Tiburon CEO Summit XVII

Tiburon Strategic Advisors has hosted the semi-annual Tiburon CEO Summits alternately in New York & San Francisco over the last several years; these events provide a unique opportunity for a select cross-industry group of senior financial services industry executives to discuss a broad swath of issues regarding the future of the brokerage, investments, advice, & wealth management businesses.

The last Tiburon CEO Summit was held October 7-8, 2009 at the Ritz Carlton Hotel in San Francisco, CA. Guest speakers included Jon Baum (CEO, The Dreyfus Corporation), John Calamos (CEO, Calamos Asset Management), Deena Katz (Chairman, Evensky & Katz and Associate Professor, Texas Tech University), Pete Kight (Vice Chairman, Fiserv), Steve Lockshin (CEO, Convergent Wealth Advisors), Andrew Rudd (CEO, Advisor Software & Former CEO, Barra), Steve Wallman (CEO, Foliofn), & Jim Weddle (Managing Partner, Edward Jones & Company). This release provides highlights of their presentations.

CEO Summit XVII
Guest Speaker
Jon Baum
(CEO, The Dreyfus Corporation)
Jon Baum (CEO, The Dreyfus Corporation)

Jon Baum has served as the CEO of The Dreyfus Corporation since 2008, where he is responsible for forming & leading The Dreyfus Corporation's management team, guiding its strategic alliances, and managing the implementation of its business initiatives. He added the title of chairman of The Dreyfus Corporation in 2009, and also serves as chairman & CEO of MBSC Securities, the distributor of the Dreyfus Family of Funds. Additionally, he is a member of the operating committee of The Bank of New York Mellon Corporation and the executive committee of BNY Mellon Asset Management.

At Tiburon CEO Summit XVII, Mr. Baum presented three main points, including the crossroads of recovery, the implications for the asset management industry, & the drivers of distribution success going forward. Specifically, details include:

Crossroads of Recovery

  • A rally in risk-based securities is driven by the general perception that the economy has turned the corner and that sustainability is dependent on the acceleration of global economic activity
  • Three possible courses for the economic recovery include a highway to recovery (a speedy recovery), the slow and winding road (a long, slow recovery), & the evening commute (never fun, takes a long time, but inevitably leads home)
  • Where to go from here: a moderate growth environment will reward fundamentals and quality stock-picking; earnings should look good on a relative basis, but investors should also seek revenue stabilization; high quality assets appear to be optimal, but investors should seek assets able to perform well in multiple scenarios and hedge by investing in alternate views)

Implications for the Asset Management Industry

  • Results of the crisis include disillusionment with equities, a rising savings rate, a global shift to defined contribution, increased volatility, reduction of leverage, a shift towards simplicity & transparency, and regulatory scrutiny

Drivers of Success Going Forward

  • The successful firms moving forward will focus on client service & relationships and on solutions rather than product
  • A focus on client service & relationships includes proactive anticipation of client needs, long-term commitment, flawless reputation as earned by sustained high integrity, providing customized solutions, don't overpromise, emphasize unique client needs, & building a firmwide culture to support such goals (distribution firms will need to break existing paradigms to compete in a more client-centric environment)
  • A focus on solutions rather than products includes risk-adjusted returns rather than just returns, absolute returns rather than relative returns, liability-driven investing, dynamic asset allocation, access to new markets, flexible pricing, & non-traditional, non-correlated assets

CEO Summit XVII
Guest Speaker
John Calamos
(CEO, Calamos Asset Management)
John Calamos (CEO, Calamos Asset Management)

John Calamos has served as chairman, CEO, & chief investment officer of Calamos Asset Management since founding the firm in 1977 and taking it public in 2004. A pioneer in investment strategies & risk management techniques, Mr. Calamos has created a reputation for using investment techniques to control risk, preserve capital, & build long-term wealth.

At Tiburon CEO Summit XVII, Mr. Calamos presented three main points, including the persistent pursuit of opportunity, perspectives from a chief investment officer, & perspectives from a CEO, as told through his experiences as an industry pioneer spanning four decades. Specifically, details include:

Persistent Pursuit of Opportunity

  • A disciplined, consistent investment process at Calamos includes a highly differentiated investment approached distinguished by a one-team, one-process approach to investing
  • Calamos' valuation structure includes proprietary analyses for each company, while its culture includes a program to grow talent internally

Perspectives from a Chief Investment Officer

  • Cannot manage performance; therefore, must manage risk, but 2008 forced the question of whether systemic risk can be managed
  • Considering investment strategies for a slow growth economic environment leads to convertibles investing as a core strategy
  • Going global with investment strategies is a check on confining government policies
  • Considering active versus passive investing in a slow growth environment

Perspectives from a CEO

  • Changing client demand creates opportunity to provide new solutions
  • Seeking efficiency leads to greater outsourcing and transforming the operating model
  • Controlling resources requires a focus on investment performance & service
  • Changing distribution patterns
  • "Wise men make more opportunities than they find" - Bacon, 1625

CEO Summit XVII
Guest Speaker
Fred Jonske
(CEO, M Financial Group)
Fred Jonske (CEO, M Financial Group)

Fred Jonske has served as CEO of M Financial Group since joining the company in 1996. He led M Financial's reorganization from a partnership to a member owned holding company and continues to focus on refining & executing the company's strategic direction. During Mr. Jonske's tenure, M Financial's sales have grown at a compound annual rate of 17%, solidifying the company's position as the leading independent life insurance design & distribution system serving the ultra affluent market in the United States.

At Tiburon CEO Summit XVII, Mr. Jonske presented three main points, including M's market defined, the impact of the financial crisis, & keys to success for high-net-worth clients moving forward. Specifically, details include:

M's Market Defined

  • Ultra-affluent: the market is a net worth above $25 million, with many member firms focusing on clients with $100+ million net worth; the methods of entry include private wealth transfer clients through advisor network and corporate clients, mostly public, offering deferred compensation to senior executives; market share is estimated at 20+% of life insurance sales
  • Private wealth transfer clients: needs served include wealth transfer to next generations, fulfill legacy vision (charities), & business continuity; point of entry is the financial advisor who has identified the need; client characteristics include clients aged 50 to 70 at contact, with wealth typically generated through business startup, wherein tax considerations are significant, & underwriting considerations often trumping carrier brand; preferred product is traditionally variale with maximum flexibility, but there is some movement toward contracts with more guarantees at the expense of upside return potential
  • Corporate clients: needs served include fund deferred compensation & post-retirement benefit needs; point of entry includes CEO or CFO of firm or human resources department; client characteristics include clients aged 40 to 65 at contact with average net worth under $25 million due to the need to insure a group of individuals, wealth generated largely through affiliation with a larger company, financial implications to the company being the main determinant, & deferred compensation subject to debt of company; preferred product is an accumulation product either variable or fixed, with guaranteed or simplified underwriting

Impact of the Financial Crisis

  • 2008 in context: among the worst years in history, during which the impact of uncertainty was powerful. Clients & providers both showed their true colors during the crisis, but the aftermath has led to recalibrated expectations characterized by opportunities to differentiate with products & services
  • Status of US life insurance industry: As a result of capital requirements, the industry is relatively stronger than others, but is not immune to capital isues, especially within the VA sector. Relatively few firms will accept TARP, and the consolidation of the industry has stalled with the convergence of financial services unwinding. There have been product changes with increased demand for guarantees, though cost is rising. The industry has been downgraded from a credit rating perspective, with risk mitigation more important than ever
  • Client perspective in the wake of the financial crisis: new concerns have arisen, including delayed buying decisions, decreased estate values, demand for insight/advice at an all-time high, increased interest in low cost protection, variable still favored, & service a key differentiator

Keys to Success for High-Net-Worth Clients Moving Forward

  • The right relationship - quality is essential
  • Differentiated product
  • Due care
  • Inforce management
  • Influence with product manufacturers

CEO Summit XVII
Guest Speaker
Deena Katz
(Chairman, Evensky & Katz and Associate Professor, Texas Tech University)
Deena Katz (Chairman, Evensky & Katz and Associate Professor, Texas Tech University)

Deena Katz has served as chairman of Evensky & Katz since co-founding the firm in 1985 and as associate professor at Texas Tech University since 2007. In addition to her dual roles, Ms. Katz is an internationally recognized financial advisor & practice management expert and the author of six books on financial planning & practice management topics. She currently serves as an advisor to the comptroller of the state of Texas on its college funding plans.

At Tiburon CEO Summit XVII, Ms. Katz discussed the importance of focusing on two groups of people moving forward, including the next generation of financial planners & the future generations of consumers. Specifically, details include:

Next Generation of Financial Planners

  • The average financial advisor is a white male aged 54
  • Consumers are aging, with 77 million baby boomers
  • New attitudes and consumer sensitivity is required
  • Standards of Care (FPA) include put the client's best interests first, act with due care and in utmost good faith, do not mislead clients, provide full and fair disclosure of all material facts, & disclose and fairly manage all material conflicts of interest
  • The new financial advisor must be technically competent, academically educated in financial planning and invesment management, educated in counseling & communication skills, and willing to accept Standard of Care responsibility

Future Generations of Consumers

  • The consumer is demanding advice over transactions these days
  • The fundamental shift in power, from business institutions to consumers & individuals, is defining the end of consumer dependence
  • A new paradigm is emerging among consumer attitudes, including time is scarce, products are all commodities, & life-style centric focus is paramount
  • Consumers must be educated, with financial literacy defined by understanding fundamental concepts such as borrowing, saving, investing, & protection of resources
  • This provides opportunities for the financial services industry to partner with academics, professionals, & communities

CEO Summit XVII
Guest Speaker
Pete Kight
(Vice Chairman, Fiserv)
Pete Kight (Vice Chairman, Fiserv)

Pete Kight has served as vice chairman of Fiserv since 2007, when the firm acquired Check Free Corporation. He focuses on driving industry innovation and leading strategic development, new product direction, & the integration of the strengths of Check Free Corporation and Fiserv.

At Tiburon CEO Summit XVII, Mr. Kight discussed the future of technologies in the financial services industry. His presentation touched on three key elements in considering the future, including the digital consumer, the digital investor, & the digital business. Specifically, details include:

Digital Consumer

  • To them data is free: investment research is free & immediate
  • Consumers will eventually own their own data
  • Value must be justified to charge fees to consumers
  • Expectations are to include analyses of costs, affordability, effect on budget, effect on retirement accounts, risks - and deliver it free and easily readable
  • And make it easily readable on my computer or my iPhone

Digital Investor

  • Free data changes everything
  • Today's investor is more educated and more easily agitated
  • Expectations are higher
  • Investors require anywhere, anytime access

Digital Business

  • Free data means pricing will shift in many industries (Skype & iTunes are two basic examples in telecommunications & music)
  • Huge potential of predictive technologies involves analysis of every keystroke, every transaction to increase predictive knowledge; the result is to know more intimately than ever before each and every individual client and client family
  • Leads to higher profitability as a result of accurate prediction, low risk, & low turnover
  • Need to perfect authentication, risk management, personalization of services

CEO Summit XVII
Guest Speaker
Steve Lockshin
(CEO, Convergent Wealth Advisors)
Steve Lockshin (CEO, Convergent Wealth Advisors)

Steve Lockshin has served as chairman & CEO of Convergent Wealth Advisors since founding the firm in 1988. Mr. Lockshin leads Convergent in its efforts to deliver a differentiated offering to the ultra affluent. Under his leadership, the company has emerged as an early adopter of asset allocation strategies for ultra-high-net-worth families, successful use of Monte Carlo simulation to better quantify the risks & reward parameters of alternative portfolios, equity risk management, and other innovative strategies. His focus remains on building the company through client service & differentiated offerings, with a particular emphasis in trust & estate tax strategies, concentrated wealth strategies, and overall family wealth planning.

At Tiburon CEO Summit XVII, Mr. Lockshin's presentation covered four main points, including the current state of the industry, hedge funds, tactical versus strategic asset allocation, & the future of the industry. Specifically, details include:

Current State of the Industry

  • The new reality is quite different from the old reality
  • RIA asets fell from $2.4 trillion in 2007 to $1.9 trillion in 2008
  • Clients and employees are concerned & unsettled
  • Economics are challenged with revenues down 10-30%, expenses flat (or increasing), and margin compression
  • A silver lining may exist in prospecting potential and the fact that the RIA business model is in favor
  • Technology is critical in the new reality, with the proliferation of hedge funds, mutual funds, & exchange traded funds (many small firms do not have the resources to compete)

Hedge Funds

  • Greater regulation & transparency, with the strong players surviving
  • Large managers with deep resources in favor
  • Top funds-of-funds will recover as they are worth the diversification premium
  • Low-priced assets create opportunities for excess returns (credit opportunities in 2009)
  • Equity long/short managers well-positioned to capitalize on a sideways market if volatility increases
  • Risks include fear, liquidity needs, high water marks, & forced redemptions
  • But hedge funds are far from dead, as they are a structure, not an asset class, they will continue to attract top talent, & they are still attractive to sophisticated investors

Tactical versus Strategic Asset Allocation

  • Tactical asset allocation translates to short-term steps taken to find returns
  • In the active managers' market, future tactical opportunities include real estate, distressed debt, fundamental equity, & arbitrage strategies
  • Strategic asset allocation is longer term allowing for shifts in the marketplace (not timing the market): using fundamental analysis to determine when relationships have deviated from the norm; deviating from strategic targets when risk/reward trade-offs between asset classes differ from the long-term typical relationships; taking the opportunity to increase return potential without increasing risk, or conversely reducing risk without giving up return

The Future of the Industry

  • Wirehouse share of assets under management is expected to fall from 47.7% in 2008 to 40.7% in 2012
  • Independent broker/dealers, RIAs, & dually registered advisors are projected to account for 39.3% of assets under management by 2012
  • Rules for success in the future include run a great business, operate with highest levels of integrity, commit to outstanding client service, be progressive in thinking, & invest in technology

CEO Summit XVII
Guest Speaker
Andrew Rudd
(CEO, Advisor Software & Former CEO, Barra)
Andrew Rudd (CEO, Advisor Software & Former CEO, Barra)

Andrew Rudd has served as CEO of Advisor Software since founding the firm 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.

At Tiburon CEO Summit XVII, Mr. Rudd's presentation provided an overview of his firm Advisor Software, outlined & defined goal-based investing, and touched on the functionality of the Advisor Software wealth manager platform. Specifically, details include:

Advisor Software

  • Advice solutions provider for advisors at major financial institutions
  • Mission is to advance the science of wealth planning so financial advisors can focus on the art of advice delivery

Goal-Based Investing

  • Considers investments in context of entire balance sheet
  • Risk budgeting approached in terms of goal realization (capacity)
  • Returns viewed in context of goals & liabilities
  • Potential for enormous economies of scale
  • Keeps clients appropriately focused