Leading-Edge Investment Strategies

1
Leading-Edge Investment Strategies Associated
Risks

• Fiduciary Investment Risk Management
  Association
• 21st Annual National Training Conference
• April 16, 2007

2
Todays Presentation Will Address Trends in Both
Market-Linked Products and Traditionally Named
Alternative Investments
Polarization of Investments Process
Polarization
Market-Linked Products
Alternative Investments
Venture Capital Private Equity
Indexed Separate Accounts
Exchange Traded Funds
Index Mutual Funds
Other Alternative Investments
Hedge Funds
Real Estate
Source Tiburon Research Analysis
3
Outline

• The State of the Investment Advice Market
• The Market Opportunity Consumer Wealth, Baby
  Boomers, the Pending Liquefaction
• The Challenge The Competitive Playing Field
• Winning Business Strategy Designing Leading-Edge
  Investments Offers
• The State of the Alternative Investments Markets
• Market Linked Products Index Funds Exchange
  Traded Funds
• Alternative Investments Hedge Funds, Venture
  Capital Private Equity, Real Estate, Other
  Alternative Investments
• Summary Tiburon Conclusions

4
Consumer Households Have Over 17 Trillion of
Investable Assets and 46 Trillion of Total Assets
Consumer Households Net Worth ( Trillions)
46.5
6.8
9.6
39.7
12.4
7.5
17.1
Investable Assets
Retirement Plan Assets
Personal Assets
Other Illiquid Assets
Total Household Assets
Total Household Liabilities
Total Household Net Worth
Source 1/22/04 McKinsey Quarterly 5/22/02
Wachovia Presentation (Doe) (Spectrem McKinsey
Company) 5/9/02 Wachovia Presentation (Blythe)
5/9/02 Spectrem Presentation (Doe) 8/14/01 Wall
Street Journal 7/01 Registered Rep (Cerulli)
6/19/00 Investment News 12/97 Federal Reserve
Bank Flow of Funds Accounts Consumer Finance
Survey Tiburon Research Analysis
5
Baby Boomers are the Key Market for the Next Two
Decades for Five Reasons, Including their
Retirement Pending Liquefaction
Reasons Baby Boomers are the Critical Market for
Success
Source Tiburon Research Analysis
6
The Bad News is Three-Quarters of Baby Boomers
Over the Age of 55 Have Less Than 100,000 in
Investable Assets
Baby Boomers Over Age 55 by Investable Assets
Source 2/3/05 New York Times Tiburon Research
Analysis
7
And the Consumer Household Savings Rate
Continues to Hit New All Time Lows
Consumer Household Savings Rate
Source 1/26/05 New York Times (Federal
Reserve) 12/30/04 Wall Street Journal 11/4/04
US Department of Commerce Web Site 8/1/01 San
Francisco Chronicle 12/00 SunAmerica Brochure
10/10/00 San Francisco Chronicle 7/22/96
Business Week Tiburon Research Analysis
8
And the Median Value of a Baby Boomers
Inheritance is Only 48,000 Very Few Received
More Than 100,000
Baby Boomers by Size of Inheritance
Source 2/04 Journal of Financial Planning
8/12/01 US Bancorp Piper Jaffray Web Site
(Gallup) 12/00 SunAmerica Brochure 7/96
Commonwealth Club Newsletter 2/19/96 US News
World Report Tiburon Research Analysis
9
The Good News Boomers Pending Retirement Will
Drive More Assets Into the Investable Assets
Market
Consumer Households Net Worth ( Trillions)
46.5
9.6
12.4
7.5
17.1
Investable Assets
Retirement Plan Assets
Personal Assets
Other Illiquid Assets
Total Household Assets
Source 1/22/04 McKinsey Quarterly 5/22/02
Wachovia Presentation (Spectrem McKinsey Co.)
5/9/02 Wachovia Bank Wealth Management
Presentation (Blythe) 5/9/02 Spectrem
Presentation 8/14/01 Wall Street Journal 7/01
Registered Rep (Cerulli) 6/19/00 Investment
News 12/97 Federal Reserve Bank Flow of Funds
Accounts and Consumer Finance Survey 12/97 First
Manhattan Consulting Group Tiburon Research
Analysis
10
Beyond the Liquefaction, Another Opportunity is
Presented by the Risk of Living Too Long
Individual Life Expectancy by Birth Year
Source 11/03 Institutional Investor 3/11/03
First Quadrant Presentation (Arnott) Tiburon
Research Analysis
11
Even More Critical is the Fact that More than
Half of 65 Year Olds Will Reach Age 85 and Over
One-Third Will Reach 90
65 Year Old Person Life Expectancy
Source 12/11/06 Investment News 8/12/01 US
Bancorp Piper Jaffray Web Site 8/12/01 Allstate
Brochure 12/00 SunAmerica Brochure 7/22/96
Business Week Tiburon Research Analysis
12
And Amongst 65 Year Old Couples there is a 50
Chance that One (or Both) Will Live Another
Twenty-Five Years
Share of American Couples at Age 65 Where One
Spouse Will Reach Certain Age
Source 2/07 American Funds Brochure Tiburon
Research Analysis
13
Outline

• The State of the Investment Advice Market
• The Market Opportunity Consumer Wealth, Baby
  Boomers, the Pending Liquefaction
• The Challenge The Competitive Playing Field
• Winning Business Strategy Designing Leading-Edge
  Investments Offers
• The State of the Alternative Investments Markets
• Market Linked Products Index Funds Exchange
  Traded Funds
• Alternative Investments Hedge Funds, Venture
  Capital Private Equity, Real Estate, Other
  Alternative Investments
• Summary Tiburon Conclusions

14
All Types of Competitors are Increasingly Chasing
the Emerging Affluent and the Wealth Management
Business
Competitive Playing Field
Retail Banks
Boutique Upscale Firms

• Up-selling banking customers
• Rebuilding trust departments

• Moving down market
• Testing new models

Insurance Agents, CPAs Lawyers
Full-Service Brokers
Emerging Affluent Wealth Management Business

• Entering the business
• Relying on fee-account programs at the high-end

• Segmenting offers
• Moving to fee-based accounts

Independent Advisors
Discount Brokers Online Financial Services

• Expanding investment offers
• Extending services to wealth management

• Adding help advice
• Moving up market

Source 5/22/02 Wachovia Presentation (Doe)
Tiburon Research Analysis
15
Full-Service Brokers and Banks Have Historically
Dominated Control of Consumer Investable Assets
Consumer Households Investable Assets by Market
Source 3/02 Open Finance (Tower Group) 8/13/01
On Wall Street Web Site 7/13/01 Cerulli
Presentation (SIA) 11/6/00 Investment News
(Cerulli Associates) 12/97 Securities Industry
Yearbook 12/97 SPs Securities Dealers of North
America 7/22/97 American Banker 6/97 Financial
Planning 6/97 Dow Jones Investment Advisor
5/12/97 Pensions Investments 4/12/97 American
Banker Tiburon Research Analysis
16
But Independent Advisors Collectively Continue to
Outgrow the Competition
Annual Client Assets Growth Rate by Market (1995
- 2006)
Source 7/19/04 Federal Reserve Bulletin 12/97
Securities Industry Yearbook 7/22/97 American
Banker 5/12/97 Pensions Investments 3/97
Federal Reserve Bulletin 12/96 ACLI Life
Insurance Factbook 11/95 Bests Review Tiburon
Research Analysis
17
Outline

• The State of the Investment Advice Market
• The Market Opportunity Consumer Wealth, Baby
  Boomers, the Pending Liquefaction
• The Challenge The Competitive Playing Field
• Winning Business Strategy Designing Leading-Edge
  Investments Offers
• The State of the Alternative Investments Markets
• Market Linked Products Index Funds Exchange
  Traded Funds
• Alternative Investments Hedge Funds, Venture
  Capital Private Equity, Real Estate, Other
  Alternative Investments
• Summary Tiburon Conclusions

18
Individual Securities Account for the Largest
Share of the Investable Assets of High Net Worth
Households
Investable Asset Distribution Amongst High Net
Worth Investors
Source 2/04 Worth (Spectrem Group) Tiburon
Research Analysis
19
And at Banks, there are Now Nearly Four Million
Personal Trusts, More Than Twice the Number That
Existed in 1997
Personal Trusts (Millions)
Source 7/6/98 San Francisco Examiner Tiburon
Research Analysis
20

But When Taking Market Appreciation Out,
Irrevocable Trust Assets Have Been Declining at a
Rate of 5.2
Irrevocable Trust Assets Growth (Including and
Excluding Market Appreciation)
Growth WithoutMarketAppreciation
Growth WithMarketAppreciation
Source 5/01 Banking Strategies (VIP Forum)
3/26/01 Investment News 1/99 Corporate Executive
Board (Federal Financial Institutions Examination
Council VIP Forum) Tiburon Research Analysis
21

And While Banks Still Control the Largest Share
of the Personal Trust Business, Competition is
Multiplying
Personal Trust Services Providers by Type
Source 3/27/03 American Banker (Diversified
Services Group) Tiburon Research Analysis
22
Outside of the Trust World, Mutual Funds Have
Grown to be an 11 Trillion Market.
Mutual Fund Assets ( Trillions)
Source 9/25/05 ICI Web Site 12/31/04
Investment Company Institute Fact Book 3/05 ICI
Web Site 5/02 Merrill Lynch Presentation (Doe)
9/01 Financial Advisor 7/01 Registered Rep
5/1/01 EA Invest Presentation (Doe) 7/16/99 USA
Today Tiburon Research Analysis
23
And Become the Dominant Investment Product
Leading Investment Products Assets Under
Management ( Billions)
Source 3/05 ICI Web Site 7/19/04 Barrons 4/04
Research (MMI) 12/15/03 Investment News
(Cerulli) 7/03 Ticker 5/27/02 Merrill Lynch
Presentation (Cerulli) (Doe) 10/01 Investment
Consulting News 7/13/01 Cerulli Presentation
(Strategic Insight) (Cerulli) 7/11/01 RunMoney
Conversation (Jorgensen) 7/2/01 RunMoney
Quarterly Report 7/01 Financial Advisor 6/25/01
Investment News 4/01 AIM Brochure (Cerulli)
Tiburon Research Analysis
24
Beyond Mutual Funds Individual Securities,
there are Three Key Product Trends, Including
Open Architecture, the Polarization, and Wealth
Management Services Family Office Services
Financial Advice Key Product Trends
Open Architecture
Polarized Trends to Indexing Alternatives
Mutual Funds Individual Securities
Wealth Management Family Office Services
Source 11/8/02 EnvestnetPMC Conversation
(Yanari) Tiburon Research Analysis
25
Banks Continue to Slowly Reposition their
Investments Units as Asset Gatherers and Wealth
Managers
Alternative Value Propositions for Private
Banking Units
Alternative Value Propositions
Asset Managers (Manufacturers)
Asset Gatherers
Wealth Managers

• Medium/Low
• Financial planning, asset allocation, solid
  performance, and wealth management services

• Medium
• Asset allocation and good performance

• High
• Top performance

Importance of Investment Performance Value
Proposition
Source 1/04 Worth 5/30/02 Wachovia Meeting
(Kelly) Tiburon Research Analysis
26
But the Banks are New to Open Architecture
Bank Trust Departments Assets By Product
Source 12/31/05 Money Management Institute
Report (Dover Financial Research) Tiburon
Research Analysis
27
And Open Architecture Brings Issues Issue 1
Asset Class Breakdown Shows the Dominance of
Large Cap Equity in Separately Managed Accounts
Separately Managed Account Program Assets By
Asset Class
Small-Cap Portfolios 3
Mid-Cap Portfolios 4
Specialty Groups 9
Balanced Portfolios 24
Large Cap Equity 60
Source 11/03 On Wall Street (Cerulli) 9/22/03
Money Management Executive 10/16/01 CDC Email
(Jarrett) Tiburon Research Analysis
28
Issue 2 Three-Quarters of Full-Service Brokers
Use One-to-Three Separate Account Managers Per
Client, Hence Clients Get Limited Diversification
Separately Managed Accounts By Number of Managers
Used
Source 11/7/03 Legg Mason Advisor Conversation
(Rosenfield) 11/7/03 Legg Mason Advisor
Conversation (Castle) 11/7/03 Legg Mason Advisor
Conversation (Graham) 11/6/03 Legg Mason Advisor
Conversation (Barnhill) 11/6/03 Legg Mason
Advisor Conversation (Davidov) 11/6/03 Legg
Mason Advisor Conversation (Lopez) 11/5/03 Legg
Mason Advisor Conversation (Rafalko) Tiburon
Research Analysis
29
Issue 3 Many Sponsors Send a Disproportionate
Share of their Assets to their Own In-House
Offerings
Share of Separately Managed Account Assets Held
with In-House Managers
Source 3/19/03 Wealth Management Letter
(Cerulli) 7/01 Inside Institutions Newsletter
Tiburon Research Analysis
30
Issue 4 The Hype of Customization May Not be
Fulfilled in Real Client Accounts Less Than
One-Fifth of Full-Service Broker Clients
Customize Their Separately Managed Accounts
Separately Managed Account Clients By Propensity
to Customize 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) Tiburon
Research Analysis
31
Issue 5 The Tax Benefits of Separately Managed
Accounts May Also be Overstated
Full-Service Broker Clients Who Seek Customized
Year-End Tax Treatment
Source 5/03 Financial Planning 1/23/03 Wealth
Management Letter 11/2/02 SunTrust Presentation
(OReilly) Tiburon Research Analysis
32
Outline

• The State of the Investment Advice Market
• The Market Opportunity Consumer Wealth, Baby
  Boomers, the Pending Liquefaction
• The Challenge The Competitive Playing Field
• Winning Business Strategy Designing Leading-Edge
  Investments Offers
• The State of the Alternative Investments Markets
• Market Linked Products Index Funds Exchange
  Traded Funds
• Alternative Investments Hedge Funds, Venture
  Capital Private Equity, Real Estate, Other
  Alternative Investments
• Summary Tiburon Conclusions

33
As Noted Earlier The Investments Process is
Being Polarized with Twin Growth Patterns in Both
Market-Linked Products and Alternative Investments
Polarization of Investments Process
Polarization
Market-Linked Products
Alternative Investments
Venture Capital Private Equity
Indexed Separate Accounts
Exchange Traded Funds
Index Mutual Funds
Other Alternative Investments
Hedge Funds
Real Estate
Source Tiburon Research Analysis
34
Created in 1973, Index Funds Continue to Grow as
a Share of All Dollars Invested in Mutual Funds
Index Mutual Fund Assets as a Share of All Equity
Mutual Fund Assets
Source 9/04 Journal of Indexes (Bogle) 12/23/02
Forbes 4/25/01 Smith Barney Presentation
(Moszkowski) (Strategic Insight) 11/19/01
Investment News Tiburon Research Analysis
35
Over the Long Haul, Index Mutual Funds
Combination of Low Fees and Low Turnover Has
Beaten Active Management Strategies Almost
Three-Quarters of the Time
Winning Investment Strategy by Type of Management
Source 11/23/03 Hudson City Star-Ledger 6/03
Journal of Indexes 3/03 Kiplingers 2/3/03
Forbes 4/24/02 Wall Street Journal 11/19/01
Investment News 11/26/01 Wall Street Journal
8/26/01 San Francisco Chronicle Tiburon Research
Analysis
36
And Now Exchange Traded Funds are a
Fundamentally Important Product Innovation
Exchange Traded Fund Assets ( Billions)
Source 1/8/07 Investment News (SSGA) 1/23/06
Ignites Email (ICI) 1/18/06 Dow Jones Email
(Ryan) 12/19/05 Rydex Investments Brochure
(ICI) 11/30/05 ICI Web Site11/9/05 Morgan
Stanley Analyst Report 10/24/05 Investment News
10/05 Research 9/12/05 New Millennium Advisors
Presentation (Carty) (ICI) 8/29/05 Investment
News (ICI) 8/05 Morgan Stanley Analyst Report
(Bloomberg) 7/12/05 IIR Conference Brochure
Tiburon Research Analysis
37
Exchanged Traded Funds Have Made Ground on Index
Funds in the Market-Linked Products Market,
Already Accounting for One-Third of Its Assets
Index Fund Assets by Product Type
Source 6/6/05 Business Week (Financial Research
Corporation) Tiburon Research Analysis
38
Outline

• The State of the Investment Advice Market
• The Market Opportunity Consumer Wealth, Baby
  Boomers, the Pending Liquefaction
• The Challenge The Competitive Playing Field
• Winning Business Strategy Designing Leading-Edge
  Investments Offers
• The State of the Alternative Investments Markets
• Market Linked Products Index Funds Exchange
  Traded Funds
• Alternative Investments Hedge Funds, Venture
  Capital Private Equity, Real Estate, Other
  Alternative Investments
• Summary Tiburon Conclusions

39
More Traditional Alternative Investments Vary on
Their Risk Reward Parameters They Need to be
Considered Individually
Alternative Investments Markets Risk Return
Curve

• Macro/Opportunistic Hedge Funds

• Venture Capital

• Distressed Securities

• Leveraged Buyout Funds

• Short-Selling Hedge Funds

• Non-Hedged Equities Hedge Funds

• SP 500

• Hedged Equities Hedge Funds

• Convertible Bond Arbitrage

• Fixed Income Arbitrage

• Event Drive Hedge Funds

• Statistical Arbitrage Hedge Funds

• Multi-Strategy Hedge Fund-of-Funds

• Mezzanine Finance

• Collateralized Mortgage Obligations

Return

• Collateralized Loan Obligations

• Collateralized Bond Obligations

• Energy Properties

• Agricultural Land (Farmland)

• Timberland

• Traditional Real Estate

Risk
Source 3/20/00 John Hancock Brochure7/23/99
Hedge Fund Research Meeting (Burney) 7/12/99
Investment News 6/30/99 Hedge Fund Research
Presentation (Burney) 6/30/99 John Hancock
Meeting (Aborn) Tiburon Research Analysis
40
Each of the Four Types of Alternative Investments
Also Has a Different Positioning
Alternative Investments Types
Alternative Investments
Hedge Funds
Venture Capital Private Equity
Real Estate
Other Alternative Investments
Client Need
Uncorrelated Investments
Incremental Asset Classes
Incremental Asset Classes
Unique Securities
Source 3/20/00 John Hancock Brochure 9/15/99
Windermere Investment Associates Brochure
7/23/99 CMS Meeting (Landman) 7/12/99 Investment
News 7/99 Investing in Hedge Funds 6/30/99
Hedge Fund Research Presentation (Burney)
6/28/99 Business Week 5/99 Institutional
Investor 5/99 Dynamic Offerings Web Site
1/13/99 Ivy Funds Letter 12/14/98 Business Week
11/2/98 Barrons Tiburon Research Analysis
41
And The Four Main Types of Alternative
Investments May Need to be Seen Differently in
Asset Allocation
Representative Asset Allocation
Other Alternative Investments
Private Equity Venture Capital
Real Estate
Other
Equities
Hedge Funds
Hedge Funds
Cash
Fixed Income
Structured Debt
Source 12/99 Dow Jones Investment Advisor
7/23/99 CMS Meeting (Landman) 7/22/99 Greenrock
Research Meeting (Malone) Tiburon Research
Analysis
42
Hedge Funds, Relatively Stagnant for Fifty Years,
Have Gained Huge Assets Since the Mid-1990s
Hedge Fund Assets ( Billions)
Source 3/6/06 Business Week (Hedge Fund
Research) 12/5/05 Money Management Executive
(Hedge Fund Research) 10/15/05 Financial Times
6/8/05 Wall Street Journal 1/5/05 Wall Street
Journal (Hennessee) 9/2/04 Financial Times
5/24/04 Forbes (Hedge Fund Research) 4/29/04
Financial Times (Alternative Fund Services
Review) 3/29/04 Barrons (Tass) 3/04 Tremont
Presentation (Schulman) Tiburon Research
Analysis
43
Hedge Funds-of-Funds Now Account for Nearly 40
of Hedge Fund Assets
Hedge Fund Assets by Fund Type
Hedge Funds-of-Funds
Hedge Funds
Source 12/14/05 Financial Times (Hedge Fund
Research) 12/5/05 Money Management Executive
(Hedge Fund Research) 10/15/05 Financial Times
6/8/05 Wall Street Journal 1/5/05 Wall Street
Journal (Hennessee) 9/2/04 Financial Times
5/24/04 Forbes (Hedge Fund Research) 4/29/04
Financial Times (Alternative Fund Services
Review) 3/29/04 Barrons (Tass) Tiburon
Research Analysis
44
Most Hedge Funds are Relatively Small 65 of
Hedge Funds Have Less Than 50 Million Assets
Under Management
Hedge Funds by Assets Under Management
Source 12/02 Putnam Lovell/New River Research
Report 12/11/01 Goldman Sachs Presentation
12/11/01 AXA Rosenberg Presentation (Martin)(Van
Hedge) 6/28/99 Business Week 5/99 Institutional
Investor 10/1/98 New York Times (Cerulli
Associates) Tiburon Research Analysis
45
Hedge Funds Have at Least Three Data Integrity
Issues, Including Cherry Picking and Survivor Bias
Hedge Fund Data Integrity Issues
Cherry Picking
Survivor Bias
Multiple Data Sources

• May need to lower average returns 3-4

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

• Databases all have different data

Source 3/11/03 Deutsche Bank Presentation
(Lamm) 11/8/02 EnvestnetPMC Conversation
(Yanari) Tiburon Research Analysis
46
One Study Suggests Cherry Picking by Hedge Funds
Distorts the Reported Performance Results
Hedge Fund Annual Returns As Reported Adjusted
for Cherry Picking
Source 9/27/04 North Bay Business Journal (Free
Business Journal of Amsterdam) Tiburon Research
Analysis
47
The Future of the Private Equity Market is Less
Clear Returns Vary Widely
Investment Performance Difference Between Top
Bottom Quartile Managers
Source 3/3/07 Wall Street Journal (Thomson
Financial) 12/2/99 CMS Companies Presentation
(Harvard Study) Tiburon Research Analysis
48
All that Said, Investments May Matter Less than
Wealth Management Services
Baby Boomer Financial Phases of Life
Liquefaction (Retirement Distribution Planning)
Accumulation (Peak Earnings Savings Years)
Estate Planning

• 30s-50s
• Marriage
• Children
• Early earnings years
• Business ventures
• Wealth accumulation
• Early divorces
• Peak earnings
• Peak savings
• Vacation homes
• Late divorces
• Children's college
• Childrens 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
Source 5/5/04 NFP Presentation (Montgomery)
2/10/04 SEI Email (Smith) 1/7/04 SEI
Conversation (Smith) 9/23/03 SEI Presentation
(Smith) Tiburon Research Analysis
49
Nearly Half of Consumers Fear that They Will
Outlive Their Savings, Creating a Large Potential
for Retirement Income Products
Consumers by Propensity to be Concerned About
Retirement Savings
Source 2/9/04 American Banker (American Bankers
Insurance Association) Tiburon Research
Analysis
50
Retirement Distribution Portfolios Will Call for
Avoiding Volatility Through Annutization and Low
Volatility Investment Strategies
Retirement Distribution Portfolio Strategies
Low Volatility Investment Strategy
Annutization

• Average investment returns become less meaningful
  and the timing of returns grows in importance in
  the distribution phase
• Declines that are compounded by a dwindling
  capital base can lead to irreconcilable losses
• Must insulate from downside risks

• Income annuities or annutization to generate
  monthly income flow to add to clients social
  security and traditional pension payments
• Interest from CDs or other accounts, sales of
  assets, and part-time jobs
• Monthly payments from reverse mortgages
• Systematic cashing-out of T-bills, other bonds,
  and CDs
• Systematic withdrawals from mutual funds and
  annuities
• Withdrawals from cash value life policies
• Good focus for later!

Source 2/07 American Funds Brochure 6/2/03
National Underwriter 5/19/03 Investment News
1/2/03 Ernst Young Report Tiburon Research
Analysis
51
But Over Three-Quarters of Annuity Sales
Represent Transfers From Existing Policies
Annuity Sales by Funding Method
Existing Policy Transfers (1035 Exchanges)
Actual New Sales
Source 12/18/06 Investment news (NAVIA)12/00
Bloomberg Wealth Manager 5/25/99 San Francisco
Gate Web Site Tiburon Research Analysis
52
And Finally Life Insurance May Play an
Increasingly Important Role About Half of
Consumer Households Say that They Need More Life
Insurance
Consumer Households By Perceived Need for Life
Insurance Coverage
Source 8/15/05 Investment News (Hayden
Financial) Tiburon Research Analysis
53
Outline

• The State of the Investment Advice Market
• The Market Opportunity Consumer Wealth, Baby
  Boomers, the Pending Liquefaction
• The Challenge The Competitive Playing Field
• Winning Business Strategy Designing Leading-Edge
  Investments Offers
• The State of the Alternative Investments Markets
• Market Linked Products Index Funds Exchange
  Traded Funds
• Alternative Investments Hedge Funds, Venture
  Capital Private Equity, Real Estate, Other
  Alternative Investments
• Summary Tiburon Conclusions

54
The Opportunity for Financial Institutions to Win
is Now!
Comments

• Boomers will start to liquefy wealth, creating
  many new (and larger) investors
• But at the same time, boomer investment needs
  will shift
• Investment strategies may shift more defensive
• Retirement income will become a challenge for
  many
• Subsequently, investment management focus will
  give way to a broader wealth management focus
• High net worth and moderate net worth households
  are the sweet spot for most types of advisors
• Financial institutions will seek to distinguish
  themselves through superior investments offerings

Source Tiburon Research Analysis
55
Product Service Offerings Will Broaden,
Creating Numerous New Risk Issues
Comments

• Separately managed accounts are growing nicely
  but use is still concentrated and many are
  incorrectly managed
• Index funds ETFs have emerged as cost
  competitive alternatives
• Hedge Funds thats 1 and 20 got to get
  deeper than that and understand the risks not
  funds-of-unknown-funds and valuing securities
  and
• Lots of other alternatives to be packaged soon
  (e.g., venture capital, private equity, real
  estate) return spreads are wide

Source Tiburon Research Analysis
56
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Source Tiburon Research Analysis
57
Tiburon Strategic Advisors
Comments

• Focus on corporate-level strategy
• Serve senior executives only at financial
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  almost 1,000 projects since 1998
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Source Tiburon Research Analysis