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Context Setting

Tiburon Managing Principal Chip Roame kicks off Tiburon CEO Summit XIII by addressing the state of the financial services industry

Tiburon Strategic Advisors, a market research & strategy consulting firm serving a wide variety of financial institutions and investment managers, hosts a series of client-only CEO conferences called the Tiburon CEO Summits. Tiburon CEO Summit XIII was held earlier this week in San Francisco, CA. Over 100 senior industry executives took two days out of their busy schedules to participate. Tiburon Managing Principal Chip Roame opened CEO Summit XIII by welcoming the Tiburon clients and giving a brief overview of the past six months' most newsworthy events & most insightful Tiburon research findings, while offering an assessment of the state of the financial services industry. Mr. Roame then introduced the six CEO Summit guest speakers, including Stephanie DiMarco (CEO, Advent Software), Mike Fraizer (CEO, Genworth Financial), George Gatch (CEO, JP Morgan Funds Management, JP Morgan Chase), John Gunn (CEO, Dodge & Cox), Ron Peyton (CEO, Callan Associates), and Don Phillips (Managing Director, Corporate Strategy, Research, & Communications, Morningstar). Mr. Roame ended his comments by sharing the Tiburon CEO Summits vision and introducing the attendees.

State of the Financial Services Industry

Mr. Roame first laid out a synopsis of the past six months' most newsworthy events and most insightful Tiburon research findings, outlining his expectations for the state of the financial services industry over the coming years, as consumers liquefy their assets but the competitive playing field gets more heated. He focused his comments on the key issues that would likely be addressed by the general session guest speakers, the topics that he hoped would be addressed by the general session panel discussions, and the questions that he suggested be debated in the break-out sessions:

Key Drivers

  • US households control almost three-quarters of all investable assets, more than half invested via financial advisors
  • Many baby boomers face a retirement income challenge for five reasons, including the elimination of so many defined benefit plans and the challenges faced by the social security system
  • Three-quarters of baby boomers over the age of 55 have less than $100,000 in investable assets and the consumer households savings rate continues to hit new all time lows
  • The median value of baby boomers' inheritance is only $48,000; very few receive more than $100,000
  • Beyond the liquefaction, another opportunity is presented by the risk of baby boomers living too long, with estimates that more than half of 65 year olds will reach age 85 and over one-third will reach 90; amongst 65 year old couples, there is a 50% chance that one (or both) will live another twenty-five years
  • Consumer households have almost $23 trillion of investable assets, $35 trillion of financial assets, and $70 trillion of total assets, with an important distinction between the high dollar average and the much lower median amounts
  • Hence, the solution to the perceived savings crisis will be baby boomers' liquefaction of their retirement plan assets, personal assets, and other illiquid assets, such as the rollover of 401k plan balances, the sale of houses, and the sale of private businesses

Markets & Distribution Channels

  • Close to 400,000 financial advisors are in the market, including about equal numbers of wirehouse & other employee brokers (92,000), life & property & casualty insurance agents (87,000), bank brokers & trust officers (82,000), and independent reps (also 82,000)
  • The number of independent advisors (the combination of independent reps and fee-only financial advisors) has far surpassed the number of wirehouse & other employee brokers (112,000 versus 92,000), and the number of independent reps alone will soon surpass the number of wirehouse & other employee brokers (currently 82,000 versus 92,000)
  • Wirehouse and retail banks continue to dominate control of consumer investable assets (31% and 27% respectfully) but independent advisors continue to outgrow the competition (18% assets growth rate for fee-only financial advisors and 14% for independent reps)
  • Fidelity Investments recently surpassed Merrill Lynch as the largest financial services firm when ranked by client assets, and Schwab will also surpass Merrill Lynch at current growth rates in two-to-three years, further evidencing the growth in new channels (discount brokerage, fee-only financial advisors, and independent reps)

Products & Services

  • Mutual funds are the dominant investment product ($10.8 trillion assets) and are used heavily by both the fast growing independent rep and fee-only financial advisor markets (39% & 61% of assets respectively) suggesting that mutual funds aren't going away, even if much of the reporting and media focus is on other products, including exchange traded funds, separately managed accounts, and hedge funds. Mr. Roame called attention to the facts ($10.8 trillion in mutual funds versus ETFs at $433 billion & separately managed accounts at $720 billion (collectively $1.1 trillion)), encouraging the group to maintain perspective
  • There is some trend to packaged solutions; for instance, target date mutual funds have quickly gathered over $100 billion (although Mr. Roame cautioned that it appears that consumers are misusing these funds, mixing them into portfolios containing other funds, hence altering their overall asset allocation)
  • Packaged fee-account assets have grown substantially over the past eight years to over $1.5 trillion but wirehouses' client assets are still just 15% in fee-account programs and similarly only 16% of independent rep clients assets are in fee-account programs; amazingly, banks have done slightly better with 17% of their client assets in fee-based trust accounts but only 4% of bank trust department assets are invested with third-party managers. Furthermore, the key products in the wirehouse channel are evolving quickly, with fee-based brokerage accounts giving way to broker wrap accounts (due to the abolishment of the Merrill Lynch rule) and separately managed accounts giving way to unified managed accounts (due to the later being a superior product platform)
  • More broadly, the investment process is being polarized with twin growth patterns in both market-linked products and alternative investments. Mr. Roame argued that exchange traded funds may be the fundamentally most important product invention since the mutual fund in 1940, and hypothesized that they may ultimately shift many financial advisors' role to that of managing a series of index products and focusing excess time on delivering a broader set of wealth management services
  • Similarly, dozens of firms are entering into the hedge funds business - Citigroup purchased one-year old Old Lane; Morgan Stanley acquired multiple hedge fund firms. Mr. Roame also noted that the attendees at a recent SEI conference maintained an impressive focus on revenues, which they noted are increasingly driven by their lower asset hedge funds
  • Mr. Roame argued that investments may matter less than wealth management services as baby boomers move from the liquefaction & retirement income challenge years into either their health care & retirement income challenge years (for the less affluent) or their estate planning & charitable giving distribution years (for the more affluent)
  • For instance, many baby boomers face a health care crisis, with up to 50% likely to require nursing home care but only 7% owning long-term care insurance. Similarly, the fast growing independent rep market puts almost one-third of its client assets in annuities, but over three-quarters of annuity sales represent transfers from existing policies
  • More affluent households will unlikely have retirement income or health care insurance issues but will instead be faced with issues surrounding the most tax-efficient estate planning & charitable giving methods
  • The brokerage firms have moved to license their reps to sell insurance (69%) but few have yet done so (15%)
  • And amazingly, more that half (58%) of consumers still lack a basic will
  • Mr. Roame pointed to Merrill Lynch's Total Merrill advertising campaign as an example of the industry's likely evolution

Tactical Issues

  • On a more tactical level, Mr. Roame said that many financial advisors have focused their energies on the 40 million households (out of 117 million) that control 90% of all investable assets ($19.8 trillion out of $22.8 trillion)
  • As competition heats up, Mr. Roame said that the game will increasingly be won through marketing. Mr. Roame argued that client retention and consolidation is now more critical as baby boomers liquefy their wealth. Similarly, he noted that client referrals appear to account for 55% of incremental new clients. Few financial advisors utilize target market strategies, even though these techniques have proven to lead to increased numbers of referrals, result in higher close rates, and lower costs to serve clients
  • But Mr. Roame also offered some caution, saying that while almost all industry executives are trying to push financial advisors to serve higher net worth clients, the fact growing independent rep channel has an average account size of just a modest $142,000
  • Technology has become a great equalizer across many segments of the industry. Both large and small banks and mutual fund companies are able to compete, and technology has empowered the independent financial advisor industry, eliminating the need for financial advisors to be employed at large firms
  • Aside from technology, people are the key leverage point across many industry segments. Investment professionals determine the success of client portfolios; distribution professionals increasingly lead many of the firms; and individual financial advisors increasingly control their clients
  • Numerous financial advisor merger & acquisition models are finally gaining some traction, with the prior week's multiple acquisitions by Focus Financial Partners being held out as an example

Strategic Conclusions

  • Industry mergers & acquisitions continue at all levels of the industry with Power Corporation of Canada's acquisition of Putnam Investments, TD Bank Financial Group's acquisition of Commerce Bank, Bank of America's acquisition of US Trust, Merrill Lynch's acquisition of First Republic, TD Ameritrade's acquisition of Fiserv's custody business, Fiserv's subsequent acquisition of Check Free, the Bank of New York's acquisition of Mellon Financial, State Street Corporation's acquisition of Investors Bank & Trust, and City National Bank's acquisition of Lydian Wealth Management representing a wide range of examples
  • There has been a focus on eliminating (perceived) conflicts of interest, with two full-service brokerage firms exiting the investment management business. Mr. Roame challenged the group to consider Smith Barney's & Merrill Lynch's strategies versus those of Morgan Stanley, Wachovia Corporation, & UBS, which appear to be increasing their bet on asset management
  • There is also a substantial bifurcation happening in the asset management business, with a handful of firms (American Funds, Vanguard, Fidelity Investments) exceeding $1 trillion assets under management, but 84% of all mutual fund companies managing less than $10 billion
  • And overall there has been more bad news for product companies as distribution continues to take power from manufacturing, with recent models - only multiple style portfolio programs being a key example
  • Financial services private equity transactions are prominently in the news, with recent acquisitions of both First Data and Sallie Mae
  • Financial services venture capital also is quite newsworthy with exchange traded fund companies, financial advisor roll-up companies, and other firms raising substantial capital

Guest Speaker Introductions

After offering up that broad synopsis, Mr. Roame introduced the six guest speakers and gave a brief overview of what he expected each speaker would address:

CEO SummitI XIII Guest Speaker Stephanie DiMarco (CEO, Advent Software)

CEO Summit XIII Guest Speaker Mike Fraizer (CEO, Genworth Financial)

CEO Summit XIII Guest Speaker George Gatch (CEO, JP Morgan Funds Management, JP Morgan Chase)

CEO Summit XIII Guest Speaker John Gunn (CEO, Dodge & Cox)

CEO Summit XIII Guest Speaker Ron Peyton (CEO, Callan Associates)

CEO Summit XIII Guest Speaker Don Phillips (Managing Director, Corporate Strategy, Research, & Communications, Morningstar)

  • Mike Fraizer (CEO, Genworth Financial) will offer a synergistic follow-up to Tiburon Managing Principal's Chip Roame's presentation, arguing that the US is a nation at risk and financial services firms need to take a leadership position. He believes that the US faces a dual savings & protection crisis and also will suggest some constructive social security solutions. Mr. Fraizer will also address solutions that Genworth Financial is developing to help solve the retirement income and health care funding challenges.
  • Ron Peyton (CEO, Callan Associates) will address developments in both the defined benefit and defined contribution markets, large markets unto themselves and often the trend setter in the high net worth and retail markets. Mr. Peyton will share key institutional investing concepts, outline recent Callan manager searches, and explain the future of defined contribution plans' asset allocations.
  • George Gatch (CEO, JP Morgan Funds Management, JP Morgan Chase) will offer some provocative insights on several points, including the familiarity bias, target date mutual funds, the democratizing of alternative investments, the growth in open architecture, and the importance of investment performance. Mr. Gatch can also be called upon to address, with first-hand knowledge, institutional mergers & acquisitions.
  • Don Phillips (Managing Director, Corporate Strategy, Research, & Communications, Morningstar) will offer provocative insights on performance measurement, including comparing total returns to investor returns, comparing hedge funds to hedge-like mutual funds, and calling attention to the rapid changes in the growing exchange traded funds market.
  • Stephanie DiMarco (CEO, Advent Software) will address the impact of several key industry trends, including the growth of assets worldwide, the explosion in alternative investment instruments, and the increasing demands for compliance & reporting, and she will highlight the opportunities for investment managers to harness technology to efficiently capitalize on these trends.
  • John Gunn (CEO, Dodge & Cox) will discuss Dodge & Cox's philosophies around running investment management organizations, including its reasons for maintaining its independence and its methods for maintaing a consistant investment philosophy.

Tiburon Strategic Advisors

After concluding his opening remarks on the State of the Industry, Mr. Roame took a few minutes to discuss Tiburon and the Tiburon CEO Summits. In updating the group of clients on Tiburon's activities, Mr. Roame noted that:

  • Tiburon has positioned itself uniquely as a market research & strategy consulting firm; the firm's services include a series of research reports, conference speeches, market seminars, and market research & strategy consulting services, with the later two accounting for more than two-thirds of Tiburon's revenues
  • The firm is built upon four key ingredients - written industry knowledge, consulting skills, research capabilities, and industry experience
  • The firm's three key objectives for the next six months include growing its research staff, transitioning clients to its Research Report Retainer, and considering the addition of new principals
  • The firm has served over 300 corporate clients (100 of which were represented at the CEO Summit) and completed over 1,000 projects since its founding in 1998
  • The firm's knowledge base includes mutual funds distribution, separately managed account programs, alternative investments, wealth management services, insurance products, banking services, the fee-only financial advisor market, the CPA firm market, the family office market, and various international markets
  • The firm has published twenty-eight research reports, sends free weekly research reports to 55,000 industry executives, manages 13 free financial advisor benchmarking tools, manages three innovative executive programs, and is proud to be hosting Tiburon CEO Summit XIII

Tiburon CEO Summit XIII

After briefly addressing Tiburon, Mr. Roame gave a brief history of the Tiburon CEO Summits, offered highlights regarding the attendee group, and thanked the CEO Summit Planning Committee members and CEO Summit XIII Sponsors:

  • Tiburon's CEO Summits were created after Mr. Roame noted the lack of a CEO-level conference across traditional industry lines, and yet saw the consistency of issues being addressed by these same executives
  • Tiburon's CEO Summits have evolved from a just a handful of industry colleagues meeting in Tiburon to 100+ CEO level Tiburon clients attending two day conferences at the Ritz Carlton Hotel in San Francisco, CA and New York, NY
  • Mr. Roame reiterated the two themes of all CEO Summits - Challenging Conventional Wisdom and Maintaining a Consumer Orientation
  • Mr. Roame thanked the CEO Summit Planning Committee members (Tim Armour, John Cammack, Dennis Clark, Tif Joyce, Tom Lydon, Kevin Malone, Kirk Michie, Skip Schweiss, and David Smith) for their support in securing guest speakers, securing sponsors, nominating attendees, and acting as facilitators
  • Mr. Roame also thanked the Tiburon CEO Summit XIII sponsors (Check Free, Dunham & Associates, Genworth Financial, Pershing, and TD Ameritrade), represented by Mike Gianoni, Jeffrey Dunham, Ron Cordes, John Iachello, and Tom Bradley, respectfully, whose financial support allows the CEO Summits to be held at the Ritz Carlton Hotel and attendance to be open to 100 CEOs
  • Finally, Mr. Roame closed this section of his presentation by sharing some statistics about the attendees - 100% are Tiburon clients, 92% are C-level executives, 47% traveled from back east, and about one-third each represent product, distribution, and advisory companies

Attendees at Tiburon's CEO Summit XIII held October 9-10, 2007 in San Francisco, CA

More Information
The following links will open specific pages on Tiburon's web site:

Upcoming Tiburon CEO Summit XIV: April 10-11, 2008

Tiburon CEO Summit XIV will be held April 10-11, 2008 in New York, NY at the Ritz Carlton Hotel. The meeting will start at 7:45am on Tuesday, April 10, include a group dinner that night in Manhattan, and finish at 4:00pm on Wednesday, April 11. There are almost twenty planned sessions. Along with Tiburon's Managing Principal Chip Roame, guest speakers will include Walt Bettinger (President, The Charles Schwab Corporation), Mike Byrum (President, Rydex Investments, Security Benefit Group), Joe Deitch (CEO, Commonwealth Financial Network), John Hailer (CEO, Natixis Global Advisors North America, Natixis, Banque Populaire Group & Caisse D'Epargne Group), Joe Moglia (CEO, TD Ameritrade, TD Bank Financial Group), John Murphy (CEO, Oppenheimer Funds, Mass Mutual Financial Group), Ron Ryan (CEO, Ryan ALM), & Michael Steinhardt (Chairman, Wisdom Tree Investments). Click here for more details on the upcoming Tiburon CEO Summit XIV. Follow on links will include the tentative invitee list, tentative meeting agenda, and details on hotels & other logistics.

Fall 2008 and 2009 Tiburon CEO Summits

Tiburon will continue to hold semi-annual CEO Summits in the fall of 2008 and in 2009. Dates are October 14-15, 2008 (San Francisco, CA), April 9-10 2009 (New York, NY), and October 7-8, 2009 (San Francisco, CA). Fall 2008 speakers will include Bruce Bond (CEO, Power Shares, Invesco), Rich Brueckner (CEO, Pershing, The Bank of New York Mellon Corporation), Joe Mansueto (CEO, Morningstar), and others to be announced soon.

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Tiburon Strategic Advisors

Tiburon Strategic, based in Tiburon, CA, was formed in 1998 to offer market research & strategy consulting services to all types of financial institutions and investment managers:

  • The firm has served over 300 corporate clients and completed over 1,000 projects since its founding, and today, its knowledge base includes mutual fund distribution, separately managed account programs, alternative investments, wealth management, insurance products, banking services, the fee-only financial advisor market, the CPA firm market, the family office market, and various international markets.
  • Tiburon holds a series of CEO Summits semi-annually for its executive-level clients. The next CEO Summit is scheduled for April 10-11, 2008 at the Ritz Carlton Hotel in New York, NY. Fall 2008 and 2009 dates are October 14-15, 2008 (San Francisco, CA), April 9-10, 2009 (New York, NY), and October 7-8, 2009 (San Francisco, CA). Attendance is by invitation only and attendance at each Summit is limited to 100 senior industry executives. Visit the CEO Summits section of Tiburon's web site for details on current and past CEO Summits, including attendee lists, meeting agendas, and highlights. Please contact Tiburon's Managing Principal Chip Roame at CRoame@TiburonAdvisors.Com or (415) 789-2541 if you are a Tiburon client and have an interest in attending a future Tiburon CEO Summit.
  • Tiburon has published twenty-eight ~300-400+ page research reports, which offer detailed analyses of growing business segments; each is available for $5,000; these reports can be ordered by contacting Sarah Sage at SSage@TiburonAdvisors.Com or (415) 789-2546.
  • Tiburon offers an annual research report retainer service, whereby dozens of clients receive all Tiburon reports published within a year for $25,000; clients can subscribe to Tiburon's 2007 or 2008 Research Report Retainer by contacting Sarah Sage at SSage@TiburonAdvisors.Com or (415) 789-2540.
  • Tiburon also offers a database access program, whereby it shares its 280,000+ person industry executives contacts database with dozens of clients for $25,000 per year (distributed quarterly); clients can subscribe to Tiburon's Database Access Program by contacting Sarah Sage at SSage@TiburonAdvisors.Com or (415) 789-2540.
  • Tiburon offers thirteen online business benchmarking tools that are available to all types of financial advisors in an effort to help them benchmark their business practices and build more successful businesses. The sites include www.BrokerBestPractice.Com for wirehouse & regional brokers, www.FABestPractices.Com for fee-only financial advisors, www.IndependentRepBestPractices.Com for independent reps, and www.PrivateBankerBestPractices.Com for private bankers. Almost 5,000 advisors have used these tools. By completing one of the online surveys, financial advisors can access a FREE copy of the relevant comprehensive Tiburon research report, which summarizes and analyzes the collective results.
  • Tiburon's weekly research releases, like this one, are emailed for free to interested industry executives, media representatives, conference planners, and individual financial advisors. Over 55,000 industry executives now receive these releases. Feel free to sign up to receive future research releases at Tiburon's web site (www.TiburonAdvisors.Com) if this release was passed to you by a colleague and you would like to receive them directly in the future.
  • Tiburon plans to expand its workforce in 2007 and 2008. New research managers will develop proprietary research content for Tiburon research reports and client projects, and new marketing managers will enhance the firm's web site, weekly research releases program, and the firm's relationships with media representatives, conference planners, and its clients & executive program members. The firm is also seeking to add principal candidates and possibly a chief consulting officer in 2007 or 2008.
  • Tiburon has built three executive programs (CEOs-in-Residence, Financial Advisor Roundtable, and Consulting Fellows) in an effort to bring the experiences of additional senior level industry executives to Tiburon clients. Feel free to contact any of the members of Tiburon's executive programs directly or ask that they be included in any ongoing Tiburon project.

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