See Table of Contents for Tiburon's
Future of Advice
Research Report

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 new 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 markets. In short, this report defines the future of advice. The report begins by addressing the key driving factors of current events, consumer wealth, & institutional markets. The report then outlines five keys for product delivery in the future - fee-accounts, ETFs & indexing, alternative investments, wealth management services, & family office services, and predicts the winning markets & distribution channels (namely discount brokers and fee-based financial advisors). The report also addresses five winning tactics, including defining target markets, developing sales & marketing strategies, developing appropriate staffing & compensation models, developing winning firm cultures, and leveraging technology. 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 third draft of Tiburon’s research on this topic.

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

Tiburon’s second draft of this report was published in 2008; that draft brought the report into better alignment with Tiburon’s overall views on the future of advice, including chapters addressing the key driving factors, product & service trends, markets & distribution trends, tactical issue trends, & strategic conclusions.

This is Tiburon's third draft of this report.

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

Consumer Wealth

  • There are over 300 million consumers, an increase of over 10% since 1999 and 400% since 1900
  • Less than one-third of consumers that do retire on their timetable are still financially challenged
  • The median retirement savings balance of consumers over 60 is only $42,000; many do not have enough money to live comfortably for more than a handful of years
  • The number of Consumers collecting Social Security account for 47 million, an increase of almost 40% since 2006
  • The World War II generation wealth transfer has been less impressive than many predicted and it likely will not grow much further; however retirement and intergenerational transfers are more than half a trillion dollars
  • The risk of dying too young is increasingly being replaced by the risk of living too long, with life expectancies now averaging 77-78 years old
  • The amount of consumer household assets in IRA accounts has grown considerably over the past decade, reaching over $4 trillion
  • Consumers have $14.4 trillion of household liabilities, an increase of over 60% since 2002
  • Consumer household home mortgage debt outstanding has increased to nearly $10 trillion
  • Consumer households have over $57 trillion in net worth, an increase of almost 50% since 2002

Institutional Markets

  • Over three-quarters of consumers would pick a defined contribution plan over a defined benefit plan if given the choice
  • In the past five years 43,000 companies have folded their defined benefit plans

Current Events

  • Consumer households’ sub-prime loans outstanding increased almost 300% between 2003 and 2007 to $1.3 trillion
  • The repeal of the estate tax in 2010 could come sooner and will likely be permanent
  • Over two-thirds of affluent investors are concerned that future stock market gains will be lower

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
  • 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

Fee-Accounts

  • 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

ETFs & Indexing

  • 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

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 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

Venture Capital & Private Equity

  • Venture capital & private equity fund commitments reached $306 billion
  • Pension funds provide over half of the total investments in venture capital funds
  • Private equity fund commitments have grown quickly from $11 billion in 1993 to over $150 billion in 2007

Real Estate

  • Real estate investments debt is $1,430 billion
  • Over one-third of real estate investments equity is controlled by pension 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

Other Alternative Investments

  • 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

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 life settlement market is a growing industry, with $10 billion changing hands in 2004

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

Financial Industry Services Industry Networking

  • There Are 250,000 total industry network members
  • The leading financial services industry network in terms of members is the American Bankers Association

Financial Advisor Sales & Marketing

  • Most financial advisors invest limited time in marketing; nearly all dedicate less than five hours per week
  • Financial advisors have found that nearly one-half of their seminar attendees request follow-up appointments

Financial Advisor Staffing & Compensation

  • On average, financial businesses allocate between one quarter and one third of their expense budget to compensation

Financial Advisor Technology

  • Specifically, 40% of banking industry executives feel that their technology spending will increase between 6% and 19%

Financial Advisor Industry Networking

  • There are 82 financial advisor industry networks
  • Financial advisor industry networks have 1.6 million members
  • Financial advisor industry publications have grown to 2.5 million readers

Financial Advisor Mergers & Acquisitions

  • Fee-based financial advisor mergers & acquisitions are up over 600% since 1999, with 81 deals taking place in 2007

Financial Advisor Benchmarking & Best Practices

  • Three-quarters of brokers oversee less than $50 million assets under administration
  • The average independent rep firm has $37 million in assets under administration; the largest independent reps have more than three times that amount
  • Almost all fee-based financial advisors believe that they manage more than half of their clients’ assets under management

Financial Services Industry Mergers & Acquisitions

  • Amazingly there are over 800 financial service industry mergers & acquisitions each year, with 996 in 2007
  • There are two main factors driving insurance companies to acquire other insurance companies, including improved manufacturing efficiencies and distribution expansion

Consulting Industry

  • Leading CPA firms began quietly rebuilding their consulting practice in the late 2000s as demand for financial consulting rose
  • There are almost 320,000 consulting firms, up 50% since 2001
  • The consulting market generates about $300 billion of revenues, up 1,000% since 2001
  • Almost one-fifth of MBAs rate McKinsey & Company amongst their top five desired employers, with both Bain & Company and Boston Consulting Group also receiving lots of attention
  • Federal & state governments and financial services companies are the two largest consulting markets, accounting for over two-thirds of all projects
  • 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

Strategic Frameworks

  • Organizational effectiveness consulting project types & frameworks include organizational design reviews, organizational improvement studies, employee feedback studies, and 360 degree executive feedback
  • Operations consulting project types & frameworks include Business Process Redesigns, Just in Time Delivery, Decision Support Systems, Supply Chain Optimization, ERP, Activity Value Analysis, Benchmarking, and Best Practices Case Studies Framework

Predictions for The Future of Advice
This section outlines the predictions for the future of advice.

Consumer & Consumer Households Growth

  • The number of consumers is expected to grow to over 400 million by 2043, up 100 million since 2007

Consistent Financial Concerns & Savings Goals

  • Consumers’ first financial concern will continue to be the need for retirement income

Continued Low Consumer Savings Rate

  • The consumer savings rate will likely continue to be near 0.1% until 2012

Baby Boomers’ Liquidation

  • Nearly three-quarters of recent retirees have either reinvested their 401k into an IRA or are exploring options to move their funds to a new provider
  • Median existing home prices have remained relatively stagnant at $209,000, up just 5% since 2002 and 27% since 2000
  • Regardless of assets under the expected sales, private business valuations will increase to $10 trillion by 2012

Substantial Immigrant Impacts

  • The number of consumers includes 12% immigrants, almost equivalent to its 1915 peak, despite falling to just 5% in 1967
  • Some believe that immigrants (especially illegal immigrants) have saved social security because they pay taxes but receive no benefits

Continued Assets Under Management Growth

  • Assets are growing 13.5% per year (this would suggest $2.4 trillion in five years)

Shift in Investment Holdings

  • In terms of asset allocation, 401k participants are shifting away from guaranteed/stable value funds toward more equity-oriented portfolios

Significant Consumer Impacts In Terms Of Bankruptcies, Delayed Retirement, & Confidence

  • The expectations index, which measures consumers’ appraisals of economic conditions, will bottom out at 60 in 2009 then gradually increase to 85 by 2013
  • The University of Michigan consumer sentiment index will bottom out at 63 in 2009 then gradually increase to 82 by 2013
  • … the number of fully-disclosed clearing brokers has declined rapidly
  • The number of personal bankruptcy filings is on pact to exceed that of 2007, but down from its peak in 2005 with 2.1 million

Democrats Sweep in Both 2008 Presidential & Congressional Elections

  • More than half of voters believe that Barack Obama would do a better job of improving the economy, while only one-third believe John McCain would do a better job

Slow Righting of the Economy & Markets

  • The bottom for home prices might not come until 2014
  • …However two-thirds of financial advisors believe the Standard & Poor’s 500 will be up 10% to 25% in the next twelve months

Decline in Complicated Investment Products & Channels in Favor of Discount Brokers & Fee-Based Financial Advisors

  • Current events have led to less confidence in both complicated investment products & certain financial services industry investment channels

The Imminent Credit Card Blowup & Tighter Regulation

  • The next financial crisis will come from a blowup in the credit card industry
  • There is $950 billion of outstanding credit card debt
  • Discover Financial Services is the most dependent issuer on credit cards with nearly 100% of its revenues attributed to credit cards

Mutual Funds

  • 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

  • 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

ETFs & Indexing

  • 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

  • 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

  • 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

Wine Investments

  • 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 alternative investments will grow in popularity as both consumers & institutional investors seek out opportunities to earn substantial and non-correlated returns

Insurance Products

  • Insurance in force is on the rise, increased to $78 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

  • 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

Online Tools & Advice

  • The number of personal computers in circulation will likely reach 570 million by 2013, up over 100% since 2007
  • Online tools & advice firms will earn $24 billion by 2013, up 60% since 2007

Online Brokerage

  • There are four advantages of scale moves in the discount brokerage market that will drive further M&A activity in the future, including increased commission revenues, improved margins, upgraded customers, and added cross-selling opportunities

Online Banking & Mortgages

  • Online banking usage may eventually rival ATM usage

Online Insurance

  • Eventually nearly all insurance contracts will be entered over the web, either by consumers or their agents

Retail Banks

  • Some estimates predict that the ten largest retail banks will account for over half of domestic banking assets

Independent Reps

  • Independent broker/dealers have over 61,000 producing reps in 2006, growing 33% by 2012
  • Nearly one-third of independent broker/dealers’ new reps are recruited from other independent broker/dealers

Fee-Based Financial Advisors

  • The three largest fee-based financial advisor custodians serve over 67% of fee-based financial advisors
  • Fee-based financial advisor mergers & acquisitions are up over 600% since 1999, with 81 deals taking place in 2007

English Speaking Countries Markets

  • There are two fundamental ways for foreign financial services firms to enter the English speaking markets – build or buy
  • The volume of leveraged buyouts is up substantially in the United Kingdom since 2003

Europe, Middle East, & Africa Markets

  • Europe has the second largest share of worldwide internet users with about 30%

Asia Pacific Markets

  • Asia leads the world in internet users, with nearly 40% share globally
  • Previously, the Asian credit market has been dominated by a handful of large players such as CitiFinancial, and less reputable firms just a step up from loan sharks

Financial Industry Services Industry Networking

  • Financial services industry networking trade groups will grow

Financial Advisor Staffing & Compensation

  • An alternative to the multi-partner structure is a pod structure, which really is a series of small firms sharing costs

Financial Advisor Technology

  • Financial services industry technology spending is expected to grow steadily at 4% a year until 2013
  • Over one-third of all financial advisors do not use document management software
  • And 13% of financial advisors do not even use report generation software

Financial Advisor Industry Networking

  • Financial advisor industry networking trade groups will grow

Financial Advisor Mergers & Acquisitions

  • Over one-half of all independent advisors are over age 50, suggesting a pending retirement movement (many independent broker/dealers and custodians have not done any age demographics studies)

Financial Advisor Benchmarking & Best Practices

  • The average tax professional has seen a 10% growth in its number of financial planning clients over the past three years, with the smallest and largest firms fairing better

Financial Services Industry Mergers & Acquisitions

  • Financial services company mergers & acquisitions will slowly increase and eventually level off to 1,045 by 2013

Consulting Industry

  • The financial services consulting market is predicted to grow from $60 billion in revenues to $74 billion by 2011, an increase of more than 20%

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.