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Context Setting

Tiburon CEO Summit XV was held October 14-15, 2008 in San Francisco, CA at the Ritz Carlton Hotel. The Summit started at 7:45am on Tuesday, October 14, included a networking dinner that evening in Tiburon, & concluded at 4:15pm on Wednesday, October 15. Over 100 senior industry executives took two days out of their busy schedules to participate. Chip Roame (Managing Principal, Tiburon Strategic Advisors), Bruce Bond (CEO, Power Shares), Bill Hambrecht (CEO, WR Hambrecht + Company & Former CEO, Hambrecht & Quist), Norm Malo (CEO, National Financial Services Corporation), Joe Mansueto (CEO, Morningstar), & Andrew Rudd (CEO, Advisor Software; Chairman, Advisor Partners; & Former CEO, Barra) made general session presentations.

102 senior industry executives attended Tiburon CEO Summit XV October 14-15, 2008 in San Francisco, CA

Aside from Tiburon Managing Principal Chip Roame's opening keynote presentation, five guest presentations anchored the CEO Summit XV agenda:

CEO Summit XV Guest SpeakerBruce Bond (CEO, Power Shares)
Bruce Bond (CEO, Power Shares)

Bruce Bond founded Power Shares Capital Management in 2003 to deliver investment performance through the benefit-rich ETF structure. Mr. Bond has received numerous awards for his pioneering achievements, including being named as the Greatest Contributor to the ETF Industry at the Global ETF Awards in 2005, 2006, & 2007. Mr. Bond was recently appointed as the inaugural chairman of the Board of Governors of the ICI ETF Industry Committee, the only executive level ETF industry group. Mr. Bond’s 2006 sale of Power Shares Capital Management to Invesco created a heightened understanding of the value of ETF companies around the globe, with resulting enthusiasm later referred to as the Bond Effect.

After an introduction by Tom Lydon (President, Global Trends Investments), Mr. Bond took center stage to address the history of Power Shares and the deal with Invesco, as well as some of the growth prospects of ETFs, including a specific focus on intelligent ETFs. Mr. Bond made the following points:
  • Mr. Bond thanked Mr. Lydon, expressed his positive impression with his first visit to the Tiburon CEO Summits, & immediately began his presentation by talking about the fact that ETFs have fared remarkably well during the current crisis, pointing out that the market conditions will accelerate ETFs usage by financial advisors
  • Mr. Bond presented a map of the world, introduced the cross-listing potential of ETFs, pointing out that global 24 hour trading is on the horizon, & inferred that the exchanges are aiming to change the way financial products are distributed, with the exchanges being used more & more to deliver products to the marketplace
  • Mr. Bond mentioned that 34% of September's volume of trading on the US exchanges was in ETFs & said that the reason they are being used so much is because they mitigate volatility
  • Mr. Bond presented a slide showing that the proliferation of ETFs now is nowhere near the proliferation of mutual funds during their growth period, pointing out that an average of 440 mutual funds per year were added to the market at the time; Mr. Bond said he did not believe that such proliferation would occur with ETFs, but that this is an interesting time to be watching as many new providers enter the marketplace
  • Mr. Bond showed that ETFs flows outpaced mutual funds flows in the US; three of the top four leading investment companies, in terms of flows, are Vanguard, Barclays, & State Street Global Advisors, all with large ETFs divisions
  • Mr. Bond presented a slide showing the results of a survey in which the mindset of the financial advisor is increasingly in favor of ETFs as the most important asset in a client's portfolio, growing from 11.5% to 15.7% from 2006 to 2007
  • Mr. Bond said that ETFs growth will continue to accelerate for seven reasons, including low expenses, tax efficient framework (lacking capital gain distributions), intraday liquidity (provides flexibility in volatile markets), transparency, open-share structure, trading near or at NAV, & opportunity for diversification, and pointed out that Power Shares believes that four factors will contribute, including conversion rates among financial professionals, rapid growth of fee-based advisory platforms, increasingly sophisticated asset allocations, & breaking into retirement products markets
  • Mr. Bond then introduced the Power Shares expertise in models including intelligent indexing & active ETF profiling, pointing out that since its initial product launch in May 2003, the firm has seen explosive asset growth as it has rapidly expanded its product line
  • Mr. Bond mentioned that the Invesco takeover brought legitimacy to the brand and to the ETF model because Invesco understood that the business model really did deliver added value and was fully scalable

CEO Summit XV Guest Speaker Bill Hambrecht (CEO, WR Hambrecht + Company & Former CEO, Hambrecht & Quist)
Bill Hambrecht (CEO, WR Hambrecht + Company & Former CEO, Hambrecht & Quist)

Bill Hambrecht founded WR Hambrecht + Company in 1998, introducing OpenIPO® as a means to level the playing field for both investors and issuers. In 1968, Mr. Hambrecht co-founded Hambrecht & Quist, an investment banking firm specializing in emerging high-growth technology companies. Mr. Hambrecht has served as a director for numerous private and public companies. He currently serves on the Board of Trustees for The American University of Beirut and is on the Advisory Investment Committee to the Board of Regents of the University of California.

After an introduction by Chip Roame (Managing Principal, Tiburon Strategic Advisors), Mr. Hambrecht gave an overview of the internal politics surrounding the Economic Stabilization ACT, having just returned from Washington, DC where he had been meeting with speaker of the house Nancy Pelosi. Mr. Hambrecht made the following points:

  • Mr. Hambrecht started by pointing out that Secretary of the Treasury Henry Paulsen had wanted carte blanche with the $700 billion that had been proposed, but that Ms. Pelosi wanted certain stipulations, including to only buy paper at market value, thereby maintaining capital in banks; for all parties, the speed of recovery was a main factor in the decisions that were made
  • Mr. Hambrecht identified one idea that had arisen at the meeting that would address the housing crisis, thereby creating stability: if a homeowner who holds a $500,000 mortgage on a property currently valued at $400,000 is offered a new mortgage at a manageable payment plan (90% LTV or $360,000), the lender should receive equity in the property representing the percentage of debt forgiveness -- should the property appreciate, that equity would rise in value as well, and the lender would eventually be made whole - a debt for equity swap for mortgages; favoring this failed proposition, Mr. Hambrecht thought that the crisis mentality had been responsible for some poorly considered solutions that did gain traction
  • Mr. Hambrecht said that the results of the crisis would include a regulatory climate (saying that nobody had suffered penalties in the self-regulatory era), increased transparency, & leverage limits
  • Mr. Hambrecht then addressed some of the reasons for the crisis, including fundamental changes in the securities businesses & the rapid introduction of technologies, the combination of which drastically narrowed margins and created a perceived need to leverage more & more, which was in its own right a flawed concept
  • Mr. Hambrecht said the winners coming out of the crisis will include the service & commercial banks with captive bases, low variable overhead, & old style business models

CEO Summit XV Guest Speaker Norm Malo (CEO, National Financial Services Corporation)
Norm Malo (CEO, National Financial Services Corporation)

Norm Malo is CEO of National Financial Services Corporation, a Fidelity Investments company. Fidelity Investments is the largest mutual fund company in the United States, a primary provider of workplace retirement savings plans, & a leading online brokerage firm.

After an introduction by Skip Schweiss (Chief Operating Officer, TD Ameritrade Trust Company), Mr. Malo addressed key changes to the landscape of distribution & clearing, including an overview of a new product. He made the following points:

  • Mr. Malo said that now is a very dynamic time in the clearing business, with so many players in the clearing game changing ownership, three of the top four clearing businesses in play are now owned by banks, with National Financial Services Corporation being the only exception
  • Mr. Malo went on to talk about how the new marketplace affects those with relationships to clearing businesses, saying: broker/dealers are concerned with re-defining value proposition in the market, regulations & efficiencies, & recruiting top talent; brokers & advisors are concerned with taking ownership of their clients; and investors are concerned with integrity & safety of investments
  • Mr. Malo then talked specifically about the factors that have contributed to changes within Fidelity's clearing business, including price compression, technology complexity, & regulatory demands, all of which have caused the ongoing evolution of helping brokers & advisors
  • More specifically, five years ago, broker/dealers said stay away from my brokers; now, broker/dealers say help me train my brokers
  • Mr. Malo showed that fully-disclosed clearing providers have decreased from 150 in 1990 to 26 in 2008 and ventured to guess that they would decrease to 16 by 2010, saying that price compression has been driving the need to provide increasingly complex technology for added value
  • Revenue streams have shifted from transaction tickets to other sources of fee-based services, all of which help broker/dealers & financial advisors provide added value to their clients
  • Fidelity used to build everything themselves, but ten years ago they went in the direction of nurturing relationships with top providers of new technologies
  • The question was raised as to how the new Hybrid One product came into being, to which Mr. Malo answered that the reality is that while RIAs were transacting outside of National Financial & National Financial clients were doing fee-based business outside of Institutional Wealth Services, Fidelity saw an opportunity to put a product out there that would help the advisor put their business where it is most valuable

CEO Summit XV Guest Speaker Joe Mansueto (CEO, Morningstar)
Joe Mansueto (CEO, Morningstar)

Joe Mansueto founded Morningstar in 1984. He served as CEO from the company’s inception to 1996 and from 2000 to present. In 2001, Mr. Mansueto was recognized by Smart Money magazine as one of 30 power brokers. He received the Distinguished Entrepreneurial Alumnus Award from the University of Chicago Graduate School of Business in 2000.

After an introduction by Tim Armour (Board Member, Janus Capital Group), Mr. Mansueto shared the interesting growth story of Morningstar, a company with a broad exposure across the financial services industry. He made the following points:

  • Mr. Mansueto thanked his former colleague at Morningstar, Tim Armour, for the introduction. He then began his presentation by saying that Morningstar was founded with a mission of independence, proven by the fact that it is the only rating agency that performs its ratings before selling them
  • Mr. Mansueto talked about building his business by applying the theory of stock analysis to mutual funds, believing that his audience would be investors, but soon realizing that financial advisors made up the majority of his clients
  • After presenting the dramatic growth rates of Morningstar over the last 25 years, Mr. Mansueto addressed the future, by talking about five big trends shaping the financial services industry, including the rapid globalization of investment management, the demographic shifts driving the need for lifetime advice, the push for simple portfolio solutions for investors, the mutual fund alternatives outpacing the growth in old-line funds, & the shaken mindset of investors due to recent market turmoil, leading them to search for trusted partners
  • Mr. Mansueto said that analysis of the rapid globalization of investment management leads to several key learnings about global markets, including acceptance that advisors dominate global fund sales (either independent advisors or captive advisors), investors seek simpler solutions than in the US, the world is moving to open architecture solutions, the self-directed individual investor is starting to emerge in some markets, and both US & local expertise are needed to succeed abroad
  • Mr. Mansueto discussed the intersection of human capital & financial capital, saying that this analysis is of ultimate importance when thinking about the demographic shifts & lifetime advice, pointing out that different equity allocations are needed for different clients
  • Regarding the simplification of portfolios, Mr. Mansueto discussed the growth of funds of funds, the rapid growth of target date & target risk funds, and the implications of these two factors to portfolio managers who manage across multiple asset classes while building diversified portfolios
  • Mr. Mansueto discussed the growth of alternatives, including hedge funds & ETFs, showing data on flows & projected growth rates, echoing Mr. Roame's claim that it will be a long time before mutual funds do not dominate the market
  • In addressing the current market conditions and the effects on investors, Mr. Mansueto talked about the value of businesses that focus on doing the right thing, and segued into the building of a business culture at Morningstar based on a casual atmosphere driven by sound ethics

CEO Summit XV Guest Speaker Andrew Rudd (CEO, Advisor Software; Chairman, Advisor Partners; & Former CEO, Barra)
Andrew Rudd (CEO, Advisor Software; Chairman, Advisor Partners; & Former CEO, Barra)

Andrew Rudd founded Advisor Software in 1995 to provide solutions which enable financial institutions & investment advisors to improve the quality & delivery of investment advice. Advisor Software’s most recent product, ASI Wealth Manager, is a goal-driven investment planning platform that couples institutional-caliber analytics & holistic management of the household balance sheet to deliver richer, more personalized advice than is currently available to a wide range of investors.

After an introduction by Chip Roame (Managing Principal, Tiburon Strategic Advisors), Mr. Rudd gave some insights into interesting opportunities now presenting themselves in alternative investments. He made the following points:

  • Mr. Rudd's presentation, titled Authentic Collectibles, included a case study of a high-net-worth stamp collector from the financial services industry
  • Mr. Rudd's subject, Bill Gross (Chief Investment Officer, Pimco) has the largest stamp collection in the world, with a 10% allocation, having spent from $50 to $100 million collecting, and saying that based on sales at auction, his profits are four times cost
  • Mr. Rudd started by addressing what allocation to collectibles, if any, there should be in a high-net-worth portfolio, indicating that there is a difference between a 10% allocation for someone with $10 million and someone with $1 billion; Mr. Rudd said that the scale problem with investing in collectibles has to do with what happens when value is lost, asking what the implications of 10% portfolio loss might mean to someone who does not have $1 billion
  • This served as an introduction into the question of why people might invest in collectibles, with Mr. Rudd talking about the distinction between primary (essential) and secondary (supplemental & aspirational) goals
  • Mr. Rudd said that three factors contribute to the decision to invest in collectibles, including the love of collecting, the power & recognition that comes when a goal is achieved and a collection can be gifted to charity, & the associated wealth goal of return on investment
  • Mr. Rudd also addressed the psychology of investing in collectibles, showing that one in three people collects something (toasters) and that this incidence rises with age, wealth, & time available; Mr. Rudd then moved into behavioral motivations, exploring recurrent themes such as addiction & compulsion, positive recognition, mutual identity within a group, & the concept that items benefit from contagion and promote a collector's self image & reinforce the significance of the collection
  • After briefly addressing other authentic collectibles such as art, rare books, antiques/furniture, maps, & wine, Mr. Rudd pointed to the concept of a household balance sheet for financial advisors who must determine whether clients can afford & finance collecting
  • In closing, Mr. Rudd indicated that for the sole rationale of financing future goals, collectibles might not be the answer, but that invariably, investors who do collect do so for many reasons, pointing to six conclusions from his study, including investing can be addictive, can also be fun (not to be confused with wealth creation), is a skill-based pursuit, can be profitable, requires advisors to step in & protect their clients, & that even high-net-worth investors can lose great deals of money

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

Upcoming Tiburon CEO Summit XVI: April 15-16, 2009

Tiburon CEO Summit XVI is set for April 15-16, 2009 in New York, NY at the Ritz Carlton Hotel, Battery Park. The meeting will start at 7:45am on Wednesday, April 15, include a group dinner that night at Cipriani's, and finish at 5:00pm on Thursday, April 10. There are over twenty planned sessions. Along with Tiburon's Managing Principal Chip Roame, guest speakers will include Jud Bergman (CEO, Envestnet Asset Management), Jessica Bibliowicz (CEO, National Financial Partners), Mark Casady (CEO, LPL Financial Services), Kip Condron (CEO, Axa Financial), Jeffrey Dunham (CEO, Dunham & Associates), Ken Fisher (CEO, Fisher Investments), Roger Ibbotson (Professor, Yale University and Former CEO, Ibbotson Associates), Scott Powers (CEO, State Street Global Advisors), Paul Stevens (CEO, Investment Company Institute), & Jim Weddle (Managing Partner, Edward Jones & Company). Follow on links will include the tentative invitee list, tentative meeting agenda, & details on hotels & other logistics.

Tiburon CEO Summits 2009 & Beyond

Tiburon will continue to hold semi-annual CEO Summits in the spring & fall of 2009 and beyond. Dates are April 15-16, 2009 (New York, NY) and October 7-8, 2009 (San Francisco, CA). Fall 2009 speakers will include Jon Baum (CEO, The Dreyfus Corporation), Andrew Rudd (CEO, Advisor Software; Chairman, Advisor Partners; & Former CEO, Barra), Steve Wallman (CEO, Foliofn), & others to be announced soon.

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 1,100 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-based financial advisor market, the CPA firm market, the family office market, & various international markets.
  • Tiburon holds a series of CEO Summits semi-annually for its executive-level clients. Upcoming CEO Summits are scheduled for April 15-16, 2009 (New York, NY) and October 7-8, 2009 (San Francisco, CA). Attendance is by invitation only and attendance at each Summit is managed to between 100 & 125 senior industry executives. Visit the CEO Summits section of Tiburon's web site for details on current & past CEO Summits, including attendee lists, meeting agendas, & 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 forty-seven ~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 access program, whereby dozens of clients receive access to the Tiburon library & all Tiburon reports published within a year for $25,000; clients can subscribe to Tiburon's 2009 Research Report Access Program 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-based financial advisors, www.IndependentRepBestPractices.Com for independent reps, and www.PrivateBankerBestPractices.Com for private bankers. Almost 5,000 financial 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 & analyzes the collective results.
  • Tiburon's weekly research releases, like this one, are emailed for free to interested industry executives, media representatives, conference planners, & 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 2008-2009. Specifically, the firm plans to add two-to-three incremental principals (the most senior role at the firm) and several more research associates in 2008-2009.
  • Tiburon has built three executive programs (CEOs-in-Residence, Financial Advisor Roundtable, & 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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