Our Beliefs And Capabilities


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Our Beliefs And Capabilities

  1. 1. Investment Presentation Contents 1   Firm and Mission Prepared for: Our Beliefs and Capabilities March 19, 2012 2   LPL Financial: The Organization 3   Investment Principles 4   Client Discovery 5   Ongoing Consulting and Communication Prepared by: LEWIS B WALKER Jr.; CERTIFIED FINANCIAL PLANNER ™ LPL Financial 153-17 Cross Island Parkway Whitestone, NY 11357 | Phone: (718)746-2220Securities, advisory services & insurance product offered through LPL Financial and its affiliates, Member FINRA/SIPC.Not FDIC/NCUA Insured  Not Bank/Credit Union Guaranteed  May Lose Value   Not Guaranteed by any Government Agency  Not a Bank/Credit Union DepositTracking # 429093
  2. 2. Firm and mission
  3. 3. The importance of financial guidanceBuilding an investment portfolio designed to addressyour unique long-term goals and financial dreamsis a complex process that requires knowledge, skill,dedication and expertise. For investors in today’s needs andever-changing financial markets, a professionalfinancial advisor can provide expert advice to help goalsyou pursue your financial goals. retirement• Analysis of needs and goals income• Asset allocation strategies• Manager selection• Retirement income• Investment strategies• Ongoing monitoring and maintenance of investments• Ongoing education• Tax management tax• Long-term capital appreciation management• Wealth structuring portfolio• Trust services• Education savings programs construction• Wealth transfers• Socially responsible issuesFIRM & MISSION
  4. 4. The Investing Consulting ProcessAs your investment partner, we are committed to helping you accomplish your unique financial goals and objectives. After developing a thoroughunderstanding of your risk tolerance and short- and long-term goals, we will work together to create a customized investment portfolio designed for you.In order to accomplish this, we will take you through the investment consulting process, which is designed to help us determine how to best address yourfinancial goals and dreams.Review Discover• Quarterly performance reports • What are your hopes and dreams?• Ongoing due diligence of investment managers w 1D • Do you have a high or low tolerance for risk?• Periodic reviews evie i • Do you have any specific tax considerations? sc 4R• Investment newsletters • What is your investment objective? ov er• Tax harvesting • What is your time horizon?• Portfolio rebalancing Designed For You RecommendImplement 3 Im • Investment portfolio recommendations d• Account opening paperwork • Customized asset allocation strategies en• Funding pl em • Wealth management services m en om t 2 Re c • DiversificationFIRM & MISSION
  5. 5. Practice SummaryWhat I believe I believe that the goals and dreams of families are important. The pursuit of those goals and dreams is the fabric that has made America great. As a CERTIFIED FINANCIAL PLANNER ™ professional; I am proud to assist in helping families pursue and accomplish their goals. Planning is the essential cornerstone that lays the framework for intelligent financial decision making and financial success. Whether the goal is the education of a child or a financially secure retirement; I believe that having a financial roadmap will create a more proactive and disiplined approach to your pursuits. I believe the process should encompass the following: • An analysis of your current financial circumstances. • An understanding of your financial goals. • An investment plan that includes analytical, goal based recommendations       and a formally defined risk tolerance. • A structure of accountability and review as it relates to your financial    pursuits. I believe that my approach and the collaboration that it creates allows families to focus on the other important aspects of life....their passions and each other.
  6. 6. Contact Information:Contact Lewis B. Walker Jr., CFP®Information: CERTIFIED FINANCIAL PLANNER ™ Financial Consultant LPL Financial 153 -17 Cross Island Parkway Whitestone, New York. 11357 Phone: (718) 746-2220 Email: lewis.walker@lpl.com
  7. 7. Your total wealth management solution Lewis B. Walker Comprehensive Wealth Management Services College Planning Retirement Planning Investment Planning Financial Planning Estate Planning 529 Plans Defined Contribution Plans Asset Allocation Financial Threat Analysis Will Planning* Education IRAs Defined Benefit Plans Diversification Asset Protection Trust Planning* UGMAs Income Planning Risk Assessment Long-term Care Wealth Transfer StrategiesFinancial Aid Planning Annuities Tax Consequences Life Insurance Charitable Giving Coverdell ESAs IRAs Portfolio Strategies Disability Insurance Leveraged Gifting Zero Coupon Bonds Fixed Income Portfolios Inter Generational Planning* Please consult a qualified tax or legal advisor.FIRM & MISSION
  8. 8. LPL Financial: The Organization
  9. 9. Providing you with advice for life• Largest independent broker/dealer in the country* About LPL Financial• More than $280 billion in assets under management and 2.7 million • LPL Financial registers and supports more than 12,000 independent client accounts financial advisors in over 7,000 offices nationwide. LPL Financial was built• 20 years of consecutive earnings growth, in both up and down markets on the premise that achieving your financial goals depends on unbiased• No capital markets, trading, investment bank or proprietary products financial advice, timely research and easy access to the investments and services that best fit your specific needs. • With over 40 years of industry leadership and innovation, LPL Financial serves the growing needs of independent financial advisors and their clients. LPL Financial was formed in 1989 through the merger of two brokerage firms — Linsco (established in 1968) and Private Ledger (founded in 1973). • Today the firm is a leading diversified financial services company and the nation’s largest independent broker/dealer* with headquarters in Boston, Charlotte and San Diego.* As reported in Financial Planning magazine 1996 - 2011, based on total revenue.LPL FINANCIAL: THE ORGANIZATION
  10. 10. Account protection and oversightAccount protections Oversight• Securities Investor Protection Corporation (SIPC) Insurance applies in • The Private Trust Company, NA an affiliate of LPL Financial is a the event that an SIPC member firm fails financially and is unable to meet nondepository national banking association, which is regulated and obligations to securities clients, but it does not protect against losses from reviewed by the Office of the Controller of the Currency (OCC). the rise and fall in the market value of investments. LPL Financial’s SIPC membership provides account protection up to a maximum of $500,000 per customer, of which $100,000 may be in cash. For an explanatory brochure, visit www.sipc.org.• Additionally, through Lloyds of London, LPL Financial accounts have securities protection to cover the net equity of customer accounts up to an overall aggregate firm limit of $750 million, subject to conditions and limitations.• Balances invested in the Insured Cash Account are protected by Federal Deposit Insurance Corporation (FDIC) up to a maximum of $1.5 million for a single account holder, $3 million for a joint account.LPL FINANCIAL: THE ORGANIZATION
  11. 11. LPL Financial Services Advisor Advisory Financial Wealth Consulting Planning Management Services Group Services LPL The Private LPL Financial Trust Insurance Client Research Company Associates Alternative Structured Lending Investments Investments CapabilitiesLPL FINANCIAL: THE ORGANIZATION
  12. 12. Advisory Consulting ServicesKeeping up with increasingly complex financial markets demands a high level of expertise and extensive resourcesExperienced team of professionals: Partners with LPL Financial Research — Design and assistance with:• Members average more than a decade in the investment industry • Asset allocation strategies• Assists with designing asset allocation strategies and implementing the • Portfolio construction and manager selection ongoing consulting process • Analysis on the markets• Provides tools and resources to enhance the client investing experience • Tax management servicesInnovative investment platforms — Building and maintaining investmentstrategies to address your goals:• Strategic Asset Management• Optimum Market Portfolios*• Model Wealth Portfolios• Personal Wealth Portfolios• Manager Select* The Optimum Market Portfolios advisory accounts utilize the Optimum Funds, a sub-advised family of funds from Delaware Management Holdings, Inc. and its subsidiaries. Delaware Management Company, a series of Delaware Management Business Trust, is the manager and Delaware Distributors, LPL Financial is the distributor of the Optimum Funds.LPL FINANCIAL: THE ORGANIZATION
  13. 13. LPL Financial Planning GroupWe have access to the LPL Financial Planning Group,a dedicated team devoted to helping us structure your About WealthVisioninvestments, answer financial planning questions and WealthVision is a powerful, Web-based wealth-planning tool that offers accountimplement tax-efficient strategies. The LPL Financial aggregation, modular and comprehensive financial goal planning, and an onlinePlanning Group has the expertise, tools and resources document storage facility that helps you store and keep track of your valuable files, allto help us succeed, including access to a powerful accessible through your own personalized website.financial planning software called WealthVision. Theteam routinely designs cases and devises uniqueplanning solutions based on your specific situation.LPL FINANCIAL: THE ORGANIZATION
  14. 14. LPL Financial Wealth Management ServicesLPL Financial offers a wide range of products and services that are specifically designed to address the goals andneeds of affluent clients.Legacy and philanthropic planning — Design and assistance with: Financial and estate planning — Effective and long-term wealth management, preservation/enhancement and asset transfer:• Donor advised funds• Endowment funds • Wealth protection• Pooled income funds • Tax reduction and potential deferral• Family foundations • Customized estate and inheritance planning• Fiduciary custody services • Legacy and business succession planning• Charitable remainder trusts Management of concentrated stock positions — Offering options forInsurance planning — Design and case analysis for sophisticated liquidity, diversification, preservation of capital:strategies from a combination of internal resources and industry • Hedging, option strategiesexperts. • MonetizationLending — Margin lending and collateralized loan capabilities. • Diversification, exchange fundsLPL FINANCIAL: THE ORGANIZATION
  15. 15. LPL Financial ResearchAbout LPL Financial Research The LPL Financial Research teamLPL Financial Research works continuously to help your financial advisor The LPL Financial Research team consists of seasoned and accomplishedinterpret and adjust to the latest developments in the world’s capital markets. industry veterans, comprising one of the largest and most experienced research groups among independent brokerage firms.As the industry’s leading independent brokerage firm*, LPL Financial has noproprietary products to sell, no investment banking relationships to promote, The goal of LPL Financial Research is to be your advisor’s trusted partner.nor any other business conflicts to get in the way of providing unbiased In order to be successful, it is critical that all LPL Financial advisors haverecommendations. The breadth of LPL Financial research coverage — access superior unbiased investing ideas, timely market perspective, andmutual funds, separate accounts, fixed income, exchange traded funds, ongoing support. The delivery of timely, in-depth, unbiased research onalternative investments, variable annuity sub-accounts and more — reflects a varying investment products, asset allocation strategies, and the financialfocus on helping meet the needs of clients, rather than “pushing product” or markets is designed to provide your financial advisor with a powerful tool thatmoving inventories of securities. is a distinct advantage in helping them achieve your financial objectives.LPL Financial ResearchResearch OrganizationPortfolio Strategy Portfolio Strategy expertise truly sets LPL Financial Research apart from its competitors. LPL Financial Research Analysts determine the asset allocation models based on investment objectives and the strong relationship between risk and return in the portfolios and then select the models and combinations of managers for each portfolio based on a variety of characteristics and corresponding performance in over 300 different market conditions using their proprietary statistical SAT tool.Investment Manager Investment manager selection and due diligence efforts for mutual funds, money managers, and alternative investment strategies is based on aRecommendations strong and thorough investment discipline. LPL Financial Research’s recommendations are unbiased. As an independent firm, you and your advisor can be confident LPL Financial Research is making decisions based solely on recommending the best investment option for a specific purpose. The research process combines quantitative and qualitative screening factors and analysis that do not include or consider in any way any financial arrangements or business relationships that may or may not exist between LPL Financial and the manager.Quantitative Analysis The function of the Research Analytic Group is to perform quantitative analysis, performance measurement, attribution, and appraisal of LPL Financial Research’s recommendations and platforms, while managing the underlying data and application usage of products and services within the team.Investment and Market The Investment Strategy Group is focused on delivering timely, efficient, and accurate communication of the team’s investment advice to help youCommunications and your advisor stay informed. The ASK Research service desk, a dedicated team of research professionals, is ready to address your financial advisor’s market and investment advice questions.* As reported in Financial Planning magazine 1996 - 2011, based on total revenue.LPL FINANCIAL: THE ORGANIZATION
  16. 16. LPL Financial Research team Areas of expertise: • Asset allocation • Asset class and sector research • Capital markets analysis • Economic analysis Burt White, • Investment manager evaluation, recommendations • Overlay services Managing Director and Chief • Portfolio construction Investment Officer • Mutual funds• Provides strategic guidance for the LPL Financial Research group, directs team of analysts • Separate accounts and investment professionals providing in-depth research on the global economy and • Fixed income markets, portfolio optimization and construction, mutual funds, separate accounts, fixed • Alternative investments income, alternative investments and exchange traded funds • Exchange traded funds• Served as the Chairman of the Manager Strategy Group Investment Committee at Wachovia • Variable annuity subaccounts• Responsible for all due diligence of third-party investment managers and mutual funds, including more than 1,200 company meetings and on-site reviews Jeffrey Kleintop, CFA, Chief Market Strategist• Leads the development and articulation of LPL Financial Research’s market and investment strategies, leveraging his expertise in the analysis of global financial markets and asset allocation strategy• Former chief investment strategist at PNC Wealth Management• Recognized economic strategist• One of “Wall Street’s Best and Brightest” — Wall Street JournalLPL FINANCIAL: THE ORGANIZATION
  17. 17. The Private Trust CompanyThe Private Trust Company N.A. (PTC) is an affiliate of Key trust factsLPL Financial. PTC manages trusts and family assets A trust is a legal entity that holds assets, such as securities or mutual funds, for the benefit of afor high net worth clients and is licensed in all 50 states person, family, or organization.under its 1995 national banking charter to administerthe trusts and implement the estate plans of affluentfamilies. The bank does not engage in lending or When establishing a trust, you designate one or more trustees. A trustee can be andeposit taking; it specializes solely in providing individual, often including yourself, or a bank with a trust charter. By law, your trustee isfiduciary solutions. responsible for: • Managing and protecting the trust’s assets and seeing they are diversified appropriatelyAs its primary mission, PTC provides trust services • Assuring your wishes are followed and all of your beneficiaries are treated fairlyto clients of LPL Financial advisors as well as to local • Ensuring accurate records and accounting for all transactionsclients in Cleveland, Ohio, where it is headquartered. • Complying with tax reporting regulationsPTC is also the custodian of all of the LPL Financial • Good planning will prompt the designation of a successor trustee — one who assumesIRA accounts. responsibilities for an individual trustee who becomes disabled or dies. • Unlike a relative, friend or business associate, a professional trustee fields a team of experts that operates your trust with care and objectivity for as long as you desire. For more information, visit www.theprivatetrustcompany.comLPL FINANCIAL: THE ORGANIZATION
  18. 18. LPL Insurance AssociatesLPL Financial offers full-service insurance solutions and Irrevocable Life Insurance Trusts (ILITs)dedicated support through its life insurance agency, Using insurance inside a trust can have a powerful impact on your estate planning strategy.LPL Insurance Associates, Inc. It is able to offer our firm Common client goals achieved by using an ILIT include:the carriers and products to fulfill all of your fixed andvariable life insurance needs with more than 24 quality, • Helping to avoid forced liquidation to pay estate taxes on an asset a family wants to retain,name brand companies on its platform. such as a family business or real estate • Helping to provide a safety net for potential long-term care needs in later years • Helping to minimize estate tax liability at the time assets transfer to heirsThe full suite of life insurance solutions includes: • Helping to offer an opportunity to enhance charitable contributions, in addition to• Term life providing for heirs• Whole life • Helping to ensure an equitable distribution of assets to heirs• Universal life • Helping to provide for greater control of assets• Variable universal life LPL Insurance and The Private Trust Company work together to help us implement this powerful planning tool for you.LPL FINANCIAL: THE ORGANIZATION
  19. 19. Alternative investmentsAs investors’ needs become increasingly complex Alternative investments Complex tax and regulatory requirements canand sophisticated, a growing number of alternative make sorting through and selecting the right • Managed futuresinvestment products have been introduced. LPL investments difficult. We are committed to • Fund of hedge fundsFinancial has responded to this need with a range of helping you navigate the world of alternative • Private equityinnovative products designed for formulating, supporting investments. • Real estate (REITS, limited partnerships)or supplementing specific strategies. • 1031 exchange programs • Concentrated equity solutions (Exchange LPL Financial provides information and funds, Collars, Pre-paid forwards) educational materials from key resources, • Oil and gas partnerships including a dedicated team of consultants, • Equipment leasing the LPL Financial Research department • Structured products and product sponsors, to help us determine which alternative investments are the most appropriate options for you.Investing in alternative investments may not be suitable for all investors and involves special risks such as the risk associated with leveraging the investment, potential adverse market forces, regulatorychanges and potential illiquidity. There is no assurance that the investment objectives will be attained.LPL FINANCIAL: THE ORGANIZATION
  20. 20. Fixed Income TradingThe LPL Financial Fixed Income Trading Team is Products and Services Best Efforts Executioncompromised of professional traders who: • Government Agencies • Before a bond is bought or sold a team of• Build fixed income investment strategies specific to • U.S. Treasuries more than 40 fixed income professionals your goals • Mortgage Backed Securities and CMOs works to make sure best execution• Offer unique solutions • Municipals standards are met. We work hard to• Conduct buy and sell orders on a best efforts basis • Corporates provide the best prices available whether a • Structured Products client is buying or selling bonds. • Fixed Income Trading’s online execution Customized Reports include system shows the combined inventories of dozens of first tier broker dealers, wire • Strategies to achieve income goals houses, middle market and boutique bond • Portfolio diversification shops ensuring that a competitive market • Bond maturity and income schedule place is maintained. proposalsFIXED INCOME TRADING
  21. 21. Structured InvestmentsStructured investment products are complicated investments that help provide investmentexposure that cannot be accessed through traditional assets, and some protection fromdownside risk in exchange for the investor’s forgoing some upside potential to achieve thatprotection. Structured products typically have two components, a note and derivative and havea fixed maturity. Structured products combine traditional investments, such as bonds, stocksand commodities, with financial instruments, including options and swap agreements. Themost common structured products are used to gain exposure to an asset class while providingprotection at maturity. Principal protection may vary from partial to 100%. If the option (derivative)turns out to be valuable, investors can gain exposure to the upside of the asset class.Structured investments with tailored terms and a risk/reward profile are designed to help clients:• Optimize returns and diversify portfolio holdings• Provide leverage• Derive tax efficiencies• Minimize volatility and provide downside protectionJPMorgan, DWS Scudder, HSBC, and Credit Suisse provide new monthly offerings, which mayinclude principal protection, equity indexed notes and more.An investment in structured products involves significant risks. Investing in structured notes is not equivalent to investing directly in the underlying indices. No assurance can be given that theinvestment strategy used to construct any return enhanced structured note will be successful or that the structured notes will outperform any alternative basket that might be constructed from theconstituent sub indices. Investment value prior to maturity will be influenced by many economic and market factors that may either offset or magnify each other, including interest rates, the level of theunderlying, implied volatility and the time remaining to maturity. Investors should carefully review the risks in the offering documents. Structured products are intended as “buy and hold” investmentsand may not be liquid instruments prior to maturity.LPL FINANCIAL: THE ORGANIZATION
  22. 22. Investment Principles
  23. 23. Cycle of investor emotions“Behavioral finance scientists have studied investor behavior and concluded investors go through a multi-phaseinternal process before they decide to react to bad news.”* Euphoria Anxiety Thrill Prices High Denial Excitement Fear Optimism Desperation Optimism Panic Prices Relief Low Hope Capitulation Depression Despondency*Source: Ken Kivenko, 7/29/05, The Fund Library.Investor Emotion Chart. Source: Index Funds: The 12-Step Program, M.T. Hebner, 2004.Graph courtesy of Goldman Sachs.INVESTMENT PRINCIPLES
  24. 24. Common investor challengesNot having a clearly defined investment objective Not investing globallyWhether building a new house or an investment portfolio, you first need A well-diversified portfolio should include assets with low correlation to eachto establish a solid foundation. Gaining an in-depth understanding of other. Some American investors may tend to lean toward domestic securitiesyour unique financial goals is key to this process. Your personal portfolio and avoid global investing opportunities altogether. By investing only in U.S.investment objective will take into account your risk tolerance and time stocks, you could miss out when foreign stocks perform well.horizon. Specific strategies can be created to address a single objective or acombination of objectives simultaneously. Being led by your emotions Every day you hear new theories or speculation about the direction ofImproperly judging risk the stock market from the media, friends, family and coworkers. It can beIn general, the longer the time horizon of your investments, the more risk challenging to sort through differing opinions, filter out the noise and stayyou can take on. Many investors, fearing even a little amount of risk, focus focused on your long-term investing goals. Many investors find themselvesonly on investments that address short-term volatility even though their time preoccupied with the fear of investment losses and mistakenly make costlyhorizon may be 20 years or more. The result is a poorly performing portfolio investment decisions.in relation to their investing goals and time horizon. Paying too much in taxesBeing overconfident in a single stock or sector Structuring your investments properly by mitigating the effect of taxesRelying solely on your intuition or creating attachments to specific stocks on your portfolio can help preserve and ultimately grow more of youror sectors without reading impartial analyses and reports can lead to poor investments over time. Not using tax-efficient money managers or strategiesinvesting decisions. For example, employees of a firm will often make where appropriate may cause you to pay taxes unnecessarily.excessively large allocations to their employer’s stock, believing they canbetter predict the stock price because of their intimate knowledge of theirfirm. This is not always true, as demonstrated by cases such as Enron.International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. There is no guarantee that a diversified portfolio will enhanceoverall returns or outperform a non-diversified portfolio. Diversification does not ensure against market risk.INVESTMENT PRINCIPLES
  25. 25. Why does the average investor underperform?• Markets have performed well• Individual investors have underperformed – Wrong decisions, wrong timeAnnualized total returns for 20 years10% 9.14% 8% S&P 500 6% 3-Month Treasury bills 3.83% Inflation 4% 2.57% Average equity fund investor 2% 1.01% 0%Sources: Dalbar 2010 Quantitative Analysis of Investor Behavior Study, S&P 500, Consumer Price Index, Citigroup BIG Treasury Bill (3M). Average stock investor, average bond investor and averageasset allocation investor performance results are calculated using data supplied by the Investment Company Institute. Investor returns are represented by the change in total mutual fund assetsafter excluding sales, redemptions and exchanges. This method of calculation captures realized and unrealized capital gains, dividends, interest, trading costs, sales charges, fees, expenses and anyother costs. After calculating investor returns in dollar terms, two percentages are calculated for the period examined: total investor return rate and annualized investor return rate. Total return rate isdetermined by calculating the investor return dollars as a percentage of the net of the sales, redemptions and exchanges for the period. Indices are unmanaged and cannot be invested into directly. Pastperformance is not a guarantee of future results.INVESTMENT PRINCIPLES
  26. 26. Underperformance is a result of investors who buy high/sell lowInvestors chase returns – Wrong decisions, wrong time 50 80 40 60 30 40Equity Mutual Fund Flow ($ billions 20 MSCI World Index (%) 10 20 0 Source: Investment Company Institute and Morgan 0 Stanley Capital International 2010. -10 (1) he return on equities is measured as the year-over- T MSCI World Index (%) year change in the MSCI All Country World Index. -20 Equity Mutual F und Flow s ($ bil lions) (2) et new cash flow to equity funds is plotted as a N -20 six-month moving average. Past performance is no -40 guarantee of future results. -30 (3) SCI World Index is an unmanaged index which M cannot be invested into directly. Past performance is -40 -60 no guarantee of future results. Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10INVESTMENT PRINCIPLES
  27. 27. Your losses hurt more than your gains• Constructing a portfolio that helps minimize losses % Loss % Appreciation to break even Years to break even at 8% annual return can significantly affect your portfolio value over time. 15% 17.6% 2 years, 1 month• To bring a portfolio back to its initial value after a loss 25% 33.3% 3 years, 9 months takes a return greater than the loss. 35% 53.8% 5 years, 7 months• For example — a 15% loss would take an 45% 81.8% 7 years, 9 months appreciation of over a year of 17.6% to break even. Assuming an 8% annual return, the break even would take 2 years and 1 month.Past performance is no guarantee of future results. This is a hypothetical example. Your results will vary. The assumed 8% annual return used does not reflect the deduction of the fees and chargesinherent to investing in securities.INVESTMENT PRINCIPLES
  28. 28. The emotional rollercoasterHeadline buzz words detail the emotional rollercoaster that is a market downturn and upswing 7850 6/20/97Level of the Dow Jones Industrial Average 7650 Optimistic Emotion Says to Buy Here 7450 “Euphoria” (3/12/97 - 6/20/97) 7250 7050 3/12/97 “Excitement” 6850 “Anxiety” 6650 “Fear” 6450 Emotion Tells Investors to Sell Here “Panic” 6250 4/11/97Source: Zephyr, LPL Financial Research. Past performance is no guarantee of future results. The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries, andwidely held by individuals and institutional investors. The Dow Jones is an unmanaged index which cannot be invested into directly. Stock investing involves risk including loss of principal.INVESTMENT PRINCIPLES
  29. 29. To invest or not to investEvery year has a reason to say “no”Even through many market conditions, $10,000 invested in the SP 500 Index in December 1933 would have been worth $1,272,910 by December 2008. 1986 Dow Nears 2000, 1960 Russia Down U-2 Plane 1973 Energy Crisis 1999 Y2K Market Too High 1961 Berlin Wall Erected 1974 Steepest Market Drop in four decades 1987 October “Mini-Crash” 2000 Tech Bubble Bursts 2001 Weak Corporate Earnings / Terrorist 1962 Cuban Missile Crisis 1975 Clouded Economic Prospects 1988 Economic Growth Slows Attacks 1963 Kennedy Assassination 1976 Russia Launches Sputnik 1989 Invasion of Kuwait 2002 Corporate Accounting Scandals 1964 Gulf of Tonkin 1977 Market Slumps 1990 Gulf War 2003 War in Iraq 1965 Civil Right Marches 1978 Interest Rates Rise 1991 Communism Tumbles with Berlin Wall 2004 Fed Begins to Raise Rates 1966 Vietnam War Escalates 1979 Oil Prices Skyrocket 1992 Global Recession 2005 High Commodities Prices 2006 Dow Hits Highest Level 1967 Newark Race Riots 1980 Interest Rates at All-Time High 1993 Health Care Reform at 11,727 1968 USS Pueblo Seized 1981 Steep Recession Begins 1994 Fed Raises Interest Rates Six Times 2007 Subprime Mortgage Meltdown 1969 Money Tightens, Markets Fall 1982 Worst Recession in 40 Years 1995 Dow Tops 5000 2008 Lehman Brothers Collapses 2009 National Unemployment Rate Exceeds 1970 U.S. Bombs Cambodia 1983 Market Hits New Highs 1996 Dow Tops 6400 10% 1971 Wage and Price Freeze 1984 Record Federal Deficits 1997 Dow Drops 554 Points in One Day 2010 BP Oil Spill 1972 Largest U.S. Trade Deficit Ever 1985 Economic Growth Slows 1998 Russia Long-Term Capital 2011 Greece BailoutSource: FactSet as of 12/31/10Note: This is a hypothetical example and is not representative of any specific situation. Your results will vary. The SP 500 Composite Index is an unmanaged index and cannot be invested into directly.Investing in stocks involves risk including loss of principal.The Standard Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market valueof 500 stocks representing all major industries. The SP 500 is an unmanaged index which cannot be invested into directly.Stock investing involves risk including loss of principal. Past performance is no guarantee of future results.INVESTMENT PRINCIPLES
  30. 30. Why Patience is a VirtuePercent of time stocks have provided positive returns(1977 – 2010) 78% Over a one-year 83% Over a three-year 86% Over a five-year 91% Over a ten-year time period time period time period time period Negative Returns Positive ReturnsSource: FactSet, LPL Financial ResearchNote: Based on SP 500 Monthly Total Return. Average Annual Rolling period returns 1977 - 2010. Past performance is no guarantee of future results. The Standard Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The SP500 is an unmanaged index which cannot be invested into directly. Stock investing involves risk including loss of principal.INVESTMENT PRINCIPLES
  31. 31. The worse we feel, the better the gainsConsumers feel the worst prior to large gains in the market Consumer Sentiment SP 500 Price Gain Over Next Twelve Months Less than 60 +23.1% Less than 70 +18.5% Less than 80 +13.1% 87 (average) +10.8% Greater than 90 +10.8% Greater than 100 +8.1% Greater than 110 -1.2%Source: Bloomberg, LPL Financial. Past performance is no guarantee of future results.Note: In interpreting the consumer sentiment survey, the lower the number, the worse consumer sentiment is. The Standard Poor’s 500 Index is a capitalization-weighted index of 500 stocks designedto measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The SP 500 is an unmanaged index whichcannot be invested into directly. Stock investing involves risk including loss of principal.INVESTMENT PRINCIPLES
  32. 32. Market comebacksOften when times are bleak, years that follow show significant total market returns. Market returns after consecutive down years (SP 500 Index) 200% 150% 148% 100% 100% 67% 57% 50% 39% 0% -17% -50% -38% -42% -40% -100% -78% 1929-32 / 1933-36 1940-41 / 1942-45 1973-74 / 1975-76 2002-03 / 2003-07 2008 / 2009-10 The Great World War II Oil crisis Internet bubble/ The Great Depression War on terrorism RecessionSource: JPMorgan Asset Management, Standard Poor’s. The market returns are represented by the SP 500 Index return (price only). Returns reflect calendar year returns and not peak to trough.The example is for illustrative purposes only. Past performance is not a guarantee of future returns. Updated as of 12/31/10. SP 500 is an unmanaged index which cannot be invested into directly. Pastperformance is no guarantee of future results.INVESTMENT PRINCIPLES
  33. 33. Benefits of patienceDespite starting at the “worst times,” markets reward investors Portfolio begins with Portfolio gets as low as: Portfolio Value as $100,000 on: of April 2010: Dec 1972 $58,173 (Sep 1974) $3,316,940 Nov 1980 $83,479 (July 1982) $1,911,915 Sep 1987 $70,419 (Nov 1987) $603,270 Feb 1990 $92,129 (Oct 1990) $555,762 Oct 2008 $58,827 (March 2009) $105,674Source: Zephyr, LPL Financial ResearchNote: Past performance is no guarantee of future resultsThe hypothetical portfolio is assumed to be invested in the SP 500 and does not reflect the deduction of the fees and charges inherent to investing in securities. The SP 500 index is an unmanagedindex and cannot be invested into directly. Your results will vary.Stock investing involves risk including loss of principal.The Standard Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of500 stocks representing all major industries. The SP 500 is an unmanaged index which cannot be invested into directly.INVESTMENT PRINCIPLES
  34. 34. Market resilienceWhen markets rebound following a bear market, gains are captured quickly. Not being invested when these rebounds begin can lead to not recouping allpossible gains. 45% 40% 03/09/2009 03/11/2003 35%SP 500 percentage gain 10/08/1998 10/11/1998 30% 25% Source: Bloomberg, LPL Financial Research 20% Note: Past performance is no guarantee of future results. Stock investing involves risk including loss of principal. 15% The Standard Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic 10% economy through changes in the aggregate market value of 500 stocks representing all major industries. The SP 500 is an unmanaged index which cannot be invested into directly. 5% 0% 0 10 20 30 40 50 60 70 80 90 Trading Days From End of Bear MarketINVESTMENT PRINCIPLES
  35. 35. Missing the best days of the market can significantly reduce your returns$10,000 invested in the Dow Jones Industrial Average (9/30/87–9/30/07)For example:By staying fully invested over the past 20 years, you would have earned almost twice as much as someone who missed only 10 of the market’s best days. $100,000 11.48% $80,000 Stayed fully invested Missed 10 best days $60,000 8.45% Missed 20 best days $40,000 6.30% Missed 30 best days 4.54% Missed 40 best days $20,000 2.94% Annualized total returnSource: Putnam Investments. Data is historical. The example is for illustrative purposes only. Past performance is not a guarantee of future results. There can be no assurance with respect to predictingmarket lows. Dow Jones Industrial Average is an unmanaged index which cannot be invested into directly.INVESTMENT PRINCIPLES
  36. 36. The Case for Style Diversification• Some investors fall into the trap of chasing what is hot.• Returns fluctuate in the various asset classes from year to year.• By diversifying and rebalancing regularly, you will be managing your risk and return, without sacrificing potential return. 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Small Small Inter- Inter- Large Large Large Large Large SmallBest HFRI Small Small Bonds Small Small Inter- Inter- Large Growth Value national national Value Growth Value Growth 44.2% Value Value 10.3% Growth Value national national Growth Bonds Growth Growth 51.2% 29.1% 33.0 % 8.1% 38.3% 23.1% 35.2% 38.7% 22.8% 14.0% 48.5% 22.3% 14.0% 26.9% 11.8% 5.2% 37.2% 29.1% Small HFRI HFRI Large SP SP SP SP Small Bonds Bonds HFRI Small Inter- HFRI Small Inter- Small Small Value 21.3% 27 % .9 Growth 500 500 500 500 Growth 11.6% 8.4% -4.7% Value national 10.6% Value national HFRI Growth Value 41.7% 2.7% 37.6% 22.9% 33.4% 28.8% 43.1% 46.0% 20.7% 23.5% 11.6% -27.7% 34.5% 24.5% Large Large Small HFRI Large HFRI Small Inter- Large HFRI HFRI Small Inter- Large Large Large HFRI Small Inter- Large Growth Value Value 2.6% Growth 21.7% Value national Growth 9.1% 0.4% Value naitonal Value Value Value 10.7% Value national Growth 41.2% 13.8% 23.9 % 37.2% 31.8% 20.3% 33.1% -11.4% 39.2% 16.5% 7.1% 22.3% -28.9% 32.5% 16.7% HFRI Small Large SP Small Large Large HFRI Inter- Large Large Large Large Small Large SP Small Large SP Large 40.1% Growth Value 500 Growth Value Growth 16.0% national Value Value Value Value Growth Growth 500 Growth Value 500 Value 7.8% 18.1 % 1.3% 31.0% 21.6% 30.5% 27.3% 7.0% -5.6% -15.5% 30.0% 14.3% 5.3% 15.8% 7.1% -36.9% 26.5% 15.5% SP SP Small Small HFRI Small HFRI Large SP SP Small Inter- Large SP SP Small Bonds HFRI SP 500 500 Growth Value 31.0% Value 23.4% Value 500 500 Growth national Growth 500 500 Growth 7.0% SP 500 500 -37.0% 24.5% 30.5% 7.6% 13.4 % -1.5% 21.4% 15.6% 21.0% -9.1% -9.2% -15.7% 29.8% 10.9% 4.9% 13.4% 15.1% Large Bonds SP Large Small Small Small Bonds Large Inter- SP SP SP Large Small HFRI SP Large Small HFRI Value 7.4% 500 Value Value Growth Growth 8.7% Value national 500 500 500 Growth Value 11.7% 500 Growth Value 10.5% 24.6% 10.1 % -2.0% 25.8% 11.3% 13.0% 7.3% -14.0% -11.9% -22.1% 28.7% 6.3% 4.7% 5.5% -38.4% 20.6% Bonds Large Bonds Small Bonds Inter- Bonds Small Bonds Small Large Large HFRI Bonds Small Large Large Small Large Inter- 16.0% Growth 9.8 % Growth 18.5% national 9.7% Growth -0.8% Growth Growth Growth 20.9% 4.3% Growth Growth Value Growth Value national 5.0% -2.4% 6.4% 1.2% -22.4% -20.4% -27.9% 4.2% 9.1% -0.2% -38.5% 19.7% 8.2% Inter- Inter- Large Bonds Inter- Bonds Inter- Small Small Large Inter- Small Bonds HFRI Bonds Bonds Small Inter- Bonds Bonds national national Growth -2.9% national 3.6% national Value Value Growth national Growth 4.1% 2.2% 2.4% 4.3% Value national 5.9% 6.5%Worst 12.5% -11.8% 2.9 % 11.6% 2.1% -6.4% -1.5% -22.4% -21.2% -30.4% -9.8% -43.1% Sources • Bonds: Barclays Aggregate Bond Index • Large Value: Russell 1000 Value Index • Small Value: Russell 2000 Value Index • HFRI: HFRI Equity Hedge Index • Large Growth: Large Russell 1000 Growth Index Growth • Small Growth: Russell 2000 Growth Index • International: MSCI EAFE Index • SP 500: Standard and Poors 500 Stock Index 37.21%The Standard Poor’s 500 Stock Index (SP 500) is an unmanaged index generally representative Bond Index is composed of securities from Barclays Government/Credit Bond Index, Mortgage-of the U.S. Stock Market, without regard to company size. The Russell 2000 Growth Index is an Backed Securities Index and Asset-Backed Securities Index. The Russell 1000 Growth Indexunmanaged index comprised of those Russell 2000 companies with higher price-to-book ratios is an unmanaged index comprised of those Russell 1000 companies with higher price-to-bookand higher forecasted growth values. Russell 2000 Value Index measures the performance of ratios and higher forecasted growth values. Russell 1000 Value Index measures the performancethose Russell 2000 companies with lower price-to-book ratios and lower forecasted growth of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growthvalues. The Morgan Stanley Capital International (“MSCI”) Europe, Australasia, Far East Index values. Small-cap stocks may be subject to higher degree of risk than more established(“EAFE”) is an unmanaged index of over 900 companies, and is a generally accepted benchmark companies’ securities. The illiquidity of the small-cap market may adversely affect the value offor major overseas markets. Index weightings represent the relative capitalizations of the major these investments. International investing involves special risks such as currency fluctuation andoverseas makers included in the index on a U.S. dollar adjusted basis. The index is calculated political instability and may not be suitable for all investors. There is no guarantee that a diversifiedseparately; without dividends, with gross dividends reinvested and estimated tax withheld, and portfolio will enhance overall returns or outperform a nondiversified portfolio. Diversification doeswith gross dividends reinvested, in both U.S. Dollars and local currency. The Barclays Aggregate not ensure against market risk.INVESTMENT PRINCIPLES
  37. 37. Importance of RebalancingAs a result of the market fluctuations of one asset class versus another over a given period, all portfolios drift over time from their original asset allocation.Rebalancing is an essential component of any comprehensive investment strategy and will help you avoid undue shifts in your portfolio due to financial markettrends resulting in risk outside of your desired investment objective. Original Allocation Non-rebalanced Portfolio Rebalanced Portfolio 15% Bonds 40% 40% Bonds Bonds 60% 85% 60% Equities Equities Equities In the example above, a slightly If the performance of the investment By rebalancing, your portfolio could aggressive portfolio begins with an pushes that mix to 85% stocks and avoid this type of market-driven asset allocation of 60% stocks and 15% bonds, the portfolio is now change and keep it in line with your 40% bonds. riskier than the desired allocation. objectives and risk tolerance.This example is intended to demonstrate the effects of rebalancing and is not intended to project performance. No strategy assures success or protects against loss. Such strategy may involve taxconsequences. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price. Stock investinginvolves risk including loss of principle.INVESTMENT PRINCIPLES
  38. 38. Fund of hedge fundsWhat is a fund of hedge funds? Potential benefits include:A fund of hedge funds invests in a portfolio of different • Accessibility to professional hedge fund managers whose funds are hard to accesshedge funds to provide broad exposure to the hedge • Reduced correlation to stocks/bondsfund industry and to diversify the risks associated with a • Attractive risk-adjusted returnssingle investment fund. Funds of hedge funds managers • Diversificationselect hedge funds and construct portfolios based upon • Multiple investment stylestheir selections. Potential risks include:They are actively managed portfolios of investments that • Lack of transparencyuse advanced investment strategies, such as leveraged, • Additional layer of fees (above hedge fund manager fees)long, short and derivative positions, in both domestic • Fund of hedge funds can be illiquidand international markets with the goal of generating • May employ leveragehigh returns (either in an absolute sense or over a • May employ aggressive tax strategies that may pose tax risks for investors and requirespecified market benchmark). filing extensionsAlternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the managementof alternative investments may accelerate the velocity of potential losses. Long positions may decline as short positions rise, thereby accelerating potential losses to the investor. Derivatives/options arenot suitable for all investors and certain options strategies may expose investors to significant potential losses such as losing entire amount paid for the option.INVESTMENT STRATEGY AND PROPOSAL
  39. 39. Fund of hedge fundsThe value of fund of hedge funds You might consider a fund of hedge funds if you are:Fund of hedge funds show low correlation to traditional • Not concerned with liquidity of investmentinvestments and may offer the potential for capital • Seeking diversification, rebalancing or reduction of volatility in their portfoliospreservation in down markets, thereby improving • Looking for professional money managementthe portfolio’s risk/return profile and reducing itsoverall volatility.Fund of hedge funds strategyIf you are a long-term investor with no immediate needfor liquidity, investing a portion of your portfolio in a fundof hedge funds may be a suitable investment choice foryou. With a fund of hedge funds, you will have accessto quality hedge fund managers and you can benefitfrom an investment that has low correlation to theequity and fixed income market, with the potentialfor capital appreciation.Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the managementof alternative investments may accelerate the velocity of potential losses. Long positions may decline as short positions rise, thereby accelerating potential losses to the investor. Derivatives/options arenot suitable for all investors and certain options strategies may expose investors to significant potential losses such as losing entire amount paid for the option.INVESTMENT STRATEGY AND PROPOSAL
  40. 40. Managed future fundsWhat is a managed futures fund? Potential benefits include: Potential risks include:A managed futures fund is a pool of money from various • Professional management • Futures and forward trading is speculativeinvestors. Professional managers, known as commodity • Lack of historical correlation with almost all and leveraged, and can be volatiletrading advisors, specialize in trading futures and other investment classes • Trading occurs on foreign exchanges whichforward contracts, and invest the money pool using a • Potential to profit in advancing markets and could mean higher riskproprietary trading system, or a discretionary method, declining markets, since they can hold both • Futures and forward markets can be illiquidthat may involve going long or short in futures contracts long and short positions or disruptedin areas such as metals (gold, silver), grains (soybeans, • A way to increase portfolio diversification • Diversification does not assure acorn, wheat), equity indexes (SP futures, Dow futures, beyond what other common stocks profit or guarantee against loss in aNASDAQ 100 futures), soft commodities (cotton, cocoa, and fixed income securities can offer declining marketcoffee, sugar), foreign currency and U.S government by themselves • Limited ability to liquidate investmentbond futures. • Exposure to broad, global markets units (monthly)Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the managementof alternative investments may accelerate the velocity of potential losses.INVESTMENT STRATEGY AND PROPOSAL
  41. 41. Managed future fundsThe value of managed futures funds You might consider a managed futures fund if you are:Managed futures funds show negative correlation • Not concerned with liquidity of investmentto other asset classes, meaning that its investment • Seeking diversification, rebalancing or reduction of volatility in their portfoliosperformance is independent of other investments. • Looking for exposure to a wide range of global marketsManaged futures strategyInvesting a portion of your portfolio in a managed futuresfund may be a suitable investment for you if you are along-term investor with little need for liquidity. Managedfutures funds are an investment that has low-correlationto the equity and fixed income market, with potentialfor capital appreciation and exposure to broad,global markets.Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the managementof alternative investments may accelerate the velocity of potential losses.INVESTMENT STRATEGY AND PROPOSAL
  42. 42. What is a non-traded REIT?A Real Estate Investment Trust (REIT) is an alternative Potential benefits include:to direct ownership of real estate. An investment in • Professional managementa REIT allows small investors to share in the many • Dividend yields typically higher than other equitiesbenefits associated with real estate while reducing the • Long-term capital appreciationoverall risks that accompany property ownership. • Diversification from common stocks and fixed income • Flexible tax treatment by claiming depreciationInvesting in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program willbe attained.INVESTMENT STRATEGY AND PROPOSAL
  43. 43. The value of non-traded REITsLPL Financial offers access to a broad non-traded You might consider a non-traded REIT if Benefits of diversification*REIT platform that includes some of the highest quality you are: (low correlation)sponsors in the market. Non-traded REITs show a low or negative • A long-term investor (investment horizon of 10-15 years or more) correlation to other asset classes over • Not concerned with the liquidity of long periods, meaning that the investment an investment performance is independent of other • Seeking income and/or capital appreciation investments. This low correlation means that • Seeking diversification, rebalancing, or when other investments are down, non-traded reduction of volatility in your portfolio REITs may continue to perform. Simply put, low correlation can help contribute to less volatility in an investment portfolio.Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program willbe attained.* There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not ensure against market risk.INVESTMENT STRATEGY AND PROPOSAL
  44. 44. Risks with non-traded REITs• Shares in a non-traded REIT are generally considered illiquid until the REIT’s exit strategy either returns investors’ principle or lists on a public exchange. No public market exists for shares of common stock of a non-traded REIT. Even if investors can sell their shares through a secondary market, it is likely that they will have to sell them at a significant discount from the public offering price.• The REIT may not achieve its desired diversification or investment objectives, or be able to pay dividends.• The shares may be worth more or less than the offering price.• If the value of the assets in which the fund invests declines, investors’ shares may lose value.• The REIT could be vulnerable to economic and geopolitical conditions. For example, a REIT that invests in the office sector may be negatively affected by an economic downturn that leads to tenant defaults or vacancies.INVESTMENT STRATEGY AND PROPOSAL
  45. 45. Client Discovery