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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. Break-out sessions were held on both days of CEO Summit XV, and in light of the market conditions surrounding the event, they were dynamic.

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

Break-Out Sessions

Six break-out sessions were held at the recently completed Tiburon CEO Summit XV, allowing attendees to informally debate trends and business strategies. Each session included no more than twenty-five attendees, all CEO-level executives, promoting frank discussions on a wide variety of topics. Leading financial industry executives, including Dennis Clark (CEO, Advisor Partners), Tom Lydon (President, Global Trends Investments), & Skip Schweiss (President, TD Ameritrade Trust Company, TD Ameritrade, TD Bank Financial Group), facilitated the break-out sessions, ensuring that the discussions remained lively and focused on high-level topics, which included:

  • Building Back Credibility in a Battered Marketplace
  • RIAs: Is the Market Really Growing in Numbers? Where are they Coming from & Where are they Going?
  • Financial Advisor Technology: Building the Ultimate Wealth Management Delivery System
  • The New Marketplace: Outlook for the Financial Services Industry for the Next Five Years
  • Retirement Income & the Impact of the Recent Credit Crisis
  • Mergers & Acquisitions: Lessons from the Front-Line

Of these six break-out sessions, the four that appear below do so primarily because they were the most highly attended and hotly debated, due in large part to the market conditions that existed during Tiburon CEO Summit XV:

Building Back Credibility in a Battered Marketplace

Investor confidence is declining to lows not seen in decades. How do we collectively work together to instill confidence in an industry that has been responsible for providing lifetime solutions for millions of investors? What strategies are currently being practiced by your firm? What new ones may have to be considered? During this session, we will share best practices for instilling investor confidence and discuss new ones in light of recent industry news.

Some of the key insights of the session included:

  • The session began with a simple but poignant telling of two approval ratings: the first, for President Bush, was told to be 25%; the second, for Wall Street, was 10%. Given the sorry state of the executive office of the United States government, for Wall Street to have an approval rating less than half that of the president says a lot about public sentiment regarding the plummeting market and almost $1 trillion bailout of its most prized firms
  • Norm Malo, CEO of Fidelity Investments' National Financial, took the opportunity to lead the opening response here, saying that "someone has to start building back credibility, the people are scared, and their well-founded concern is about the country as a whole and their livelihood"
  • Other participants also shared varying specific opinons, but all were clear on the fact that there is no basis to make predictions about how this scenario will play out; there is no clear precedent that provides a "roadmap to salvation"
  • Malo held focus by offering the words "accountability" and "communication," with several speakers making valuable additions, including:
    • Aim to over-communicate and avoid withdrawing from the public eye
    • Communicate with clients both in writing and on the web; put financials out clearly and remind clients that historic downturns are always preceded and followed by considerable upturns
    • Remind clients how their portfolios have performed in the first part of this decade
    • Help clients understand the communications they are receiving
    • Realize that trust is the key; "if you have trust, facts and times will disappear"
  • Bill Schreiner, Executive Vice President of Foliofn, asked, "what is the difference between this downturn and previous downturns, and how do we as an industry relate that message to our clients?"
  • This question resulted in a general acceptance that a lot of people are confused about the reasons driving this downturn, but that the key to holding clients is to hold onto their trust by sounding confident and intelligent, citing the different qualities of prior downturns
  • One participant pointed out that those who are the most upset, and those who are questioning the credibility of financial institutions most, are those with the least assets, because many of those assets are held in 401k accounts that have likely been slashed in half
  • Another participant who is the CEO of a prominent RIA firm said "Clients want to trust someone" and asked "how do you build trust that has already been lost?"
    • Diversification is a solution to unscaring scared investors, but the public needs to be educated on the meaning of diversification
    • Diversification could spread across commodities markets
    • Trust building happens when clients are assembled together and trust between them and their advisory firm is established to form a bond
  • One question that was posed by a curious participant was how to educate consumers, pointing out that many doctors don't know anything about personal finance, but ought to
  • A major question that followed was "Why is the government fixing peoples' mistakes?" to which two words were accepted as self-explanatory: accountability and responsibility, and the failure of so many players at all levels to accept any of either

RIAs: Is the Market Really Growing in Numbers? If so... Where are they Coming from & Where are they Going?

There is a perception that the number of registered investment advisors (RIAs) is growing rapidly. If so, where are they coming from? Is there a substantial number of break-away brokers from the wirehouses, insurance agents from the captive insurance firms, or bank trust officers from the banks? Or is the flow really made up of existing independent reps registering their own RIAs and/or CPA firms adding such capabilities? This session is designed to allow participants to discuss their experiences with the sources and new homes of new RIAs.

Some of the key take-aways of the session included:
  • There are about 30,000 partners at about 17,000 federally & state registered fee-based financial advisory firms, which constitutes only 8% of the financial advisory market
  • About half of fee-based financial advisors are registered at the SEC level and the other half are state registered, and combined they manage about $1.1 trillion, with an 18% annual growth rate since 1995, which is about 25% higher than the next fastest growing market, independent reps
  • Firms like Schwab Institutional have seen their assets grow very rapidly, from $4 billion to $583 billion since 1990
  • Many experts keep predicting the mass flood to independence but there is limited statistical evidence of a trend (only 2% actually break-away); of this small number, over three-quarters of breakaway brokers join independent broker/dealers
  • So while TD Ameritrade has been growing its number of fee-based financial advisors (mostly due to acquisitions; from 600 in 1996 to over 4,500 in 2008), Schwab Institutional continues to be the leader with the same 5,000 total number that it has reported for a decade
  • The group observed several difficulties involved in going independent, including the daunting task of managing a business and a staff, paying for support systems, and becoming a potential for targets. The group acknowledged that the decision for successful brokers to leave a wirehouse and go independent is more an emotional decision than an economic one

Retirement Income & the Impact of the Recent Credit Crisis

Until recently, few topics were being discussed more than the savings shortages and retirement income challenges faced by two-thirds or more of the 76 million baby boomers nearing retirement. Now, adding the mortgage meltdown, plummeting home values, & the resulting credit crisis, nerves are fraying. The landscape of the next ten-to-twenty years has changed so suddenly and so drastically for aging baby boomers that the question as to how to best address their retirement needs while maintaining consumer confidence and industry growth is anyone's for the answering.

Some of the key take-aways of the session included:

  • Financial advisors say that baby boomers' retirement is the issue currently having the greatest impact on their businesses at 45%, just slightly above stock market performance (44%), but significantly higher than any other measurable factor (including oil prices, inflation, and war on terror)
  • The perceived baby boomers savings crisis is due to six factors, including the decline in pension plans, social security challenges, the stagnant savings rate, lack of significant World War II generation wealth transfer, longer life expectancies, and concentration of consumer wealth
  • More than three-quarters of baby boomers over the age of 55 have less than $100,000 in investable assets
  • Less than half of all workers are covered by pension plans
  • Two-thirds of workers don't expect that social security benefits will still be available when the last baby boomers retire in 25 years
  • Baby boomers are not saving the traditional way (with consumer household personal savings having crossed into negative territory from 2004 to 2005)
  • Only 2% of baby boomers will receive an inheritance of more than $100,000
  • More than half of 65 year old males will reach age 85 and over one-third will reach 90, and amongst 65 year old couples, there is a 50% chance that one (or both) will live another 25 years
  • In other words, the number of years spent in retirement has been increasing since 1950; it has now reached 19.0 years, whereas in 2003 and 1950 those numbers were 13.9 and 4.6 years
  • The theory had been that baby boomers retirement would be funded by the liquidation of assets, but the stock market has declined sharply in 2008, with the indices being down 30-40%
  • There have been 760,000 jobs lost in 2008, the biggest loss since 2001, and the first year since 2002 that there has been a net loss
  • Finally, the loss of real estate equity will challenge the liquidation for years to come

Mergers & Acquisitions: Lessons from the Front-Line

Everyone loves to talk about selling their businesses. Many speculate on the key issues or the step-by-step plans to follow. Ron Cordes says that all that needs to be re-examined, having recently sold his business Asset Mark Investment Services to Genworth Financial. Ron will lead a discussion on tips to a successful M&A transaction, including beginning with the end in mind, thinking long-term, paying close attention to the people factor, hiring the best banker & legal team available, & not short-cutting the process.

Some of Mr. Cordes' key points in the session included:

  • Begin with the End in Mind
    • Get informed: understand the competitive landscape
    • Prepare: make sure the house in good order BEFORE the home inspectors come in
      • Big 4 Audited financials: Asset Mark changed accounting firm to make due diligence easier
      • External Compliance Audit
      • Disaster Recover / Business Continuation Plans
      • Strong HR Policies
  • Think Long-Term
    • Protect, at all costs, the distinct value and culture that got you to the table
      • 70% of Mr. Cordes' final deal negotiations involved management control, product development control, future performance opportunities, etc.
    • Mr. Cordes mentioned the comment from John Gunn of Dodge & Cox: “we’ll never sell because any buyer would ruin the business,” to which Mr. Cordes rebutted, "I totally respect his perspective, but I’m living proof that that doesn’t have to happen"
  • Pay Close Attention to the “People” Factor
    • Mr Cordes asked the following questions: "Do you have alignment of key values? Do you respect the leaders of the company and is the leadership committed to the success of the business? Are they people you can truly partner with?"
  • Hire the BEST Banker and Legal Team Available
    • Level the playing field: Mr. Cordes said Asset Mark spent $5 million on a $330 million deal (the best 1.5% investment Asset Mark ever made)
  • Don’t Short Cut the Process
    • Every nuance of the negotiations can have significant implications
      • Marathon analogy (i.e. friends who run marathons talk about hitting mile 19 . . . body says you can’t go on but you push forward anyway)
        • For Mr. Cordes, mile 19 occurred on the 5th consecutive night in the same conference room past 1am with 12 lawyers around the table hammering out Section 6.3 (i) 2a of a 150 page Merger Agreement
        • You’re running a marathon and the other side, if it’s the M&A team of a large global company, is the Kenyan Olympic team: they’re good at this – it’s all they do
  • Conclusion:
    • Over the past 24 months, Mr. Cordes has now taken on a new role, on the OTHER side of the table representing the Wealth Management segment of Genworth Financial in M&A deals with principals of firms who are in the identical position he was in during that Spring and Summer of ‘06
    • Having been on both sides, Mr. Cordes is convinced that:
      • It’s possible (not easy, but clearly possible) to do smart deals, at fair valuations, that represent a Win-Win for all parties
      • 1+1 (really can) = 3 if you have the right people and the right synergy and a shared commitment on both sides to make it happen
Upcoming Tiburon CEO Summit XVI: April 9-10, 2008

Tiburon CEO Summit XVI will be held April 15-16, 2009 in New York, NY at the Ritz Carlton Hotel in Battery Park. The meeting will officially start at 7:45am on Wednesday, April 15, 2009, include a group dinner that night, and finish at 5:45pm on Thursday, April 16, 2009. There are almost 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 Investment Counsel), Ken Fisher (CEO, Fisher Investments), Roger Ibbotson (Professor, Yale University; Chairman, Zebra Capital Management; & Former CEO, Ibbotson Associates), Scott Powers (CEO, State Street Global Advisors), & Paul Stevens (CEO, Investment Company Institute). Click here for more details on the upcoming Tiburon CEO Summit XVI.

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), Steve Lockshin (CEO, Convergent Wealth Advisors), Andrew Rudd (CEO, Advisor Software; Chairman, Advisor Partners; & Former CEO, Barra), Steve Wallman (CEO, Foliofn), Jim Weddle (Managing Partner, Edward Jones & Company) & others to be announced soon.

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