998
    • Host semi-annual CEO Summit (coming up April 29-30), offer free weekly researches, and offer free business benchmarking tools for all types of advisors
    • Chip Roame background
      • McKinsey & Company
      • Charles Schwab & Company
      • Tiburon since 1998
    Comments
  • 3. Context Setting – Today’s Messages Source: Tiburon Research & Analysis
    • Huge opportunity: baby boomers, peak earnings/savings years, the liquefaction, and the wealth transfer…
    • But impressive competitors from every angle…
      • Competitive products to SMAs
      • Competitive channels not using SMAs
    • Twenty year game - winners will grasp the needs of rapidly evolving consumers…
      • Understanding consumers rapidly evolving needs may become the biggest MMI member challenge as opposed to the issues of products, pricing, distribution, operations, regulatory, and membership that receive today’s focus…
      • For instance, MSPs and UMAs are a great step towards addressing consumer needs but they are just a step in the right direction, not the end all…
    Comments
  • 4. We Will Address Four Consumer Segments Today Based on Investable Assets and Summarize Product Opportunities for Each at the End Facts & Perceptions by Segment High Net Worth Market
    • Definition: $1 to $5 million of investable assets
    • Facts:
      • 4 million households
      • Being courted by many full-service brokers, most bank trust departments, and many fee-only advisors
      • Growing very rapidly
    Affluent Market
    • Definition: $100,000 to $1,000,000 of investable assets
    • Facts:
      • 24 million households
      • Growing rapidly
      • Being courted by discount brokers and others
    Mass Market
    • Definition: <$100,000 of investable assets
    • Facts:
      • 80 million households
      • Still many un-served households
      • Being abandoned by full-service brokers and even some discount brokers
      • Need to watch profitability closely so as not to over-serve
    Super Affluent Market
    • Definition: $5+ million
    • Facts:
      • 250,000 households
      • Mostly locked into long-term relationships
      • Growing at moderate pace
    Source: 11/29/01 Senior Consultant Letter (Winks); 11/01 Financial Advisor; Tiburon Research & Analysis
  • 5. But Maybe Most Important is How Needs Will Change with Boomers Aging Source: Tiburon Research & Analysis
    • Solutions or life events-oriented
      • Versus returns-oriented
      • Seek tailored investments to meet goals, not earn returns
    • Income & protection-orientation
      • Versus accumulation & appreciation-orientation of their 40s and 50s
      • Suggests positive outlook for fixed income, fixed income annuities, principal protected products, disability insurance, long-term care insurance, and liability insurance
    • Sudden money events may change needs further
      • Tax orientation will increase with more assets
      • Stock options will shine light on financial planning
      • Business sales will require forethought
      • Family office services and elder care to become more important
      • Life planning to grow as increased wealth allows reconsideration of goals
    • Estate planning focus to increase with age
      • Suggests positive outlook for trusts, insurance, and charitable giving
    Comments
  • 6.
    • Context Setting
      • The Enormous Opportunity: Consumer Wealth & the Boomer Generation
      • The Challenge: Increasing Competition
    • Building a Winning Model
      • The Traditional Products & Services Orientation
      • Clarifying Target Markets
      • Focusing on Customer Needs
    • Conclusions & Some Tough Love
      • Conclusions for Investment Segments
      • Some “Truths” to Reconsider
    Outline
  • 7. Overall, US Consumers Have Over $17 Trillion of Investable Assets and $46 Trillion of Total Assets; the $17 Trillion Should Grow to $30 Trillion by 2010 Note: Retirement plans include $1.9 trillion of 401k plans; IRAs though of $2.6 trillion are included in the investable assets number Note: For perspective, it is fun to consider that Bill Gates has approximately $40 billion in Microsoft and his total investable assets peaked a little above $100 billion in 1999 Note: Other sources suggest that investable assets total either $14.7 trillion or $18.1 trillion, and total household liabilities are $4.1 trillion Source: 1/22/04 McKinsey Quarterly; 5/22/02 Wachovia Presentation (Spectrem; McKinsey & Co.); 5/9/02 Wachovia Bank Wealth Management Presentation (Blythe); 5/9/02 Spectrem Presentation; 8/14/01 Wall Street Journal; 7/01 Registered Rep (Cerulli); 6/19/00 Investment News; 12/97 Federal Reserve Bank Flow of Funds Accounts and Consumer Finance Survey; 12/97 First Manhattan Consulting Group; 12/97 Sanford Bernstein Research; 12/97 Access Research; 12/97 ACLI; Tiburon Research & Analysis US Consumer Net Worth ($ Trillions) $46.5 $17.1 $39.7 $6.8 $7.5 $12.4 $9.6 Investable Assets Retirement Plan Assets Personal Assets Other Illiquid Assets Total Household Assets Total Household Liabilities Total Household Net Worth
  • 8. Consumers Control Almost Three-Quarters of All Investable Assets and More Specifically, High and Moderate Net Worth Consumers Control Over Half Investable Assets by Market Segment Note: Tiburon recognizes the growing opportunities in the corporate services market as well as the leading-edge trends coming from all of the institutional markets Source: Tiburon Research & Analysis
  • 9. Boomers Account for Almost Half of Millionaires and their Various Life Events Will Increase their Need for Wealth Management Source: 2/10/04 SEI Email (Smith); 1/7/04 SEI Conversation (Smith); 9/23/03 SEI Presentation (Smith); Tiburon Research & Analysis Baby Boomer Life Phases & Key Events Early Stage Peak Earnings & Savings Years Liquefaction Golden Years
    • 30s-40s
    • Marriage
    • Children
    • Early earnings years
    • Business ventures
    • Wealth accumulation
    • Early divorces
    • 50s
    • Late divorces
    • Peak earnings
    • Peak savings
    • Vacation homes
    • 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
  • 10. The Primary Goal of Investors Switches as They Get Older & Wealthier Source: 5/9/02 Spectrem Presentation; Tiburon Research & Analysis Primary Investment Goal Preserve Wealth Build Wealth
  • 11. Beyond the Peak Earnings Years, the Liquefaction of Baby Boomer Wealth Will Continue to Make it a Good Time to be a Financial Advisor
    • Liquefaction: Substantial new wealth has been “created” but not “realized” in the count for investable assets or the savings rate
    • Examples include:
      • 401K plans
      • Stock options
      • Small business valuations
      • Real property appreciation
    Note: Boomers will start retiring in mass around 2010 Source: 3/11/03 First Quadrant Presentation (Arnott); 10/25/01 Portfolio Management Symposium Presentation (Reukeyser); 8/14/01 American Banker; 2/01 Financial Advisor; 7/9/99 San Francisco Business Times; 2/19/96 US News & World Report; 5/95 Money; 4/95 ACLI MAP Survey; 4/95 Sanford Bernstein Research; 4/95 Merrill Lynch, Confronting the Savings Crisis; 11/92 US Bureau of the Census; Current Population Reports; 7/92 Monthly Labor Review, “Trends in Retirement Age by Sex”; 7/92 U.S. Dept. of Labor; 7/92 VIP Forum Research; Tiburon Research & Analysis Comments
  • 12. The Long Rising Bull Market of the 1990s Created Unprecedented Wealth in Employer-Sponsored Retirement Plans; These Dollars are Increasingly Becoming IRA Rollovers Note: One source calculated that $500 billion will roll into IRAs every year staring in 2010 Source: 8/14/01 American Banker; 8/01 Money (Cerulli); 7/13/01 Cerulli Presentation (EBRI; Pensions & Investments); 7/01 Registered Rep (Cerulli); Tiburon Research & Analysis Annual IRA Rollovers ($ Billions)
  • 13. The Boomer Wins on All Fronts! Source: Tiburon Research & Analysis Boomer Money Flows Peak Earnings & Savings Years Liquefaction Years Other Factors (Wealth Transfer, Social Security)
  • 14.
    • Context Setting
      • The Enormous Opportunity: Consumer Wealth & the Boomer Generation
      • The Challenge: Increasing Competition
    • Building a Winning Model
      • The Traditional Products & Services Orientation
      • Clarifying Target Markets
      • Focusing on Customer Needs
    • Conclusions & Some Tough Love
      • Conclusions for Investment Segments
      • Some “Truths” to Reconsider
    Outline
  • 15. All Types of Competitors are Increasingly Chasing the Emerging Affluent and the Wealth Management Business Source: 5/22/02 Wachovia Presentation; Tiburon Research & Analysis Competitive Playing Field Full-Service Brokers
    • Segmenting offers
    • Moving to fee-based accounts
    Independent Advisors
    • Expanding investment offers
    • Extending services to wealth management
    CPA & Law Firms Retail Banks
    • Up-selling banking customers
    • Rebuilding trust departments
    Emerging Affluent & Wealth Management Business Private Banks & Money Managers Insurance Companies Discount Brokers
    • Adding help & advice
    • Moving up market
    • Moving down market
    • Testing new models
    • Entering the business
    • Relying on fee-account programs
    • Entering the business
    • Relying on fee-account programs at the high-end
  • 16. Banks and Full-Service Brokers Have Historically Dominated Control of Consumer Investable Assets Note: This chart excludes all double and triple counting; all dollars are only counted once in the customer-facing channel; excludes corporate, pension, and foreign investments and deposits Note: Another source suggested that brokerage firms manage $6.5 trillion and that the five wirehouses have $4.0 trillion in assets Source: 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; 3/26/97 American Banker; 3/97 Federal Reserve Bulletin; 12/96 ICI Complex Assets; 12/96 ACLI Life Insurance Factbook; 11/95 Best’s Review; 10/95 VitalSigns Database; Tiburon Research & Analysis Consumer Investable Assets Retail Banks $4.4 Trillion (26%) Wirehouse, Regional, & Boutique Brokers $6.2 Trillion (36%) Bank Trust Departments $1.0 Trillion (6%) Independent Advisors $2.1 Trillion (12%) Insurance Companies $0.3 Trillion (2%) Mutual Fund Companies $1.7 Trillion (10%) Discount Brokers $1.4 Trillion (8%)
  • 17. But Fee-Only Financial Advisors are Capturing More Client Assets than Leading Full-Service and Discount Brokerage Firms Source: 2/5/04 TD Waterhouse Conversation (Petrilli); 2/2/04 Investment News; 12/02 Investment Advisor; Tiburon Research & Analysis Annual Net New Assets ($ Billions)
  • 18. And Discount Broker Charles Schwab is Now Amongst the Leaders in Client Assets Source: 8/16/01 US Bancorp Piper Jaffray Email (Bjorklund); 8/14/01 Wall Street Journal; 8/13/01 Investment News; 8/12/01 US Bancorp Piper Jaffray Web Site; 8/01 Business 2.0; 1/18/01 Wall Street Journal; Tiburon Research & Analysis Retail Customer Assets ($ Billions)
  • 19.
    • Context Setting
      • The Enormous Opportunity: Consumer Wealth & the Boomer Generation
      • The Challenge: Increasing Competition
    • Building a Winning Model
      • The Traditional Products & Services Orientation
      • Clarifying Target Markets
      • Focusing on Customer Needs
    • Conclusions & Some Tough Love
      • Conclusions for Investment Segments
      • Some “Truths” to Reconsider
    Outline
  • 20. There is Little Evidence that Recent Scandals are Hurting Mutual Fund Sales; 2003 Net Inflows were $241 Billion, with Eleven Positive Months Source: 1/12/04 Barron’s (Strategic Insight); 1/3/04 San Luis Obispo Tribune; 12/5/03 Business Week; (Strategic Insight); 11/25/03 Wall Street Journal; 11/7/03 New York Times; Tiburon Research & Analysis Net Inflows to Equity Funds ($ Billions) Jan ‘03 July ‘03 Dec ‘03
  • 21. Separately Managed Accounts Clearly Dominate the Fee-Accounts Market Amongst the Captive Programs Assets in Fee-Account Programs $869 Billion ($ Billions) Source: 12/15/03 Investment News (Cerulli); 10/16/03 Financial Planning Newsletter; 5/27/02 Merrill Presentation (Cerulli); 9/23/01 Investment News; 9/30/02 IIR Conference Brochure (Cerulli); 8/7/02 Wealth Management Letter; 1/02 Lockwood Research; 6/5/01 RunMoney Presentation; 4/16/01 RunMoney Presentation; 12/26/00 Business Week (MMI); 11/00 HD Vest Presentation (Pinion); Tiburon Research & Analysis Separately Managed Accounts $449 Mutual Fund Wrap Accounts $154 Broker Wraps $65 Fee-Based Brokerage Accounts $201
  • 22. But While Fee-Accounts Continue to Become a Greater Percentage of Client Assets at the Wirehouses, They are Still a Small Share and SMA Assets Come From a Small Minority of Advisors Note: Another source said both Merrill Lynch and Smith Barney are higher that the averages Source: 11/4/02 American Banker; 8/02 US Banker (Cerulli); 1/9/02 American Banker; 10/01 Investment Consulting News (SIA); 8/25/01 AssetMark Brochure; 7/13/01 Cerulli Presentation (SIA); 7/01 Registered Rep; 5/99 Registered Rep; Tiburon Research & Analysis Level of Fee-Account Assets at the Wirehouses
  • 23. And Three-Quarters of Full-Service Brokers Use Just One-to-Three Separate Account Managers Per Client… Number of Managers Used Per Client 1 Manager 40% 2-3 Managers 35% 4-5 Managers 15% 5 or More Managers 10% 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); 11/5/03 McDonald Advisor Conversation (Battaglia); 11/4/03 McDonald Advisor Conversation (Sikorski); Tiburon Research & Analysis
  • 24. And Less Than One in Five of Full-Service Broker Clients Seek to Customize Their Separately Managed Accounts Full-Service Broker Clients Who Customize Their Separately Managed Accounts Customize Separately Managed Accounts 18% Don’t Customize Separately Managed Accounts 82% Note: One source indicated that only 15% of separately managed accounts are customized at the time of set-up Note: Another source also noted that only 30% of accounts receive any special year-end tax treatment Note: Another source indicated that proprietary programs sponsors customize 25%-35% of separately managed accounts 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); 11/5/03 McDonald Advisor Conversation (Battaglia); 11/4/03 McDonald Advisor Conversation (Sikorski); 6/03 On Wall Street; 7/2/02 Bob Veres Newsletter (Business Week); Tiburon Research & Analysis
  • 25. And Other Channels Like Fee-Only Financial Advisors (RIAs) Have Not Embraced SMAs Yet; Only 7% Use Separate Account Managers Investment Products Utilization Across All Fee-Only Financial Advisors Source: 5/03 Fee-Only Financial Advisor Best Practices Survey; Tiburon Research & Analysis
  • 26. Discussing the Ethics of a Pricing Structure is Humorous; The Real Value of Fee-Accounts is That They Promote a Series of Client Oriented Services Like Financial Planning Source: 6/4/03 Wealth Management Letter; Tiburon Research & Analysis Advisors Providing a Formal Plan Provide a Formal Plan Do Not Provide a Formal Plan
  • 27. The Investments Process is Being Polarized with Twin Growth Patterns in Both Market-Linked Products and Alternative Investments Source: 3/11/03 Wall Street Journal; 3/10/03 Wall Street Journal (Van Hedge Fund); 2/3/03 Barron’s; 1/31/03 American Banker; 4/30/02 Wall Street Journal; 11/26/01 Investment News (ICI); 11/20/01 Wall Street Journal; 11/19/01 Investment News (FRC); 11/01 Investment Advisor; 11/01 Traders; 6/11/01 Investment News (Hennessee Group); 3/7/00 Nelson Information Web Site; Tiburon Research & Analysis Alternative Investments
    • Hedge fund assets have exploded
      • 5,800 funds and $650 billion AUM
    • Private equity & venture capital had been prior hot trend
      • $350 billion market
    • Real estate funds may lead in future
      • $325 billion market
    • Other alternative investments also exist
    Market-Linked Investments
    • Index funds picking up a greater share of fund flows
      • 323 funds with $300 billion AUM
      • 11% of assets and 13% of flows
      • Leveraged and inverse index funds also growing in popularity
    • Exchange traded funds have exploded
      • 133 funds with $152 billion AUM
    Polarization of Investments Process
  • 28. Asset Growth of Exchange Traded Funds is Impressive, with 133 Funds Now Having Over $150 Billion Note: ETFs are less than 1% of the total mutual fund market Source: 2/9/04 Fortune; 1/31/03 American Banker; 1/3/03 Journal of Indexes; 12/29/02 New York Times; 11/26/01 Investment News (ICI); 11/20/01 Wall Street Journal; 11/19/01 Investment News (FRC); 11/01 Investment Advisor; 11/01 Traders; Tiburon Research & Analysis Assets in Exchange Traded Funds ($ Billions)
  • 29. The Ultra High Net Worth Have an Even Higher Tolerance for Alternative Investments; Almost 40% of Their Assets are Placed in These Products Source: 6/4/03 Trusts & Estates; Tiburon Research & Analysis Ultra High Net Worth Asset Allocation Equities, Fixed Income, & Cash 61% Private Equity 14% Hedge Funds 14% Real Estate 11%
  • 30. Hedge Fund Assets Continue to explode and while the Institutional Market Seems to Get the Most Coverage, Hedge Fund Assets are Dominated by Investments From High Net Worth Investors US Hedge Funds Assets by Investor Type ($650 Billion) Note: Another source said individuals controlled 37% of hedge fund assets, while other amounts came from fund-of-funds at 19%, corporations at 13%, pension plans at 7%, endowments & foundations at 8%, and other at 14% Note: Only 1.5% of US families qualify to invest in hedge funds; there are about 5-6 million “accredited” investors Note: Surprisingly only 15%-30% of investments appear to be tax-sheltered (endowments and pensions) Source: 1/27/04 Money Management Executive (Tass); 2/7/03 Barron’s; 12/02 Putnam Lovell/New River Research Report; 12/11/01 Goldman Sachs Presentation (Hennessee Group); 12/11/01 AXA Rosenberg Presentation (Hedge Fund Research); 6/11/01 Investment News (Hennessee Group); 5/99 Plan Sponsor (Hennessee Group); Tiburon Research & Analysis
  • 31. Source: 3/00 Harris Partners Comments (Rival Rosenberg); 12/3/99 Mesirow Financial Conversation (Rossman); 12/3/99 Harris Partners Conversation (Martino); 12/2/99 Ivy Asset Management Meeting (Simon); 11/24/99 Collins Associates Conversation (Berens); 10/12/99 Grosvenor Capital Management Meeting (Sacks); 7/99 Investing in Hedge Funds; Tiburon Research & Analysis There are Four Main Hedge Fund Investment Strategies; High Net Worth Households are Most heavily Invested in Equity Strategies Multi-Strategy Funds-of-Funds Substantial stock picking ability Ability to find arbitrage opportunities between related securities Ability to find arbitrage opportunities in the timing of specific events Ability to foresee interest rate, currency, and other movements Equity Strategies Arbitrage or Relative Value Strategies Event Driven Strategies Global Macro Strategies Hedge Fund Investment Strategies Hedge Fund Investment Strategies
  • 32. There are Four Key Hedge Fund Product Trends Source: Tiburon Research & Analysis Hedge Fund Product Trends Hedge Fund Industry Issues Hedge Funds-of-Funds Hedge Fund Index Funds Registered Hedge Funds Mutual Funds with Hedge Fund Strategies
  • 33. Tiburon Defines the Key Components of Wealth Management as Three Additional Groups of Services Beyond Investments Note: Private banking, life planning, and concierge services could also be added Source: 2/01 Financial Advisor; 4/24/00 Assante Conversation (Bowen);Tiburon Research & Analysis Investment Management (Including Indexing, Separately Managed Accounts, & Alternative Investments) Aggregation & Financial/Tax Planning Estate Planning (Often Through Life Insurance & Trusts) Life-Time Risk Management (Disability, Long-Term Care, Liability, Annuities) A Definition of Wealth Management
  • 34. Over Half of High Net Worth Investors Want Holistic Advice Beyond Investments and Firms Like Merrill Lynch are Really Trying to Broaden their Image Source: 1/21/03 Wall Street Journal; Tiburon Research & Analysis Advice & Planning Total Merrill Program Beyond Banking Estate Planning Services Business Financial Services Retirement Credit & Lending Investments Tracking Progress Merrill Lynch
  • 35. Consumers Value Financial Planning But Less Than 20% of Advisors Use Comprehensive Financial Plans to Determine Their Clients’ Needs Advisors Using Comprehensive Financial Plans Source: 5/28/03 Wealth Management Letter (Cerulli); 11/13/02 Wealth Management Letter (Cerulli); Tiburon Research & Analysis
  • 36. Many Boomers are Concerned About Their Ability to Support Themselves if They Develop a Disabling Condition and Many Lack Coverage to Manage these Costs Status if Develop a Disabling Condition Note: Survey was people age 38-55 Source: 12/10/01 New York Time; Tiburon Research & Analysis
  • 37. Life Insurance May Play an Increasingly Important Role; About Half of US Households Say that They Need More Life Insurance Consumers’ Views on Their Life Insurance Coverage Note: Another study by LIMRA concluded that 38% of Americans believe that they don’t have enough life insurance Note: The common guideline is to have insurance with a face value of 5-7x one’s income Source: 11/00 Investment Advisor; 11/00 Ticker; 5/00 M Financial Group Meeting (US Census Bureau; LIMRA); 9/99 Bank Investment Marketing; Tiburon Research & Analysis
  • 38. Trusts Present an Enormous Opportunity; Even $15 Million Does Not Seem Enough to Work With JP Morgan Source: Tiburon Research & Analysis Comments
    • After striking out locally at both bank of America and Wells Fargo, a Tiburon consultant called JP Morgan personal trust services to request marketing materials and discussed opening a $10-$15 million account
    • Consultant was advised that JP Morgan’s minimum for a trust account is $30 million
      • No other bank unit was equipped to serve the consultant
      • No brochures were even available to mail
  • 39. Family Office Services are Also Growing in Importance Family Office Services Source: 9/02 Investment Advisor; Tiburon Research & Analysis Private Banking Real Estate Management Vehicle Management Family Offices Household Staff Management Bill Pay
  • 40.
    • Context Setting
      • The Enormous Opportunity: Consumer Wealth & the Boomer Generation
      • The Challenge: Increasing Competition
    • Building a Winning Model
      • The Traditional Products & Services Orientation
      • Clarifying Target Markets
      • Focusing on Customer Needs
    • Conclusions & Some Tough Love
      • Conclusions for Investment Segments
      • Some “Truths” to Reconsider
    Outline
  • 41. #1: Baby Boomers Account for Over 50% of Full-Service Broker Clients, But It Varies On an Individual Level; this is Similar in Other Markets Source: 1/9/04 RW Baird Advisor Conversation (Filicky-Peneski); 1/9/04 RW Baird Advisor Conversation (Farron); 1/8/04 RW Baird Advisor Conversation (Busey); 1/8/04 RW Baird Advisor Conversation (Busey); 1/8/04 RW Baird Advisor Conversation (Michels); 1/8/04 RW Baird Advisor Conversation (Garrett); 1/8/04 RW Baird Advisor Conversation (Mertens); 1/8/04 RW Baird Advisor Conversation (Ater); 1/7/04 RW Baird Advisor Conversation (Zeidler); 1/7/04 RW Baird Advisor Conversation (Carter); 11/11/03 Legg Mason Advisor Conversation (Stewart); 11/11/03 Legg Mason Advisor Conversation (Hall); 11/10/03 Legg Mason Advisor Conversation (Freiman); 11/7/03 Legg Mason Advisor Conversation (Rosenfield); 11/7/03 Legg Mason Advisor Conversation (Castle); 11/6/03 Legg Mason Advisor Conversation (Davidov); 11/6/03 Legg Mason Advisor Conversation (Cracraft); 11/5/03 McDonald Advisor Conversation (Battaglia); 11/5/03 McDonald Advisor Conversation (Sikorski); Tiburon Research & Analysis Average 51% Baby Boomers Clients of Full-Service Brokers
  • 42. #2: Many Full-Service Brokers are Focused on Moderate Net Worth & High Net Worth Clients; Fee-Only Financial Advisors Serve a Slightly Wealthier Clientele and Independent Reps Serve More of the Mass Affluent Source: 1/9/04 RW Baird Advisor Conversation (Filicky-Peneski); 1/9/04 RW Baird Advisor Conversation (Farron); 1/8/04 RW Baird Advisor Conversation (Busey); 1/8/04 RW Baird Advisor Conversation (Busey); 1/8/04 RW Baird Advisor Conversation (Michels); 1/8/04 RW Baird Advisor Conversation (Garrett); 1/8/04 RW Baird Advisor Conversation (Mertens); 1/8/04 RW Baird Advisor Conversation (Ater); 1/7/04 RW Baird Advisor Conversation (DeFrance); 1/7/04 RW Baird Advisor Conversation (Cruse); Tiburon Research & Analysis Market Segments Served Across All Full-Service Brokers
  • 43. #3: More Fundamentally, Sources of Wealth Will Continue to Trend Toward Self-Made Households Full-Service Broker Clients by Type Source: 1/9/04 RW Baird Advisor Conversation (Filicky-Peneski); 1/9/04 RW Baird Advisor Conversation (Farron); 1/8/04 RW Baird Advisor Conversation (Busey); 1/8/04 RW Baird Advisor Conversation (Michels); 1/8/04 RW Baird Advisor Conversation (Garrett); 1/8/04 RW Baird Advisor Conversation (Mertens); 1/8/04 RW Baird Advisor Conversation (Ater); 1/7/04 RW Baird Advisor Conversation (DeFrance); 1/7/04 RW Baird Advisor Conversation (Cruse); Tiburon Research & Analysis
  • 44. #4: Rollovers are the Number One Source of Assets for Full-Service Brokers; the Same is True for Both Fee-Only Financial Advisors and Independent Reps; and Rollovers are Also Half of All Fee-Accounts Sources of New Full-Service Broker Client Assets Source: 1/9/04 RW Baird Advisor Conversation (Filicky-Peneski); 1/9/04 RW Baird Advisor Conversation (Farron); 1/8/04 RW Baird Advisor Conversation (Busey); 1/8/04 RW Baird Advisor Conversation (Michels); 1/8/04 RW Baird Advisor Conversation (Mertens); 1/8/04 RW Baird Advisor Conversation (Ater); 1/7/04 RW Baird Advisor Conversation (Carter); 1/7/04 RW Baird Advisor Conversation (Cruse); Tiburon Research & Analysis
  • 45.
    • Context Setting
      • The Enormous Opportunity: Consumer Wealth & the Boomer Generation
      • The Challenge: Increasing Competition
    • Building a Winning Model
      • The Traditional Products & Services Orientation
      • Clarifying Target Markets
      • Focusing on Customer Needs
    • Conclusions & Some Tough Love
      • Conclusions for Investment Segments
      • Some “Truths” to Reconsider
    Outline
  • 46. Almost Two-Thirds of Newly Affluent Households Prefer to Work with One Advisor Note: The primary reason given for working with one advisor is to avoid the burden of integration Source: 9/23/03 SEI Presentation (Smith); Tiburon Research & Analysis Newly Affluent Households’ Desire to Work with One Advisor
  • 47. Niche Marketing is Critical to Best Addressing Client Needs; For Instance, Milwaukee-Based Cleary Gull Has a Customized Program for Pilots Called The Pilot Program Source: 11/17/03 Cleary Gull Web Site; Tiburon Research & Analysis
    • Introduction uses pilot terminology such as engineer, safety, stay on course, etc.
    • Custom seminars for pilots of leading airlines
    • Services listed for pilots including AA Super Saver 401k Asset Allocation and UAL DAP Asset Allocation
    • Specialized questionnaires for pilots from American, United, Delta, and others
    • Several ex-pilots on staff for pilot relationships
    Comments
  • 48. And Sacramento-Based Hanson McClain Built a Niche Serving SBC Executives Source: 1/22/04 Hanson McClain Conversation (Neeley); 1/21/04 Hanson McClain Email (Neeley); 1/8/04 Hanson McClain Web Site; 1/7/04 Hanson McClain Conversation (Neeley); Tiburon Research & Analysis
    • About half of the firm’s 2,000 clients are Pacific Bell retirees
      • Believes they have captured about 70% market share
    • Capitalized on announced telephone company layoffs
      • Contacted human resources director
      • Hired high school kids to put fliers on windshields
      • Mailed letters to employees
      • Faxed fliers to company departments
      • Placed advertisements in company newsletters
      • Sponsored lunches, brought coffee & doughnuts, attended retirement parties, etc.
    Comments
  • 49.
    • Context Setting
      • The Enormous Opportunity: Consumer Wealth & the Boomer Generation
      • The Challenge: Increasing Competition
    • Building a Winning Model
      • The Traditional Products & Services Orientation
      • Clarifying Target Markets
      • Focusing on Customer Needs
    • Conclusions & Some Tough Love
      • Conclusions for Investment Segments
      • Some “Truths” to Reconsider
    Outline
  • 50. Conclusions – The Detailed Checklist to Consider… Source: Tiburon Research & Analysis Checklist by Segment High Net Worth Market
    • Separately managed accounts (of course)
    • Want institutional products such as alternative asset classes (hedge funds, venture capital, real estate)
    • May see use of custom core index products
    • Wealth management becomes more important than investment management
    • Family office services emerging
    Affluent Market
    • Focus on financial planning, individual securities, mutual funds, mutual fund wrap accounts, MSPs, and separately managed accounts
    • May evolve into real estate products soon
    • Core & explore strategies using combinations of index funds & separate account managers may win out
    Mass Market
    • Focus on mutual funds, annuities, and bank products
    • May evolve to include mutual fund wrap accounts and MSPs
    Super Affluent Market
    • Already seeing use of custom core index products
    • Already accessing institutional products (e.g., 55% own hedge funds)
    • Further seeking institutionally-oriented long-term investments – e.g. timber (yes, trees!)
    • Wealth management clearly is key offering and family office services growing in importance
  • 51.
    • Context Setting
      • The Enormous Opportunity: Consumer Wealth & the Boomer Generation
      • The Challenge: Increasing Competition
    • Building a Winning Model
      • The Traditional Products & Services Orientation
      • Clarifying Target Markets
      • Focusing on Customer Needs
    • Conclusions & Some Tough Love
      • Conclusions for Investment Segments
      • Some “Truths” to Reconsider
    Outline
  • 52. The Industry May Offer a Series of Superficial Responses Source: 9/22/03 SEI Presentation; Tiburon Research & Analysis Increased Product Choices Fee-Based Pricing Buzz Words Like Wealth & Life Management Fee-Only Financial Advisor Goals Superficial Responses of the Industry
  • 53. Tough Love Conclusions – Take One – Competition and/or Distribution Channels (Depending on One’s Industry Role)… Source: Tiburon Research & Analysis Comments
    • Fee-only financial advisors (one of the booming channels) are questioning the SMA model, in favor of low cost funds, including index funds and ETFs as the core & explore model continues to gain steam…
    • Discount brokers will thrive… Don’t kid yourselves wirehouses, Schwab is adding accounts rapidly and now is back over $1 trillion with an average account size over $100,000…
    • Banks… like shooting fish in a barrel but some clients love them…
    • CPAs and lawyers may have trust positions with the ultra affluent…
    • SMAs are sold, not bought; so how will CPAs, lawyers, banks, discount brokers do?
  • 54. Tough Love Conclusions – Take Two – Products & Services… Source: Tiburon Research & Analysis Comments
    • SMAs are growing nicely but use is still concentrated
    • MSPs and UMAs? Of course…
    • Index funds & ETFs have emerged as cost competitive alternatives
    • Hedge Funds… that’s 1% and 20%… got to get deeper than that… understanding the risks – not funds-of-unknown-funds… and how do they get values and on statements, etc.?
    • Venture capital & private equity… the sequel… Real estate… got to figure this out…
    • Wealth management… passing investments in importance?
  • 55. Tough Love Conclusions – Take Three – Target Markets… Source: Tiburon Research & Analysis Comments
    • Boomers… boomers… boomers…
    • High net worth and moderate net worth households are the sweet spot for most advisors…
    • Self-made households with new rapidly evolving needs…
    • The liquefaction… IRA rollovers #1 and growing…
    • Plans for better serving the needs of specific segments?
  • 56. Tough Love Conclusions - Take Four – Customer Needs… Source: Tiburon Research & Analysis Comments
    • Solutions, not returns!
      • SMAs can’t be just a product – the four underlying keys are financial planning, investment consulting, ongoing management, and fiduciary responsibility – focus on applying those to any investment product
      • MSPs & UMAs are fulfilling a simplicity need; keep going!
      • Integrate in order to capture clients looking for solutions…
    • Other points
      • Financial planning will be done in modules…
      • Customization… really? 10%? Over hyped? Only for the truly wealthy with real reasons? Maybe offer but not get used?
      • Tax efficient investing and taxes… Really? Which ones? More so for high tax-bracket and tax-sensitive investors (no matter wealth)… Remember IRAs!
      • Costs… Really? ETFs & index funds now?
      • Investment management or wealth management for the boomers?
      • Family office services & life planning coming now too…
      • Focus on niches! Deliver custom packaged offers…
  • 57. Tiburon Strategic Advisors Source: Tiburon Research & Analysis Tiburon Strategic Advisors
    • Research-based strategy consulting firm serving the brokerage and investments market
      • Core services include strategy consulting, market research, and market seminars
      • Also provides advice on both venture capital investments and acquisition activity, and serves on numerous boards throughout all parts of the industry
      • Sponsor of the Tiburon Toolkit, a set of free benchmarking tools for all types of financial advisors which gives Tiburon consultants a comprehensive understanding of the business models of advisors
      • Publisher of Tiburon Research Releases, a set of free monthly industry issue analysis papers
    • Served over 175 corporate clients and completed nearly 500 projects since 1998:
      • Banks: Bank of America, Wachovia Bank, and US Bancorp
      • Brokerage Firms: Morgan Stanley, RBC Dain Rauscher, Piper Jaffray, Legg Mason, and Charles Schwab
      • Independent Broker/Dealers: M Financial Group, National Financial Partners, American Express, HD Vest Financial Services, AIG Advisor Group (SFNI), Securities America, MSC, and Assante
      • Money Management and Insurance Companies: Fidelity Investments, The Capital Group (American Funds), Rydex Funds, and GE Capital
      • eFinance Companies: Financial Engines, Hedge Fund Research, OffRoad Capital, Prima Capital, RunMoney, and OneHarbor
    • Research-intensive process comes from managing principal’s previous experience at management consulting firm McKinsey & Co. as well as strategic planning at Charles Schwab & Company
      • Firms balances deep industry knowledge with well developed management consulting methodologies, industry experience, and a research aptitude