*******************************************************************************

Please click the image above to view the table of contents for Tiburon's Future of Advice Research Report

New Tiburon Research Report - The Future of Advice: Defining the Winning Product, Channel, & Tactical Strategies

Tiburon Strategic Advisors, a market research & strategy consulting firm serving a wide variety of financial institutions and investment managers, is pleased to announce the release of its newly updated research report on The Future of Advice. This research release summarizes some of the report's key findings.

The purpose of this report is to provide readers with a comprehensive understanding of the future of the brokerage, investments, private banking, & wealth management industries. In short, this report intends to define the future of advice. The report begins by addressing the key driving factors of current events, consumer wealth, & institutional markets. The report then predicts winning markets & distribution channels, and outlines five keys for product delivery in the future - fee-accounts, indexing, alternative investments, wealth management services, & family office services. The report also addresses five winning tactics, including defining target markets, clarifying appropriate product & service offers, developing sales & marketing strategies, leveraging people & technology, and planning for succession. And the report concludes with some predictions on key strategic issues in the financial services industry, including venture capital, private equity, and mergers & acquisitions opportunities. This is the second draft of Tiburon’s research on this topic.

Tiburon’s first draft of this report was published in 2005; that draft was developed by consolidating prior Tiburon research into one report.

This is Tiburon’s second draft of this report; this draft brings this report into better alignment with Tiburon’s overall views of the future of advice, including chapters addressing the key driving factors, product & service trends, markets & distribution trends, tactical issue trends, and strategic conclusions.

Key Findings
This report has a long list of interesting facts to share:

Current Events: An Amazing 2008

  • The root causes of the credit crisis included artificially low interest rates and the rapid growth in subprime Mortgages. Subprime loans reached $1.3 trillion in 2007, up from $0.3 trillion in 2003
  • And now subprime & other non-prime mortgages account for over 90% of all mortgages that are resetting in 2007 & 2008
  • The five largest US government bailouts have all been of financial service companies, including four this year
  • The bigger public policy issues here is the threat to baby boomers’ ability to retire; lost real estate equity will challenge the liquidation.
  • Subprime mortgages grew to almost half of the market in 2007, up from 8% to 19% in 2003 to 2006
  • Over one-quarter of subprime adjustable rate mortgages are now 90 days or more past due, up from 5% to 10% in 2002 to 2006

Baby Boomers, the Perceived Savings Crisis, & the Likely Liquidation

  • US households control almost three-quarters of all investable assets in the US, while retirement plans, endowments, and foundations control the remaining 30%.
  • There are over 300 million consumers, an increase of over 10% since 1999 and almost 1% per year
  • About 40 million consumer households control 90% of all investable assets
  • Two-thirds of workers don’t expect that social security benefits will still be available when the last baby boomers retire in 25 years
  • Consumer Household personal savings has decreased since 2004 to negative $900,000
  • And the personal savings rate continues to hit new all time lows!
  • In other words, the number of years spent in retirement has been increasing since 1950
  • The good news is that consumer households have over $25 trillion of investable assets, over $70 trillion of total assets, and over $55 trillion of net worth
  • Consumers have $14.4 trillion of household liabilities, an increase of over 60% since 2002

The Institutional Markets

  • The number of defined contribution plans now dominates the number of defined benefit plans
  • Most consumers never change their 401k allocations unless prompted by news of the losses of other investors
  • Among employees with access to 401K plans, almost half claim that they cannot afford to contribute to the plan
  • Advice is increasingly needed for 401K plans; almost half of employees who take a distribution choose cash distribution rather than a rollover into an IRA or other qualified plan
  • CALPERS is also leader in terms of assets with nearly $200 billion in defined benefit plans
  • Corporate cash now accounts for 2% of all US GDP

Rapidly Shifting Distribution Sands

  • The vast majority of financial advisors believe the future will bring more competition
  • Close to 400,000 financial advisors are in the market; the independent rep channel is quickly catching the captive broker channel
  • Nearly half of consumers look to banks as their primary long-term provider of financial advice
  • The average bank-based financial advisor’s production has increased almost 50% since 2004 but is still less than $200,000
  • Full-service brokers are still the most frequently used investment advisors by high net worth households
  • Independent advisors may dominate the next decade the way banks, full-service brokers, and discount brokers have dominated in prior decades. In the 1970s and prior, banks dominated the market
  • Ultra high net worth investors using full-service brokers has declined dramatically in recent years in favor of independent advisors

The Future of Advice & the Role of Various Investment Products
This section outlines the future of advice & the role of various investment products:

Investment Management: Mutual Funds, Fee-Based Accounts, & the Polarization

  • There are more than 350 mutual funds companies in the US managing over 11,000 stocks and bonds mutual funds
  • The average turnover for diversified equity funds is 92% per annum
  • Most mutual funds ownership is among households with $50-75,000 in income, although households with less than $24,000 in income shouldn’t be ignored as they hold 8% of all mutual funds assets

Custodians, Independent Broker/Dealers, & Clearing Brokers

  • Most fee-based financial advisors utilize one or more custodians to help manage their back offices
  • Document management, customer relationship management, & portfolio management rank as the most troublesome custodian services
  • Nearly half of fee-based financial advisors say that getting custodian referrals is the least important criteria in selecting a custodian
  • Two-thirds of fee-based financial advisors utilize a secondary custodian
  • Break-away brokers account for an extremely small portion of the total broker population of 68,000

Wealth Management Phase I: Health Care & the Retirement Income Challenge

  • Only a small percentage of full-service brokers are wealth managers
  • Over half of all high net worth investors want holistic advice beyond investments
  • Almost one-quarter of all 65 year olds will spend a year or more in a nursing home
  • About half of all consumers will outlive their savings
  • Reverse mortgages are becoming a popular financial planning tool for the retiring baby boomer generation

Wealth Management Phase II: Estate Planning & Charitable Giving

  • Trusts are going to be especially important since inter-generational transfers of assets will grow to $10 trillion by 2040
  • Almost all estate taxes are paid by households with $1 million plus estates and half are paid by $5 million plus estates
  • There are $595 billion private foundation assets, up over 250% since 1991

Financial Advisor Best Practices
This section outlines financial advisor best practices:

Determine Clear Target Markets

  • US investable assets are concentrated in approximately 28.4 million of the 108 million US households
  • More specifically, high and moderate net worth consumers control over half of all investable assets
  • There are almost five million households with $1 million in investable assets
  • Almost all new assets for full-service brokers are new money, with the largest share being retirement plan rollovers

Clarify Appropriate Product & Service Offers

  • Hanson McClain’s Hanson McClain Retirement Planning generates over three-quarters of its revenues from 12b1 fees

Develop Sales & Marketing Strategies

  • One-third of fee-only financial advisors seek third-party marketing help
  • More than half of all new fee-only financial advisors’ assets come from client referrals, with passive referrals being the main source

Build Necessary People & Technology Support

  • Advisors can build great businesses by focusing on benchmarking data and best practice profiles
  • Larger fee-only financial advisors firms allocate a greater share of expenses to staff compensation
  • There is significant variance in partner compensation depending on financial businesses
  • Financial advisors are most likely to outsource classic operating activities such as web site hosting and disaster recovery

Establish Measurement Systems

  • The average independent rep firm earns $233,000 of pre-tax profits; the largest independent reps take home almost six times this amount
  • The average independent rep earns $895 in pre-tax profits per client; larger independent reps ear significantly more
  • The average independent reps firm earns $148,000 pre-tax profits per partner; the largest firms earn almost five times the average
  • The average independent reps firm has grown its pre-tax profitability by15% per year; the larger firms are able to grow profits the fastest
  • Fee-only financial advisors firms’ pre-tax profits have been growing at 8% annually, with the larger advisors faring better

Develop Realistic Succession Plan

  • One of the most dramatic trends over the last several years has been the explosion in the number of independent financial advisors, both fee-only financial advisors and independent reps
  • One study showed that 5% of independent advisors are going to retire in the next five years and almost 40% plan to retire over the next fifteen years

Financial Services Industry Investment Opportunities

  • Brokerage stocks are typically the first winners in a bull market as brokerage firms collect all the fees and commissions when investors start buying again
  • Institutional M&A activity is driven by two factors, consolidation and diversification
  • Bank consolidation during the 1990s significantly reduced the number of banks
  • Amazingly there are over 800 financial service industry mergers & acquisitions each year, with 996 in 2007

Product Manufacturers & their Distribution Opportunities

  • From a manufacturers’ perspective… there are 641 mutual fund companies, an increase of over 40 since 2005
  • There are more than 8,000 open-end mutual funds, 5% less than the peak number in 2002
  • More than three-quarters of mutual fund companies have less than $10 billion assets under management
  • Mutual Funds are dominated by stock funds, which have grown from 42% to 65% of all mutual funds since 1990
  • The United Kingdom leads the other English speaking markets in population, but all combined have a smaller population than the US
  • Over half of the European mortgage debt burden comes from the UK & Germany, with the other half or so coming from over 20 other countries
  • Only 2.5% of the Indian population are active retail investors

Potential Industry Innovators & Strategic Frameworks for Financial Institutions

  • The consulting market generates about $300 billion of revenues, up 1,000% since 2001
  • Operations & technology consulting is the largest segment of the consulting market; strategy consulting is about one-quarter of the market
  • Operations & technology consulting is even more dominant in the financial services industry, accounting for over three-quarters of all revenues
  • The financial services consulting market generates $60 billion in revenues, up 65% since 2004
  • The financial services consulting industry is still highly fragmented with only 17 practices commanding more than 1% market share with the largest practice having 6.1% market share

To better understand the developments for The Future of Advice, executives can purchase Tiburon's The Future of Advice: Defining the Winning Product, Channel, & Tactical Strategies research report where the key findings highlighted above are covered in greater detail. Please contact Sarah Sage at SSage@TiburonAdvisors.Com or 415-789-2540.

    *******************************************************************************