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Context Setting

Tiburon Managing Principal Chip Roame kicks off Tiburon CEO Summit XIV 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 XIV was held last week in New York, NY. Over 125 senior industry executives took two days out of their busy schedules to participate. Tiburon Managing Principal Chip Roame opened CEO Summit XIV with a brief overview of the vision surrounding the Tiburon CEO Summits, and thanked the Tiburon CEO Summit planning committee members, Tiburon CEO Summit XIV guest speakers, and Tiburon CEO Summit XIV Sponsors. He then gave 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 finished by introducing the nine CEO Summit guest speakers, including Walt Bettinger (President, The Charles Schwab Corporation), Mike Byrum (President, Rydex Investments), Joe Deitch (CEO, Commonwealth Financial Network), John Hailer (CEO, Natixis Global Associates), Joe Moglia (CEO, TD Ameritrade), John Murphy (CEO, Oppenheimer Funds), Bob Pozen (Chairman, MFS Investment Management), Ron Ryan (CEO, Ryan ALM), and Michael Steinhardt (Chairman, Wisdom Tree Investments).

Tiburon CEO Summit Vision

Mr. Roame first gave a brief overview of the vision surrounding the Tiburon CEO Summits, and thanked the Tiburon CEO Summit planning committee members, Tiburon CEO Summit XIV guest speakers, and Tiburon CEO Summit XIV sponsors:

  • Tiburon's CEO Summits were created in 2001 after Mr. Roame noted the lack of CEO-level interaction 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 125+ CEO-level Tiburon clients (and 25 additional media representatives) 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 Tiburon CEO Summits - Challenging Conventional Wisdom and Maintaining a Consumer Orientation
  • Mr. Roame thanked the CEO Summit planning committee members (Tim Armour, Dennis Clark, Tif Joyce, Tom Lydon, Scott MacKillop, Kevin Malone, Kirk Michie, Skip Schweiss, and Gib Watson) for their support in securing guest speakers, securing sponsors, nominating attendees, and acting as facilitators
  • Mr. Roame then thanked the nine terrific guest speakers, including Walt Bettinger (President, The Charles Schwab Corporation), Mike Byrum (President, Rydex Investments), Joe Deitch (CEO, Commonwealth Financial Network), John Hailer (CEO, Natixis Global Advisors), Joe Moglia (CEO, TD Ameritrade), John Murphy (CEO, Oppenheimer Funds), Bob Pozen (Chairman, MFS Investment Management), Ron Ryan (CEO, Ryan ALM), & Michael Steinhardt (Chairman, Wisdom Tree Investments)
  • Mr. Roame also thanked the Tiburon CEO Summit XIV sponsors, including Advanced Equities Financial Corporation, Dunham & Associates, Envestnet Asset Management, Fidelity Investments (National Financial), Fiserv (Check Free), Forward Management (ReFlow), Genworth Financial (Asset Mark), Global Bridge, Jefferson National, LPL Financial Services, State Street Corporation (State Street Global Advisors), Sun Star, TD Ameritrade, The Bank of New York Mellon Corporation (Pershing), & The Charles Schwab Corporation whose financial support allow the CEO Summits to be held at the Ritz Carlton Hotel and attendance to be open to 125 CEOs

Attendees at Tiburon's CEO Summit XIV held April 10-11, 2008 in New York, NY

State of the Financial Services Industry

Mr. Roame then 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:

Recap of the Semi-Annual News: Six Months of Amazing Industry News Stories

Mr. Roame started with a review of dozens of recent financial news stories, presenting related quotes from industry leaders and supporting Tiburon research for several key points:

  • The most recent industry headache of sub-prime mortgages seems to be self-created, with Mr. Roame saying that "the basic premise is that the investment banks create CDOs to buy risky paper, pool those risks, and then sell those CDOs so that they can go buy more risky paper... And we are surprised when this business ultimately blows up?"
  • The write-offs have been staggering, led by those at UBS, Merrill Lynch, & Citigroup, $37.1 billion, $25.1 billion, & $23.9 billion respectfully
  • The sovereign wealth funds stepped in to solve many capital issues, with Singapore leading the way, taking stakes in UBS, Citigroup, Merrill Lynch, & Barclays
  • Mr. Roame questioned the US government’s involvement in bailing out these companies in a capitalist system, quoting Ben Bernanke, who said that, "the damage caused by a default by Bear Stearns could have been extremely difficult to contain. We did what we did because we felt that it was necessary to sustain the viability of the American financial system"
  • Individuals are also turning to others to bail them out, with Mr. Roame quoting a Bear Stearns Senior Managing Director's question to JP Morgan Chase's Jaime Dimon, "how will you make us whole?"
  • Mr. Roame also quoted a Wall Street Journal reporter who brought some perspective to the size of the write-offs, questioning, "when is a good time to write off $4 billion (Deutsche Bank)? The same day that your European neighbor (UBS) writes off $19 billion!"
  • While addressing the employment status of the heads of these financial service companies, Mr. Roame said, “there seemed to be a clear outcome involving CEO heads rolling until we got to HSBC and Morgan Stanley”
  • Unfortunately, Tiburon's belief is that huge industry write-offs are going to continue to happen. Mr. Roame asked, what is unclear about the outcomes that will result from the compensation system? We have a system that incents us to take huge risks!
  • Stepping back, Mr. Roame argued that the bigger public policy issue here is the threat to baby boomers' ability to retire; lost real estate equity, over 10% since 2006, will challenge the pending liquefaction and baby boomers' ability to retire
  • And on the regulatory front, the skeptics are not so sure that the power should go to the Federal Reserve, Mr. Roame quoted Senate Banking Committee Chairman Chris Dodd, who said that, "it is like giving a bigger shovel to the guy who dug the hole"

Fundamental Industry Trends: Reinforcing Tiburon Research Findings

Mr. Roame then brought the attention of the audience away from the short-term news noise and back to the long-term fundamental industry trends, presenting some high-level Tiburon research findings:

Key Driving Factors

  • US households control almost three-quarters of all investable assets, more than half invested via financial advisors
  • 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
  • Baby boomers have not saved in the traditional way, with many assuming they would liquefy the equity in their houses, but declining house values may now challenge this strategy
  • The median value of baby boomers' inheritance is only $48,000; very few receive more than $100,000
  • The savings crisis is further driven 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

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 $608 billion & separately managed accounts at $720 billion (collectively $1.3 trillion)), encouraging the group to maintain perspective
  • There is some trend to packaged solutions; for instance, target date mutual funds have quickly gathered over $150 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
  • 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. US hedge funds assets under management have grown significantly to almost $2 trillion but have remained steady since 2006
  • 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)

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)
  • 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 the next year, further evidencing the growth in new channels (discount brokerage, fee-only financial advisors, and independent reps)
  • Mr. Roame also pointed to an important international trend for product companies, noting that non-US mutual funds assets under management have surpassed those of US mutual funds

Financial Advisor Tactical Issues

  • On a more tactical level, Mr. Roame noted it is worth understanding the model of the largest independent financial advisor, Fisher Investments, with over $43 billion assets under management: nearly everything that Fisher Investments does (eg, marketing, staffing, compensation, etc) is outside of the norm
  • 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
  • Returning to his case example, Mr. Roame noted that Fisher Investments is not only the largest but also the fastest growing independent financial advisor, utilizing a well refined direct mail machine as well as other substantial marketing efforts to gather assets and spending over $50 million per year on advertising, but with a 97% retention rate Fisher Investments also doesn't lose the assets collected

Strategic Conclusions

  • Institutional level mergers & acquisitions were booming but have slowed dramatically in 2008 due to the credit crisis
  • There is also a substantial bifurcation happening in all businesses (e.g., banking, brokerage, mutual funds), with Mr. Roame utilizing the asset management business as an example, where a handful of firms (e.g. American Funds, Vanguard, Fidelity Investments) exceed $1 trillion assets under management, but 84% of all mutual fund companies manage less than $10 billion
  • Mr. Roame noted that several companies have utilized target marketing to successfully grow their companies, including Hanson McClain Retirement Network, CMS Companies, & Clearly Gull at a financial advisor level, and both Rydex and DFA at the institutional level
  • Finally Mr. Roame cautioned all of the CEO attendees that in order to keep a proper perspective it is important to not confuse high growth percentages with dollar growth rates. The fastest growing products and channels may get the most news but it is all relative to the dollar amount from which they are starting. For instance he pointed out that in dollar terms full-service brokers are outgrowing fee-based financial advisors and mutual funds are outgrowing separately managed accounts

Tiburon Strategic Advisors

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

  • Tiburon has positioned itself uniquely as a research based strategy consulting firm for financial services firms
    • Tiburon manages its research in terms of Power Point pages created and added to it's expanding library of knowledge, including 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
    • Mr. Roame suggested that all clients buy its Research Report Retainer
    • Tiburon's core business market research & strategy consulting services. The firm executes projects from a top down perspective, working closely with its clients top executives
    • While only serving financial services clients, Tiburon's clients also include technology companies that serve financial services companies, other consulting firms in need of financial services industry research, venture capital & private equity firms investing in financial services companies, and governments, trade groups, & conference companies. Mr. Roame presents at dozens of board meetings each year
  • Tiburon delivers its research & strategy consulting services in three primary ways, including its popular research reports & research report retainer program, one day market seminars & conference speeches, and its core service in customized market research & strategy consulting projects

Tiburon CEO Summit XIV - Schedule & Tactics

After offering up that broad synopsis and introduction to Tiburon's client services, Mr. Roame introduced the nine guest speakers grouped into three sections, including Public Policy, Products, & Management. Mr. Roame then gave a brief overview of what he expected each speaker would address:

Public Policy

Tiburon Managing Principal Chip Roame with Tiburon CEO Summit XIV Guest Speaker John Murphy (CEO, Oppenheimer Funds)
  • Walt Bettinger (President, The Charles Schwab
  • Corporation) will address the dramatic evolution around the responsibility of making financial decisions transferring from large institutions to individuals and the implications for the industry. More specifically, what the responsibilities are within the industry to help individuals, especially in the second through fourth quartile.
  • John Murphy (CEO, Oppenheimer Funds) will address how traditional mutual fund companies compete in an increasingly global market.
  • Bob Pozen (Chairman, MFS Investment Management) will address several issues surrounding sovereign wealth funds, including the source & size of sovereign wealth funds, their impact on capital markets, security & political concerns, disclosure & stability concerns, and protectionism & reciprocity.
  • Ron Ryan (CEO, Ryan ALM) will address the pension crisis and the need to align assets to specific liabilities. Mr. Ryan will also discuss portable alpha and the proper LDI strategy and cover liability beta & liability alpha.

Products

  • Mike Byrum (President, Rydex Investments), will address the evolution of Rydex and the collective competencies with Security Benefit Group. Mr. Byrum will also address Rydex's forward looking perspective and solving the retirement income challenge.
  • Michael Steinhardt (Chairman, Wisdom Tree Investments) will address both the history and current state of the hedge fund industry. He will also discuss his career and why he closed his firm in 1995 and why he later accepted the chairman position at Wisdom Tree Investments.

Management

  • Joe Deitch (CEO, Commonwealth Financial Network) will address keys to successful management, specifically theory versus practice.
  • John Hailer (CEO, Natixis Global Associates) will address global opportunities through deeper partnerships and innovative products. He will also review the rethinking of business models with a look at organizing towards innovation.
  • Joe Moglia (CEO, TD Ameritrade) will address the impact of several key industry trends, including the growth of discount brokerage, the emergence of independent financial advisors, and the importance of capturing IRA rollovers. Mr. Moglia will also address TD Ameritrade's commitment to improving technology and operations and enhancing customer service.

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

Upcoming Tiburon CEO Summit XV: October 14-15, 2008

Tiburon CEO Summit XV will be held October 14-15, 2008 in San Francisco, CA at the Ritz Carlton Hotel. The meeting will start at 7:45am on Tuesday, October 14, include a group dinner that night at Servino's, and finish at 5:00pm on Wednesday, October 15. There are almost twenty planned sessions. Along with Tiburon's Managing Principal Chip Roame, guest speakers will include Keith Banks (President, Global Wealth & Investment Management, Bank of America Corporation), Bruce Bond (CEO, Power Shares, Invesco), Rich Brueckner (CEO, Pershing, The Bank of New York Mellon Corporation), Bill Hambrecht (CEO, WR Hambrecht & Company), Norm Malo (CEO, National Financial Services Corporation, Fidelity Investments), Joe Mansueto (CEO, Morningstar), Joel Marks (Vice Chairman, Advanced Equities Financial Corporation), Don Putnam (Managing Partner, Grail Partners), & Michael Sapir (CEO, ProFund Advisors). 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.

2009 Tiburon CEO Summits

Tiburon will continue to hold semi-annual CEO Summits in the spring and fall of 2009. Dates are April 9-10 2009 (New York, NY) and October 7-8, 2009 (San Francisco, CA). Spring 2009 speakers will include Jud Bergman (CEO, Envestnet Asset Management), Jessica Bibliowicz (CEO, National Financial Partners), Ken Fisher (CEO, Fisher Investments), Roger Ibbotson (CEO, Ibbotson Associates, Morningstar), Jim Weddle (Managing Partner, Edward Jones & Company), 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 October 14-15, 2008 (San Francisco, CA) at the Ritz Carlton Hotel in San Francisco, CA. 2009 dates are 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 thirty-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) 789-2540.
  • 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 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 ~300,000 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 2008. Specifically, the firm plans to add two-to-three incremental principals (the most senior role at the firm) and several more research managers in 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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