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 Products & Services. This research release summarizes some of the report's key findings.

See Table of Contents for Tiburon's Products & Services Research Report

The purpose of this report is to provide readers with an initial understanding of the vast array of investment & wealth management products & services. This report serves to summarize Tiburon’s views on various products & services markets, including cash investments & bank savings products, individual securities & capital markets, mutual funds, separately managed accounts & other fee-account programs, ETFs & indexing, alternative investments, wealth management services, and family office services. This is the second draft of Tiburon’s research on this topic.

Tiburon’s first draft of this report was published in 2007; that draft consolidated prior Tiburon research into one report. Several of the underlying product & service industry reports (including mutual funds, separately managed accounts & other fee-account programs, ETFs & indexing, hedge funds, venture capital & private equity, real estate, other alternative investments, insurance products, and estate planning & charitable giving) had previously been published. That version of the report was intended to summarize those reports, take into account the impact of the key driving factors (consumer wealth, institutional markets, & current events), and offer some predictions across the product & services markets.

This is Tiburon’s second draft of this report; this draft brings this report into alignment with the revised drafts of many of its underlying reports.

Key Findings & Future Predictions
This report has a long list of interesting facts to share & outlines future predictions:

Mutual Funds

  • There are just over 8,100 open-end mutual funds, 5% less than the peak number in 2002
  • Mutual funds redemption rates have decreased 25%, after spiking in 2002
  • The top five mutual fund companies grab nearly 90% of net sales, up over 100% in the past ten years
  • Vanguard Group, Fidelity Investments, and American Funds are the largest mutual fund companies in terms of assets
  • The growth of assets under management in turnkey asset management programs has been rapid, with turnkey asset management programs now at $91 billion in assets under management
  • Mutual funds industry growth may slow because of four factors, including a maturing market, dampened market growth (due to performance challenges), retirement assets cresting, and penetration of households cresting
  • The number of mutual fund companies offering target date (life cycle) mutual funds will increase

Fee-Accounts

  • Fee-accounts were invented in the late 1970s but went largely ignored until the Tully committee of 1995 and the bull market of late 1990s, followed by today’s repositioning phase
  • The Merrill Lynch Rule was established in 1999 upon the introduction of its Unlimited Advantage fee-based brokerage account to allow brokerage that previously relied solely on commissions to accept fee business without registering as investment advisers
  • The court decided through a two-to-one decision that the Securities & Exchange Commission had exceeded its authority in adopting the Merrill Lynch rule, ultimately making fee-based brokerage accounts illegal
  • Since 1996 packaged fee-accounts asset growth has also been explosive, breaking through the $1.5 trillion at the end of 2006. In 1992, fee-account assets were only $82 billion
  • Smith Barney and Merrill Lynch dominate the other players in total fee-accounts assets, each having over triple the assets of the third leading player
  • TAMP assets have reached $255 billion, up 1,000% since 1887 and 25% since 2005 partly due to the addition of Prudential Financial’s assets into the TAMP category
  • Less than ten percent of fee-based financial advisors use separate account managers
  • The packaged fee-accounts market will continue to grow rapidly, reaching nearly $3.0 trillion in assets by 2010
  • Separately managed accounts are likely to maintain the largest market share in fee accounts through 2012, while multiple style portfolios and unified managed accounts may pick up some share
  • Assets in separately managed accounts will more than double over the next few years, reaching $2.8 trillion combined by 2012
  • The acquisitions trend in the TAMPs market is likely to continue well into the future, eventually leading to a handful of powerful platform firms

ETFs & Indexing

  • The famous Brinson Beebower study focused many advisors and clients on asset allocation and the belief that the majority of portfolios’ performance is determined by asset allocation
  • Most actively managed mutual fund managers fail to beat indexes in the majority of years
  • There are nearly 600 index mutual funds and exchange traded funds combined
  • Pro Funds and Rydex Investments account for the majority of market-linked leveraged index product assets
  • Market-linked products popularity continues, as twenty new market-linked product companies may enter the market
  • The number of exchange traded funds will increase faster than the number of index mutual funds in the marketplace
  • Distribution expansion for exchange traded funds will occur, specifically in 401(k) plans, annuities, fee-accounts & TAMP programs, and with independent advisors

Hedge Funds

  • There are over 7,000 hedge fund managers, managed futures managers, non-us hedge fund managers, and hedge fund mutual fund managers
  • Hedge fund industry mergers & acquisitions activity has been taking place for years
  • Hedge funds account for less than 10% of US investable assets, but shockingly account for a quarter of the country’s individual stock trades
  • Event driven hedge fund assets under management have reached $272 billion, up 32% since 2006
  • The largest domestic hedge fund company is JP Morgan Asset Management, with $33.1 billion assets under management and Goldman Sachs, behind less than $1 billion
  • Hedge funds will nearly double to almost $4.5 trillion by 2013
  • Hedge fund companies are seeking ways to build franchises and brands that can outlast their founders including recruitment, succession plans, and shifting to the institutional market

Venture Capital & Private Equity

  • Venture capital & private equity fund flows reached $306 billion in 2007, up about 10%
  • Pension funds provide over half of the total investments in venture capital funds
  • The leading venture capital & private equity firm in terms of commitments is Maryland Technology Development Corporation with 19 commitments, followed by Draper, Fisher, & Jurvetson with 16 commitments
  • There were 3,813 venture capital investments made in 2007, which is well below the record levels of 8,221 in 2000
  • Private equity fund commitments have grown quickly from $11 billion in 1993 to over $150 billion in 2007
  • The number of venture capital & private equity firms will continue to grow, reaching about 2,400 by 2012, up from 2,100 today
  • Venture capital & private equity fund flows will continue to grow, reaching over $300 billion by 2012, a growth rate of nearly 32% over six years, up from $262 billion today
  • Venture capital & private equity flows will increasingly come from high net worth investors, but pension plans and endowments & foundations will continue to dominate

Real Estate

  • Real estate investments debt is $1,430 billion
  • Over one-third of real estate investments equity is controlled by pension funds
  • Real estate investments have five product structures, including pooled partnerships, REITs, commercial mortgage backed securities, direct, and mutual funds
  • Lend Lease real estate leads real estate firms with $29 billion, with Principal Life Insurance Company leading next with $17 billion
  • Many pension plans don’t use real estate in their funds

Wine Investments

  • More than one-half of California’s 2000 vintage record harvest was comprised of five grapes, including Chardonnay, French Colombard, Zinfandel, Cabernet Sauvignon, and Merlot
  • Washington State has 170 mostly small wineries, most producing fewer than 5,000 cases annually, from a total of 300 vineyards. In 1981, Washington had just 19 wineries and was known for its cheap sweet Rieslings and Chenin Blancs
  • There are now at least 2,200 wineries in the US
  • The number of wholesalers has shrunk 75% to 2,828 from 10,900
  • The top ten wholesalers control more than half of the total wholesale market, which is incredible considering that there are 2,828 US wineries
  • An acre of Napa Valley vineyard land averages $100,000 and parcels are not easy to come by even if you have the money

Other Alternative Investments

  • Other financial alterative investments include old-line limited partnerships, stock market and individual stock options, foreign exchange & currencies, folios, structured debt include treasury inflation protection securities, bank loan funds, catastrophe bonds, stable value & principal protected funds, structured settlements, commodities and financial futures
  • Other non-financial alternative investments include commodities, sport teams, fine art, antique, & collectibles, wine investments, antique & racing cars, jewelry & watches, coins & stamps, and baseball cards
  • Other alternative investments will grow in popularity as both consumers & institutional investors seek out opportunities to earn substantial and non-correlated returnsFee-based financial advisor mergers & acquisitions are up over 600% since 1999, with 81 deals taking place in 2007

Insurance Products

  • There are 1,430 insurance companies, relatively flat since 1993
  • Worldwide insurance assets add up to nearly $12 trillion
  • Blue Cross & Blue Shield is leading the insurance industry in terms of number of people insured, with 92 million customers
  • The majority of those who are uninsured come from low income households
  • And over one-tenth of those who are “nearly elderly” and in poor health lack health insurance
  • The life settlement market is a growing industry, with $10 billion changing hands in 2004
  • Insurance in force is on the rise, increased to $78 billion by 2012
  • Insurance industry premiums have been growing, increasing to $52 billion by 2012
  • Insurance industry first year premiums have been growing and are going to continue to do so, reaching $10 billion by 2012
  • A growing number of companies will participate in off shoring in order to reduce operation costs in the near future

Estate Planning & Charitable Giving

  • Over two-thirds of financial advisors charge less than $2,000 for estate planning services
  • Only three-quarters of consumers believe having a will is important, a 10% decline from 2002
  • Cumulative bequests are now $3.1 trillion, up over 300% since 2000
  • There are now 20.2 million taxable estates, up over one-third since 2000
  • Consumers & corporations give $280 billion to charities, up over 20% since 2000
  • The Fidelity Charitable Gift Fund is the largest charitable gift fund in terms of assets under management with nearly $3 billion
  • There are 77 million baby boomers; they now account for one-third of the total US population
  • The population of people over the age of 65 will double by 2030, the year when the last baby boomers reach that age

To better understand the developments for Products & Services, executives can purchase Tiburon's State of the Investment & Wealth Management Products & Services Business 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.