Building your Business through SEPARATELY MANAGED ACCOUNTS For

Building your Business through SEPARATELY MANAGED ACCOUNTS For Advisor Use Only. Not to be used in connection with the promotion of investment company products.

Industry Shift 4 Financial services products have become a commodity -- investors can execute transactions themselves. Co m Tra miss nsa ion ctio -ba n- d sed FR riv OM en 4 The Fee Ad -base d vic e- d riv marketplace is becoming increasingly complex -- people need advice. TO For Advisor Use Only. Not to be used in connection with the promotion of investment company products. en 4 Dalbar expects the number of American households that pay for advice to increase from 11 million today to 60 million in 2015.

Separately Managed Accounts Continue to Gain Ground 4 The separately managed accounts industry is likely to achieve 30 percent growth during 2001 4 High net worth investors seeking personalized service are expected to have poured $400 billion into separately managed accounts by the end of 2001 4 Lower investment minimums and the tax benefits of separately managed accounts are driving the industry’s growth Source: Financial Research Corporation, Dec. 13, 2001 For Advisor Use Only. Not to be used in connection with the promotion of investment company products.

Growth in Investing 4 Baby boomers are entering their asset accumulation years in massive numbers 5 will account for 90% of the growth in investable assets over the next decade 4 Technological revolution has spurred renewed interest in investing 4 Recent market volatility and increasingly sophisticated marketplace have left investors seeking advice For Advisor Use Only. Not to be used in connection with the promotion of investment company products.

Investors Need Advice Identified as a Big Concern for Investors The stock market will decline and I will lose a significant portion of my principal My investments will not be able to support me in retirement I myself do not have enough knowledge to properly manage my finances Markets and investments have become too complex for individuals to deal with 62% 61% 52% 51% Those surveyed had adjusted gross incomes greater than $225, 000 annually or net worth greater than $3 million “Financial Worries of the Affluent, ” 1993 -1999, Published June 1999 Source: 3/9/00 U. S. Trust Web site: Tiburon Research and analysis – Tiburon Strategic Advisors, LLC For Advisor Use Only. Not to be used in connection with the promotion of investment company products.

“A commission-driven, transaction-based business ran on the fuel of knowledge. A relationship, almost by definition, runs on trust. And, in the end, knowledge of the future is impossible, but faith in the future can be limitless. When that faith is shaken, as it surely will be, knowledge won’t hold it together…Only your faith can rekindle the client’s, and thereby save him. ” -- Nick Murray The Excellent Investment Advisor For Advisor Use Only. Not to be used in connection with the promotion of investment company products.

The Benefits of an Individually Managed Account 4 Diversified portfolio of individually managed securities 4 Ability to employ personalized, tax-related strategy 4 All-inclusive, fee-based account aligns everyone’s incentives 4 Ongoing due diligence process 4 Active communication between client, consultant and manager fosters long-term consulting relationship For Advisor Use Only. Not to be used in connection with the promotion of investment company products.

Transitioning your Business “The problem is never how to get new, innovative thoughts into your mind, but how to get old ones out. ” -- Dee Hock Business Visionary and Creator of Visa For Advisor Use Only. Not to be used in connection with the promotion of investment company products.

Make the Commitment 4 Make the decision to change from a sales professional to a client consultant 5 4 Be prepared to change your business financially 5 5 4 You will no longer be rewarded for the number of trades you do but for how well your clients do Transition can be gradual to minimize short-term impact on your income Get educated 5 5 4 The job of a consultant is to provide ongoing advice and service Talk to other advisors who have successfully transitioned to managed money Meet with a few money managers to get familiar with the process Create a new business plan 5 A written plan will help keep you focused on your long-term goals For Advisor Use Only. Not to be used in connection with the promotion of investment company products.

Educate the Client Drive yourself do-it-yourselfer Take the bus mutual funds Hire a driver managed money For Advisor Use Only. Not to be used in connection with the promotion of investment company products.

Educate the Client Relationship between Client, Consultant and Money Manager CLIENT Team Owner / Investor CONSULTANT Coach • Hired to help “owner” identify goals • Provides time, expertise and objectivity • Identifies and recommends the right “players” (asset allocation & manager selection) • Ensures that players adhere to their positions (due diligence guarantees consistency) • Provides feedback on how players are doing (performance monitoring) • Replaces players if performance falters (manager termination if necessary) • Client accumulates wealth to “buy the team” • Wants a winning team (blending best managers) • Investment goals need to be articulated (retirement, children’s education, etc. ) • Has neither time nor expertise to be his own “coach” • Needs to evaluate the talent during the selection process as well as the monitoring/performance reporting process (manager research) • • MONEY MANAGER Player(s) Excel at respective positions (premier institutional money managers) Focused style of “play” (manager skill sets are unique to their discipline) Combination of the right players provides chemistry (correlation of value, growth, international) Each player contributes to a particular position (specific investment style with no “style drift”) For Advisor Use Only. Not to be used in connection with the promotion of investment company products.

Educate the Client The active management of a portfolio helps to control an investor’s risk. Investor returns are far more dependent on his or her actions than on the actual performance of the investment itself. . . INVESTOR RETURN vs. S&P 500 “The gap is explained by investor behavior. January 1984 through December 1997 In their attempt to cash in on impressive 820% 800% 600% 400% 200% 0% stock market gains, investors jump on the bandwagon too late, and switch in and out of funds trying to time the market. By not remaining invested for the entire period, they do not benefit from the majority of the equity market appreciation. ” --Dalbar, Inc. , “Quantitative Analysis and Investor Behavior, ” 1998 148% Average Investor Return S&P 500 For Advisor Use Only. Not to be used in connection with the promotion of investment company products. The 10 -year report tracked money flowing into and out of funds, and measured net sales, redemptions, and the length of time investors remained in the funds. Past performance is not indicative of future results.

The Managed Account Consulting Process Client Objectives Asset Allocatio n Portfolio Review Manager Search & Selection For Advisor Use Only. Not to be used in connection with the promotion of investment company products.

Identify Client’s Goals & Objectives Develop a written Investor Profile with your client that addresses the following: 4 Amount of Money to Invest 4 Time Horizons 4 Tolerance for Risk 4 Expected Rate of Return 4 Income and Liquidity Needs 4 Special Tax Considerations Written profiles provide a benchmark for referral. For Advisor Use Only. Not to be used in connection with the promotion of investment company products.

Develop an Asset Allocation Plan According to Gary Brinson’s 1991 landmark research* on the determinants of portfolio return, over 90% of long-term portfolio returns are dictated by asset allocation. In other words, the study concluded that the decision of how to allocate one’s assets is far more important than what individual securities to buy or when to time your investment purchases. This is contrary to many people’s perception of what is important to influencing investment results. * Gary Brinson, Brian Singer and Gilbert Beebower, “Determinants of Portfolio Performance II: An Update” Financial Analysts Journal, May/June 1991 For Advisor Use Only. Not to be used in connection with the promotion of investment company products.

Investment Manager Evaluation & Selection Questions to ask a Money Manager: 4 What is the investment process? 5 5 4 Buy/sell discipline Criteria for inclusion in the portfolio Who is responsible for implementing the investment process? 5 5 4 Who is the management team? Who is on the investment committee and what are their credentials? Has the manager consistently adhered to the investment process? 5 Look at the top ten holdings 5 Have they followed their benchmarks characteristics? 5 Risk/Return scatter gram -- where are they compared with where they should be? For Advisor Use Only. Not to be used in connection with the promotion of investment company products.

Investment Manager Evaluation & Selection Reasons to Leave a Money Manager: Right Reasons 4 4 4 Change in client’s investment objectives Manager drifts from investment style Investment process has been compromised by investment manager turnover Wrong Reasons 4 4 4 Short-term performance Reaction to a specific event Chasing returns For Advisor Use Only. Not to be used in connection with the promotion of investment company products.

Monitor Progress: The Quarterly Review 4 Conduct a comprehensive quarterly review of investment profile and strategy with your client 4 Evaluate portfolio performance on an absolute basis and relative to client’s goals and market benchmarks 4 Make adjustments in the portfolio as needed to keep client on course to achieve long-term financial goals Ongoing client communication builds trust. Trust erases worry. For Advisor Use Only. Not to be used in connection with the promotion of investment company products.

A Focus on Value 4 The fee-based business is more than just a different pricing model s 4 Focus on building relationships, not selling performance s 4 Provides a totally new way of working with the client You are a relationship manager, not a transaction specialist Rely on your money managers to provide ongoing, value-added communication s Mailings, seminars, conference calls For Advisor Use Only. Not to be used in connection with the promotion of investment company products.

“There will be financial advisors smarter than you. There will be financial advisors cheaper than you. But there is no financial advisor that a client can trust any more than a client can trust you. ” Nick Murray The Excellent Investment Advisor For Advisor Use Only. Not to be used in connection with the promotion of investment company products.