--- DECEMBER 30, 2005 ---

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Tiburon releases 2005 year-end client letter that summarizes annual industry developments and shares Tiburon's huge success in multiple areas. In short, Tiburon served its 250th corporate client and executed its 800th project in 2005, held its eighth and ninth CEO Summits, exceded 4,000 users in its advisor benchmarking tools, and released seven new research reports

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Context Setting

Tiburon regards its working relationship with its clients as a partnership; the firm’s success is closely intertwined with that of its clients. Accordingly, Tiburon has promised to keep its clients (and some select prospects) in the loop on its industry views and the firm's developments in the form of this annual letter.

This past year saw a variety of positive and negative industry developments. The upturn in the stock market and the corresponding improvement in investor (and industry) sentiment was a positive influence. However, the continuation of corporate wrongdoing and industry stumbles were two of the negatives. Martha Stewart, Frank Quattrone, and others are spending the holiday season behind bars, and the stock analysts and mutual funds industry scandals were joined by the insurance industry scandals. Both the positives and negatives of 2004 will leave a lasting impact on the industry but Tiburon remains convinced of the enormous potential for the brokerage, investments, wealth management, and advice industry.

Against this backdrop, Tiburon had an excellent year in 2005, executing its core business strategy centered on Market Research & Strategy Consulting services; CEO Summits; Benchmarking Tools; Research Reports, Market Seminars, & Conference Speeches; Research Releases; Consulting Staff; & Executive Programs.

Industry Developments

It is becoming increasingly difficult to separate the various parts of the financial services industry but numerous financial trends appear to suggest a positive future for the advice business across traditional industry lines.

Industry Foundation

The demographics behind baby boomers should continue to strengthen the investing side of the financial services industry. Four points are critical to understand:

• The baby boomer generation includes folks who were born between 1946 and 1964; in other words, if you are 40 to 58 years old, you are a baby boomer. The first impact of this fact is that baby boomers are squarely in their peak earnings years. Having had a relatively low savings rate over the past decade, this should lead to increased savings, more investable assets, and better times for the advice business
• If you are able to look out far enough, you can see that if you speed up the calendar ten to fifteen years, then baby boomers will be from 50 to their late 60s. At that time, many will be well into retirement and liquefaction will become rapid. What does liquefaction mean? This is the term used to describe households liquefying their assets - rolling over their 401K plan balances to IRAs, selling the businesses that they have built, selling their larger houses and trading down to golf course condos, etc. All of these events liquefy or free up assets to be reinvested, most likely in financial assets, creating a second reason that it is good to be in the advice business
• Beyond the liquefaction years, the industry may possibly face a retirement income crisis and most certainly will face new challenges around retirement income planning. Consumers are retiring earlier and living longer, creating a need for product innovation beyond traditional annuity products. This is a third exciting reason to be in the advice business. Fidelity Investments seems to already be a leader in this space
• Toward the end of the retirement income planning phase, many consumers will look towards estate planning and charitable giving, giving a boost to both trust accounts and life insurance products. Depending on the evolution of the estate tax, Tiburon expects substantial growth in the number of trust accounts and growth in the life insurance business. These dual trends will redefine the advice business from one about investment management to one about wealth management

Broad Industry Developments

On the industry side, the banking, brokerage, and insurance industries continue to come closer together and yet struggle to execute successful business models:

• Size seems to be at a premium. In both banking (JP Morgan Chase and Bank One) and full-service brokerage (Wachovia and Prudential), mergers are being undertaken that make the largest firms many multiple times the size of even their eighth and tenth largest competitors
• After having picked up many regional and boutique brokerage firms in the late 1990s, many banks seem focused now on acquiring mutual fund companies, insurance agencies, and fee-only financial advisors
• Meanwhile some past acquisitions are being undone (US Bancorp and Piper Jaffray)
• Frankly, corporate size and structure may have little to do with the delivery of world-class advice. While large multi-faceted financial institutions will have many inherent advantages (e.g., brand names, marketing budgets, and branch structures), independent advisors may compete head-to-head with the largest financial services firms through a combination of deep client relationships and strategic alliances, allowing them to deliver broader product lines

Tactical Trends Around Delivering Advice

The net result is that all financial services firms seem focused on the high net worth consumer market, the advice business, and the potential for delivering integrated wealth management capabilities. Some of the tactical trends include:

• The rapid growth of fee-accounts and specifically separately managed accounts, which appear to be slowly becoming the dominant investment models for emerging affluent investors
• The polarization of the investment process, with both the emergence of a wide range of alternative investment vehicles, which are being used by some leading-edge advisors, as well as the movement to more fully utilize index funds and exchange traded funds by other advisors (especially in light of the mutual funds industry scandals)
  
• The movement by other advisors to reposition themselves as wealth managers, focusing a bit less on the leading-edge investment vehicles and a bit more on financial planning, insurance, and other related services
  

All of these trends should continue over the next few years and Tiburon believes that the advice industry will broadly transform itself in many positive ways. Advice models that remove conflicts-of-interest, create fiduciary responsibilities, and put qualified advisors in advice-giving roles will win.

Tactical Trends Around Business Building

Financial advisors also face a series of tactical trends in managing their own businesses:

• A refocus on sales & marketing after the run up of the late 1990s when marketing was not required and then the downturn of the 2000-2003 period when marketing was not desired
  
• A focus on the broad swath of new technologies, including competitors to CheckFree APL, Advent, and other dominant industry players. This area is attracting substantial venture capital investments
  
• The increasing focus of individual advisors and broader financial advisor groups on benchmarking their business practices in areas ranging from technology use to sales & marketing strategies to financial performance ratios
  
• A renewed focus on compliance. The regulatory environment is just beginning to pick up momentum; Tiburon expects increased oversight and government involvement, including possibly more involvement by state agencies
• And finally, the continuing emergence of the succession planning issue in the independent advisor markets and the emergence of some real acquisition activity amongst larger firms
  

Conclusion

In short, Tiburon acknowledges some continuation of the short-term challenges in the current environment in the financial services market but Tiburon also thinks that the future of this industry is exceedingly bright. Firms need to develop comprehensive business strategies to serve more knowledgeable and more battle-scarred investors as the exciting peak earnings years and peak liquefaction years are now on the near-term horizon.

Tiburon Results

Tiburon had a very successful year in 2005. Tiburon’s success revolves around a half-dozen key activities that may present opportunities for many of the firm’s clients:

Market Research & Strategy Consulting

Tiburon surpassed 250 clients served and over 800 projects completed in 2005. Tiburon executives find it amazing that the firm has been engaged by over 250 different financial services firms. But the firm is even more proud of the repeat use ratio – having completed, on average, two-to-three projects for each client. Tiburon’s research-based business model allows it to help on nearly any strategic issue in the industry and the firm’s consultants enjoy the challenges. Challenging projects in 2004 included market research of advisors selling their businesses, CPAs seeking new custodians, and banks offering alternative investments. Furthermore, Tiburon’s wide client network can be useful in many regards. For instance, Tiburon was engaged by one client in 2005 to assist in raising venture capital from other interested Tiburon clients.

CEO Summits

Tiburon held its eighth and ninth CEO Summits in San Francisco in April and October of 2005; the tenth is planned for April 2006. This gathering of up to 75 executive-level Tiburon clients is believed to be the first cross-industry CEO forum within the financial services industry. At these Summits, Tiburon consultants present Tiburon research and facilitate open discussions about leading-edge industry issues. This semi-annual get-together is proving to be a real benefit to working more closely with Tiburon clients and other industry consultants.

Seventy-five executives attended Tiburon's Ninth Semi-Annual CEO Summit held October 19-20, 2005 in San Francisco, CA

Benchmarking Tools

One important part of Tiburon’s research agenda is generating proprietary research on the business practices of a variety of types of financial advisors. Tiburon’s thirteen benchmarking tools have now collected practice information from over 4,000 advisors (which is believed to be the largest survey of advisors ever). This data provides Tiburon with a unique advantage in assisting corporate clients in understanding the needs of various types of advisors. In 2006, Tiburon plans to make use of the tools available to its clients seeking to survey advisors.

Research Reports, Market Seminars, & Conference Speeches

	Tiburon continues to focus on research as its first priority, aiming to continually publish research on leading-edge industry topics and to attempt (over time) to make each report comprehensive. The firm published seven new research reports and two ipdated research reports in 2005. These research reports include the future of advice, consumer wealth, mutual funds, fee-accounts, estate planning & charitable giving, an overview of the independent broker/dealer market, financial advisors benchmarking & best practices, financial advisrs mergers & acquisitions, and institutional mergers & acquisitions. As a result, firms looking to quickly get up to speed on specific topics need not hire Tiburon for any extensive project but rather can buy a research report ($5,000), have a Tiburon principal and research manager in for a one-day market seminar (also $15,000 to $25,000 plus travel) or engage a Tiburon principal or research manager ($15,000 plus travel) for a conference speech. This research-orientation allows the firm to focus its time on longer-term projects whereby it can help clients build more customized leading-edge business strategies around previously researched industry trends.		Tiburon released its new research report on the Future of Advice in January 2005

Research Releases

Tiburon systematized its weekly research releases program in 2005. Over 38,000 industry executives have now signed up at the firm’s web site (www.TiburonAdvisors.Com) to receive these releases. Recent releases have addressed the CPA market and early January releases will address the future of advice. All past research releases are archived on Tiburon's web site.

Executive Programs

In addition to its consulting staff, Tiburon continued to institutionalize its Executive Programs in 2005; this is a group of over twenty strategic alliance partnerships; program members have access to Tiburon’s research and have participated with it on a variety of assignments. Tiburon’s Consultant Fellows program stems from the recognition that the firm's core capabilities are around market research & strategy consulting but its clients often need additional help once Tiburon’s research and strategy work is complete. Tiburon’s Financial Advisor Roundtable is intended to involve some financial advisors with strategic views of the industry in the firm’s client work. With the movement towards the advisory channels, the opinions and views of these advisors are crucial for Tiburon clients. Tiburon expects to add more members to its Executive Programs in 2006; suggestions are welcome. Tiburon also expects to launch its CEOs-in-Residence program later in 2006; this program will be positioned for senior executives from Tiburon clients who are retiring and want to stay involved in the industry in some consulting capacity.

Conclusions

Taking all that into account, it was a great year for Tiburon. Tiburon’s core business strategy has not changed since the beginning. The firm’s goal is to deliver the highest quality customized market research & strategy consulting services by maintaining a thorough level of knowledge on leading-edge topics in the industry and deploying well-defined management consulting and research processes. In other words, Tiburon expects to be leading-edge in knowledge even before its starts new client projects. As a result, the firm can invest all project time in developing specific understandings of its clients’ situations and assessing their specific business alternatives.

Thank you for the role you played in Tiburon’s 2005 successes. Let us know how else we can help. Happy New Year and best of luck in 2006!

Chip Roame
Managing Principal
Tiburon Strategic Advisors