Tiburon CEO Summit XIII kicked off with a keynote presentation by Chip Roame (Managing Principal, Tiburon Strategic Advisors). Chip welcomed the attendees, gave an overview of Tiburon, addressed the state of the financial services industry, offered the group an organized list of current industry issues to consider, and introduced the five guest speakers.

US households control almost three-quarters of all investable assets, more than half invested via financial advisors

Many baby boomers face a retirement income challenge for five reasons, including the elimination of so many defined benefit plans and the challenges faced by the social security system

Three-quarters of baby boomers over the age of 55 have less than $100,000 in investable assets and the consumer households savings rate continues to hit new all time lows

The median value of baby boomers' inheritance is only $48,000; very few receive more than $100,000

Beyond the liquefaction, another opportunity is presented by the risk of baby boomers living too long, with estimates that more than half of 65 year olds will reach age 85 and over one-third will reach 90; amongst 65 year old couples, there is a 50% chance that one (or both) will live another twenty-five years

Consumer households have almost $23 trillion of investable assets, $35 trillion of financial assets, and $70 trillion of total assets, with an important distinction between the high dollar average and the much lower median amounts

Hence, the solution to the perceived savings crisis will be baby boomers' liquefaction of their retirement plan assets, personal assets, and other illiquid assets, such as the rollover of 401k plan balances, the sale of houses, and the sale of private businesses

Close to 400,000 financial advisors are in the market, including about equal numbers of wirehouse & other employee brokers (92,000), life & property & casualty insurance agents (87,000), bank brokers & trust officers (82,000), and independent reps (also 82,000)

The number of independent advisors (the combination of independent reps and fee-only financial advisors) has far surpassed the number of wirehouse & other employee brokers (112,000 versus 92,000), and the number of independent reps alone will soon surpass the number of wirehouse & other employee brokers (currently 82,000 versus 92,000)

Wirehouse and retail banks continue to dominate control of consumer investable assets (31% and 27% respectfully) but independent advisors continue to outgrow the competition (18% assets growth rate for fee-only financial advisors and 14% for independent reps)

Fidelity Investments recently surpassed Merrill Lynch as the largest financial services firm when ranked by client assets, and Schwab will also surpass Merrill Lynch at current growth rates in two-to-three years, further evidencing the growth in new channels (discount brokerage, fee-only financial advisors, and independent reps)

Products & Services

Mutual funds are the dominant investment product ($10.8 trillion assets) and are used heavily by both the fast growing independent rep and fee-only financial advisor markets (39% & 61% of assets respectively) suggesting that mutual funds aren't going away, even if much of the reporting and media focus is on other products, including exchange traded funds, separately managed accounts, and hedge funds. Mr. Roame called attention to the facts ($10.8 trillion in mutual funds versus ETFs at $433 billion & separately managed accounts at $720 billion (collectively $1.1 trillion)), encouraging the group to maintain perspective

There is some trend to packaged solutions; for instance, target date mutual funds have quickly gathered over $100 billion (although Mr. Roame cautioned that it appears that consumers are misusing these funds, mixing them into portfolios containing other funds, hence altering their overall asset allocation)

Packaged fee-account assets have grown substantially over the past eight years to over $1.5 trillion but wirehouses' client assets are still just 15% in fee-account programs and similarly only 16% of independent rep clients assets are in fee-account programs; amazingly, banks have done slightly better with 17% of their client assets in fee-based trust accounts but only 4% of bank trust department assets are invested with third-party managers. Furthermore, the key products in the wirehouse channel are evolving quickly, with fee-based brokerage accounts giving way to broker wrap accounts (due to the abolishment of the Merrill Lynch rule) and separately managed accounts giving way to unified managed accounts (due to the later being a superior product platform)

More broadly, the investment process is being polarized with twin growth patterns in both market-linked products and alternative investments. Mr. Roame argued that exchange traded funds may be the fundamentally most important product invention since the mutual fund in 1940, and hypothesized that they may ultimately shift many financial advisors' role to that of managing a series of index products and focusing excess time on delivering a broader set of wealth management services

Similarly, dozens of firms are entering into the hedge funds business - Citigroup purchased one-year old Old Lane; Morgan Stanley acquired multiple hedge fund firms. Mr. Roame also noted that the attendees at a recent SEI conference maintained an impressive focus on revenues, which they noted are increasingly driven by their lower asset hedge funds

Mr. Roame argued that investments may matter less than wealth management services as baby boomers move from the liquefaction & retirement income challenge years into either their health care & retirement income challenge years (for the less affluent) or their estate planning & charitable giving distribution years (for the more affluent)

For instance, many baby boomers face a health care crisis, with up to 50% likely to require nursing home care but only 7% owning long-term care insurance. Similarly, the fast growing independent rep market puts almost one-third of its client assets in annuities, but over three-quarters of annuity sales represent transfers from existing policies

More affluent households will unlikely have retirement income or health care insurance issues but will instead be faced with issues surrounding the most tax-efficient estate planning & charitable giving methods

The brokerage firms have moved to license their reps to sell insurance (69%) but few have yet done so (15%)

And amazingly, more that half (58%) of consumers still lack a basic will

Mr. Roame pointed to Merrill Lynch's Total Merrill advertising campaign as an example of the industry's likely evolution

On a more tactical level, Mr. Roame said that many financial advisors have focused their energies on the 40 million households (out of 117 million) that control 90% of all investable assets ($19.8 trillion out of $22.8 trillion)

As competition heats up, Mr. Roame said that the game will increasingly be won through marketing. Mr. Roame argued that client retention and consolidation is now more critical as baby boomers liquefy their wealth. Similarly, he noted that client referrals appear to account for 55% of incremental new clients. Few financial advisors utilize target market strategies, even though these techniques have proven to lead to increased numbers of referrals, result in higher close rates, and lower costs to serve clients

But Mr. Roame also offered some caution, saying that while almost all industry executives are trying to push financial advisors to serve higher net worth clients, the fact growing independent rep channel has an average account size of just a modest $142,000

Technology has become a great equalizer across many segments of the industry. Both large and small banks and mutual fund companies are able to compete, and technology has empowered the independent financial advisor industry, eliminating the need for financial advisors to be employed at large firms

Aside from technology, people are the key leverage point across many industry segments. Investment professionals determine the success of client portfolios; distribution professionals increasingly lead many of the firms; and individual financial advisors increasingly control their clients

Numerous financial advisor merger & acquisition models are finally gaining some traction, with the prior week's multiple acquisitions by Focus Financial Partners being held out as an example

Strategic Conclusions

Industry mergers & acquisitions continue at all levels of the industry with Power Corporation of Canada's acquisition of Putnam Investments, TD Bank Financial Group's acquisition of Commerce Bank, Bank of America's acquisition of US Trust, Merrill Lynch's acquisition of First Republic, TD Ameritrade's acquisition of Fiserv's custody business, Fiserv's subsequent acquisition of Check Free, the Bank of New York's acquisition of Mellon Financial, State Street Corporation's acquisition of Investors Bank & Trust, and City National Bank's acquisition of Lydian Wealth Management representing a wide range of examples

There has been a focus on eliminating (perceived) conflicts of interest, with two full-service brokerage firms exiting the investment management business. Mr. Roame challenged the group to consider Smith Barney's & Merrill Lynch's strategies versus those of Morgan Stanley, Wachovia Corporation, & UBS, which appear to be increasing their bet on asset management

There is also a substantial bifurcation happening in the asset management business, with a handful of firms (American Funds, Vanguard, Fidelity Investments) exceeding $1 trillion assets under management, but 84% of all mutual fund companies managing less than $10 billion

And overall there has been more bad news for product companies as distribution continues to take power from manufacturing, with recent models - only multiple style portfolio programs being a key example

Financial services private equity transactions are prominently in the news, with recent acquisitions of both First Data and Sallie Mae

Financial services venture capital also is quite newsworthy with exchange traded fund companies, financial advisor roll-up companies, and other firms raising substantial capital

Guest Speaker Introductions

After offering up that broad synopsis, Mr. Roame introduced the six guest speakers and gave a brief overview of what he expected each speaker would address:

CEO SummitI XIII Guest Speaker Stephanie DiMarco (CEO, Advent Software)	CEO Summit XIII Guest Speaker Mike Fraizer (CEO, Genworth Financial)	CEO Summit XIII Guest Speaker George Gatch (CEO, JP Morgan Funds Management, JP Morgan Chase)	CEO Summit XIII Guest Speaker John Gunn (CEO, Dodge & Cox)	CEO Summit XIII Guest Speaker Ron Peyton (CEO, Callan Associates)	CEO Summit XIII Guest Speaker Don Phillips (Managing Director, Corporate Strategy, Research, & Communications, Morningstar)

• Mike Fraizer (CEO, Genworth Financial) will offer a synergistic follow-up to Tiburon Managing Principal's Chip Roame's presentation, arguing that the US is a nation at risk and financial services firms need to take a leadership position. He believes that the US faces a dual savings & protection crisis and also will suggest some constructive social security solutions. Mr. Fraizer will also address solutions that Genworth Financial is developing to help solve the retirement income and health care funding challenges
  
• Ron Peyton (CEO, Callan Associates) will address developments in both the defined benefit and defined contribution markets, large markets unto themselves and often the trend setter in the high net worth and retail markets. Mr. Peyton will share key institutional investing concepts, outline recent Callan manager searches, and explain the future of defined contribution plans' asset allocations
  
• George Gatch (CEO, JP Morgan Funds Management, JP Morgan Chase) will offer some provocative insights on several points, including the familiarity bias, target date mutual funds, the democratizing of alternative investments, the growth in open architecture, and the importance of investment performance. Mr. Gatch can also be called upon to address, with first-hand knowledge, institutional mergers & acquisitions
  
• Don Phillips (Managing Director, Corporate Strategy, Research, & Communications, Morningstar) will offer provocative insights on performance measurement, including comparing total returns to investor returns, comparing hedge funds to hedge-like mutual funds, and calling attention to the rapid changes in the growing exchange traded funds market
  
• Stephanie DiMarco (CEO, Advent Software) will address the impact of several key industry trends, including the growth of assets worldwide, the explosion in alternative investment instruments, and the increasing demands for compliance & reporting, and she will highlight the opportunities for investment managers to harness technology to efficiently capitalize on these trends
  
• John Gunn (CEO, Dodge & Cox) will discuss Dodge & Cox's philosophies around running investment management organizations, including its reasons for maintaining its independence and its methods for maintaing a consistant investment philosophy
  

Tiburon CEO Summit XIII

After briefly addressing Tiburon, Mr. Roame gave a brief history of the Tiburon CEO Summits, offered highlights regarding the attendee group, and thanked the CEO Summit Planning Committee members & CEO Summit XIII Sponsors:

Guest Presentations

Aside from Mr. Roame's opening keynote presentation, six guest presentations anchored the CEO Summit agenda:

	CEO Summit XIII Guest Speaker Mike Fraizer (CEO, Genworth Financial)

Mike Fraizer (CEO, Genworth Financial)

Mike Fraizer has been CEO of Genworth Financial since the firm completed its 2004 initial public offering. Prior to joining Genworth Financial, Mr. Fraizer held several senior executive positions at General Electric from 1980 to 2004, including senior vice president of General Electric and chairman of General Electric Financial Assurance Holding from 1996 to 2004.

After an introduction by Chip Roame (Managing Principal, Tiburon Strategic Advisors) & Gurinder Ahluwalia (President, Genworth Financial Asset Management, Genworth Financial), Mr. Fraizer offered a synergistic follow-up to Tiburon Managing Principal's Chip Roame's presentation, arguing that the US is a nation at risk and financial services firms need to take a leadership position in addressing that risk, making the following points:

The remarks made in the presentation and during the question & answer time were requested not be posted publicly

	CEO Summit XIII Guest Speaker Ron Peyton (CEO, Callan Associates)

Ron Peyton (CEO, Callan Associates)

Ron Peyton is CEO of Callan Associates, a privately held employee-owned company whose mission it is to deliver superior consulting solutions that help clients achieve their investment and business objectives. Mr. Peyton joined Callan Associates in 1974 and has since worked with large institutional investors to plan, structure, and evaluate investment programs, products, and organizations.

After an introduction by Chip Roame (Managing Principal, Tiburon Strategic Advisors) & Skip Schweiss (Executive Vice President, Fiserv Investment Support Services, Fiserv), Mr. Peyton addressed developments in both the defined benefit and defined contribution markets, large markets unto themselves and often the trend setter in the high net worth and retail markets, making the following points:

Mr. Peyton began by addressing the markets, offering some historical perspective, and reminding the group that, "it was the giant sucking sound of portfolio insurance that was the coup de grace for the 1987 market crash." The good news, he continued, was that, "it was over before anyone could do anything stupid." This allowed him to recollect a point made earlier the same day by John Gunn (CEO, Dodge & Cox) who said, "don't just do something, stand there," agreeing that the people who often make out the best in any panic are the ones who do nothing

He continued that, "beta has not been bad at all these past few years," pointing to the strong markets in recent years. "We are in the fifth longest running bull market in history, soon to move into fourth place; everyone likes to talk about the hot markets of the late 1990s, but the last few years have not been bad. We were supposed to be entering an era of low returns in the post technology bubble crash, but it has been anything but"

In the institutional world, Mr. Peyton believes that institutional investors learned long ago that you should, "structure portfolios for what you need, not necessarily to maximize returns." He believes strongly in diversification (saying that, "traditional investment managers in diversified portfolios always do well over the long-term"), that investors need to understand their strategies & investments, and that "bonds are the anchor"

He added that, most institutional investors do a poor job of entering new investment markets," while noting that "foundations & endowments usually lead defined benefit plans which lead defined contribution plans into new investments because for the former group it is their money and they can re-raise it while the middle group faces ERISA restrictions and the later money really belongs to participants"

Shifting to the defined contribution world, Mr. Peyton rattled off some important statistics - "42% of defined contribution plans offer company stock, 53% still offer money market funds, 88% now offer target date or target risk funds, and the move to socially responsible investing is real, with over 50% of defined contribution plans likely to have such an option within three years"

He said that, "asset allocation funds are growing the fastest, with target date funds alone being a choice in 49% of plans, up from just 38% fifteen months earlier, at least partially due to the Pension Protection Act." He believes that "target date funds will outgrow target risk funds, because they are good for novice investors"

In comparing the twin retirement markets, Mr. Peyton said that "defined benefit plans got the investments right but the contributions wrong. DC plans have both problems!" The only solution, he argued, is "to DB-ize the DC plans, which should include automatic participation and contribution levels"

In his question & answer time, Mr. Peyton offered the following answers to questions:

• Ron was asked if bond market returns can be as strong in the next twenty years as they have in the past twenty years. Laughing, Ron said that, "he doubts it since the last twenty years have seen the greatest bond bull market in history"
  
• "Hedge funds are being sold, not bought." Some consultants are selling investment strategies, rather than consulting. "Not all 7,500 hedge funds add value and plan administrators should not do anything that can not be explained to the next administrator of the plan." To a follow-on question, he added that, "hedge funds-of-fund fees are higher than they should be and alternative investment funds' fees are generally not sustainable"
  
• "We will always find new ways to get ourselves in trouble as the root cause of most investing issues is the reach for returns"
  
• Ron was asked his opinion of all the under funded defined benefit plans, and contrary to some other CEO Summit speakers who called this a crisis, Mr. Peyton said that, "the great thing about a bear market is that it forces companies & governments to fund their plans - the actuarial method works. Most of these plans will be fully funded in four or five years"
  

	CEO Summit XIII Guest Speaker Don Phillips (Managing Director, Corporate Strategy, Research, & Communications, Morningstar)

Don Phillips (Managing Director, Corporate Strategy, Research, & Communications, Morningstar)

Don Phillips is managing director of Morningstar and is responsible for corporate strategy, research, and corporate communications. He was the first mutual fund analyst hired by the company in 1986 and has served on the company’s board of directors since 1999. He is also the first repeat speaker at a Tiburon CEO Summit, back by popular demand.

After an introduction by Chip Roame (Managing Principal, Tiburon Strategic Advisors) & Tim Armour (Managing Director, Strategic Relationships & Business Development, Morningstar), Mr. Phillips shared new Morningstar research that examines the dramatic difference between what mutual funds return versus what their investors actually realize. For the average equity fund, the difference is over 170 basis points, dwarfing the often discussed topics of expense ratios and trading costs. He made the following points:

Morningstar is now calculating a new variable that it calls the success ratio of mutual funds, which is the share of total returns that investors realize. Mr. Phillips quoted long-time Fidelity Magellan portfolio manager Peter Lynch, who said that, "Magellan was a great mutual fund; it is just too bad that it did not make any money for anyone." Mr. Phillips added that, "total returns are the right way to evaluate portfolio managers but consumers often do not capture the entire return due to weaknesses in human behavior which result from chasing performance, delayed purchases, early redemptions, and the inability to stay the course"

However, Mr. Phillips was not ready to let the mutual fund companies off the hook, adding that, "while mutual fund companies do not totally control investor returns, they can exercise some control through marketing, sales bonuses, etc. The point is balancing salesmanship with stewardship." He quipped that a few years ago, "everyone said that they wanted to be like American Funds but meanwhile they were introducing internet funds"

He also added that this is not a mutual fund specific issue, saying that, "the phenomenon is evident across mutual funds, hedge funds, index funds, and exchange traded funds"

The difference is the smallest in the municipal bond, balanced, and asset allocation fund categories because these are generally part of buy-and-hold investment strategies. "Mutual funds that have slower and steadier approaches to their investment returns result in better overall investor experiences," he added

Furthermore, as everyone knows, fund flows have been concentrated for several years. Mr. Phillips restated a long held Morningstar research conclusion that those flows have gone not to funds distinguished by active or passive investment strategies or load or no load pricing, but rather to funds which avoided the market timing scandals and with below average pricing in their respective channels; he added to this theory, saying that, "the winning fund companies also all have high success ratios"

Mr. Phillips closed his prepared remarks by offering the prescription that all CEO Summit attendees, financial advisors, distributors, and manufacturers, "are in the behavior modification business. The focus should be on sound asset allocation and disciplining investors' emotions to reduce mistimed purchases and sales. Mutual fund companies and financial advisors who work together toward this goal will greatly enhance the investor experience"

In his question & answer time, Mr. Phillips offered the following answers to questions:

• "CNBC and the internet have taken all the disadvantages that the pros had and transferred them to individual investors"
  
• Indexing does not magically solve the success ratio problem but indexing has, "raised the bar for active management, forcing active managers to add more value." That said, Mr. Phillips joked that, "without a high success ratio, indexing may be just a more cost effective way of getting bad returns"
  
• Mr. Phillips also called attention to the rising costs & increasing risks in exchange traded funds, saying that, "there is a bifurcation going on with Barclays and State Street acting responsibly but some other firms trying to raise assets and sell their firms. Mutual fund and exchange traded fund firms appear to be on different paths, with mutual fund companies introducing core, target date, and asset allocation funds, while ETF companies are introducing niche asset class funds"
  
• Hedge funds' potential is enticing but Mr. Phillips said that, "retail investors are not looking at the same hedge fund availability as David Swenson," making a humorous analogy to Keith Richards who, he said, "gets good heroin as compared to folks who follow his lead but get inferior product and then are surprised by their health problems"
  

	CEO Summit XIII Guest Speaker George Gatch (CEO, JP Morgan Funds Management, JP Morgan Chase)

George Gatch (CEO, JP Morgan Funds Management, JP Morgan Chase)

George Gatch is CEO of JP Morgan Funds Management, where he oversees over $300 billion in assets. Mr. Gatch joined JP Morgan Chase in 1986 and has held numerous leadership positions throughout the firm in business management, marketing, and sales. Currently, Mr. Gatch leads JP Morgan's US mutual fund and retail businesses, including the firm's sub-advisory and managed account activities. Mr. Gatch also oversees JP Morgan's global money market fund business, which is the largest institutional money market fund complex globally.

After an introduction by Chip Roame (Managing Principal, Tiburon Strategic Advisors) & Dennis Clark (CEO, Advisor Partners), Mr. Gatch offered some provocative insights on several points including international investing, low correlation products, target date funds, the democratization of alternative investments, the growth in open architecture, and the importance of investment performance. The theme of many of his comments was that investing would be far different in the next 100 years than it was in the past 100 years:

Mr. Gatch made the point that many retail investors in both the US and in other countries have too much of their portfolios allocated to their home country stock market. "Investors anchor themselves to their own equity markets," he said. Meanwhile, he argued that asset classes are expanding widely; for instance, JP Morgan's Private Bank has expanded its use from three asset classes in 1997 to 21 in 2007 (including international, inflation protected bonds, private equity, commodities, & market neutral strategies), but amazingly, 64% of assets in defined contribution plans are still invested in large cap equities"

Mr. Gatch offered a wide range of investment product opinions, including that access to alternative assets classes with low or negative correlations is an advantage; shorting constraints limit many smart mutual fund managers from applying their full convictions; there is a lot of discussion regarding 130/30 funds and inflation protected funds and target date funds offer institutional quality diversification. He said that, "investors will increasingly use alternative investments, but so far their experience with non-traditional products has been limited." He argued that while market neutral funds have done poorly, others like inflation-protected bonds have done well. Investors should also consider commodity-linked products and mutual funds that short stocks"

Open architecture structures are driving mutual fund distribution, while proprietary distribution within major distributors is declining rapidly; Citi and Merrill Lynch sold their asset management subsidiaries, which is surprising because asset management has both higher margins and higher likely growth rates than brokerage. But there are select case examples holding their own; for instance, JP Morgan's Private Bank places 80% of its client assets with proprietary managers"

The market for third-party distribution is impossible to ignore, creating a huge opportunity for JP Morgan Asset Management

Investment performance and innovation will separate the winners from losers - "the only thing that matters is investment performance. Flows go to top performing funds and new strategies with good salespeople," said Mr. Gatch

In his question & answer time, Mr. Gatch offered the following answers to questions:

While JP Morgan is twentieth in mutual fund assets and would like to be higher, an acquisition of a mutual fund company is unlikely, with Mr. Gatch saying that he had two words for mergers - "they suck," noting though that the bank could easily acquire another bank, forcing him to integrate another asset management subsidiary

Mr. Gatch though did offer some wisdom on merger integration (gaining experience with both Fleming and One Group), saying that, "the key was to make decisions both quickly and transparently, because if you don't, then weeds grow"

JP Morgan is investing in sales, with 70 field people. Mr. Gatch said that, "he believes in having teams that understand their clients well, and has organized 23 people who go after the wirehouses in major metropolitan areas, 20 people who go after independent reps (the business he expects to grow the fastest in the next five years), 10 people who focus on the Chase retail bank branch system, and five others who go after just the top 1,100 RIAs"

He noted that he is aware of three annuities in registration that would allow, "an income stream to be guaranteed on an existing client portfolio"

Mr. Gatch revealed that he, "hates the separately managed accounts business because he does not like to give up the capacity" and he really does not like "to give his buys & sells to third-parties" but he realizes that "he has to do it as part of broader firm relationships"

	CEO Summit XIII Guest Speaker John Gunn (CEO, Dodge & Cox)

John Gunn (CEO, Dodge & Cox)

John Gunn is CEO of Dodge & Cox, where he oversees almost $200 billion in assets under management in separate accounts and its four mutual fund offerings, including its stock fund, international stock fund, balanced fund, and income fund. Dodge & Cox has been remarkably successful since its founding in 1930; the firm has had terrific investment performance, typically shuns publicity, and avoided all of the recent mutual fund scandals. The firm has also long maintained a core set of principles, which are rarely discussed outside of the firm. Mr. Gunn joined Dodge & Cox in 1972, soon after earning his MBA from Stanford University. Mr. Gunn is also a trustee of the Dodge & Cox Funds and a member of Dodge & Cox’s Investment Policy Committee, Bond Strategy Committee, and International Investment Policy Committee.

After an introduction by Chip Roame (Managing Principal, Tiburon Strategic Advisors) & Karl Mills (President, Jurika, Mills, & Keifer), Mr. Gunn addressed Dodge & Cox's philosophies around running the firm, making numerous insightful points:

• Dodge & Cox has long believed that the best strategy is, "to be distinctive in a fragmented market"
  
• Mr. Gunn believes in keeping it simple - Dodge & Cox has just four mutual funds, no international separate accounts, similar holdings across accounts, a single investment philosophy, and a single office. “I love the mutual fund business because it allows us to focus; the separately managed accounts business is distracting because the clients are looking at tracking error and other crazy statistics”
  
• More specifically, Mr. Gunn shared numerous Dodge & Cox management theories, including, "at Dodge & Cox we believe in a kind of financial Hippocratic Oath – first, do no harm. The higher your fees, the less your clients make. And we also believe in low turnover – one of our company mottos is - don’t just do something…stand there,” adding that, "the one who wins is the one who makes the fewest mistakes"
  
• Dodge & Cox buys "companies' stocks that are out-of-favor or under a cloud, ones that are embarrassing to own if you reveal it at a cocktail party." And he added that, "we don’t believe that past price performance has anything to do with our desire to own or not own a stock; there isn’t a momentum bone in our bodies”
  
• Mr. Gunn has a skeptical view of hedge funds, saying that they are, "just a reallocation of funds amongst the rich people," and recognizing that the market is a zero sum game, "so if so many hedge funds are doing so well, someone must be losing. No other business operates under so many unproven hypotheses. Some will do well, but collectively they will be disappointing. In the 1990s, the financial industry took investors over a cliff and now they are saying, ‘if you pay me more, I’ll do a better job"
  
• Dodge & Cox believes in hiring as few people as possible. “We hired as few people as we could early in their careers and did not let the place become people-intensive. With only 53 shareholders, Dodge & Cox has a group-decision process, which constantly operates face-to-face in one location.”The firm hires young executives, trains them, and seeks to retain them, creating a common culture and investment philosophy that permeates the firm
  

In his question & answer time, Mr. Gunn offered the following answers to some questions:

• The dominating investments theme going forward will continue to be the economic advance of the developing world. Fundamentally, the biggest world shift is coming from the 5 1/2 billion people in the underdeveloped world
  
• Dodge & Cox' board members, "own 35%-50% of the firm." Mr. Gunn believes that going public, "would be a huge distraction"; he also believes that selling would "wreck the company." Dodge & Cox shareholders must sell their shares at ages 65 to 69 at book value, which is likely 2%-3% of fair value. Selling partners have, "a ten year claw-back where if the company is taken public, they would realize their proportion of the profits"
  

	CEO Summit XIII Guest Speaker Stephanie DiMarco (CEO, Advent Software)

Stephanie DiMarco (CEO, Advent Software)

Stephanie DiMarco is CEO of Advent Software and has engineered the growth of the company from a startup in 1983 to its current status as one of the leading providers of software and services for the investment management industry, with more than 4,500 clients in 60 countries managing more the $14 trillion. After retiring in the late 1990s, Ms. DiMarco returned to Advent in 2003 and successfully led the company through a turnaround, introducing new products and transforming the firm's business model to be based on recurring revenues and term licenses, boosting the firm's stock price 500%. Today, the company is in a position of unprecedented strength and stability, with record revenues of $184 million in 2006.

After an introduction by Chip Roame (Managing Principal, Tiburon Strategic Advisors) & Tom Lydon (President, Global Trends Investments), Ms. DiMarco addressed the impact of several key industry trends (the growth of assets worldwide, the explosion in alternative investments, and the increasing demands for compliance & reporting), and highlighted the opportunities for investment managers to harness technology to efficiently capitalize on these trends, making the following points:

• Ms. DiMarco began by offering up the following history of industry structural changes - "the 1970s brought deregulated commissions, the 1980s brought self-directed investors & tax-deferred retirement accounts, the 1990s brought mutual fund mania, and the 2000s are bringing globalization & alternative investments"
  
• In this decade, she recognizes both the rise in global consumer wealth and the globalization of the investment management business, noting that, "there are eleven economies that have been growing 20%+ per annum for a decade"
  
• Similarly, she believes that, "alternative assets, foreign money managers, and hedge funds are hot growth areas," saying that, "hedge funds have provided a new market for Advent; there were 600 hedge funds in 1990 and 9,600 in 2007 - and many of them are potential Advent clients."
  

In her question & answer time, Ms. DiMarco offered up the following answers to questions:

• Ms. DiMarco recognizes that, "there is lots of competition in her industry," but that, "competition is very fragmented; it is the land of a thousand niches, adding that financial services companies account for 45% of the Standard & Poor's 500's earnings; segments include prime brokerage, institutional management, hedge funds, and private client services, each with its own regulations"
  
• She sees tremendous opportunities across these segments, saying that, "what we try to do is understand and master new growing segments, build the technology, and leverage it. It's difficult to scale if you are doing a lot of customization; our best return on investment comes from off-the-shelf sales. Clients are telling us what they want and if it makes sense from a business standpoint, we build it"
  
• Ms. DiMarco believes that she is a much better business person having taken some time off during the Internet bubble. "After retiring in the late 1990s and then coming back to turn the company around in 2003, I'm a different person," she said. "The toughest experiences make the best business people. You can’t make decisions or drive your company according to what Wall street thinks; if you let that drive your agenda, you will get confused about what is in the best interest of your company and your clients. I am trying to do what is best for the company and its shareholders"
  
• She's also not anti-acquisition but her firm did get burned in the past by making acquisitions outside its core focus; "organic growth is Advent's best strategy," she added
  

General Session Panel Discussions

One of the key themes of every Tiburon CEO Summit is the need to more closely listen to clients. Tiburon CEO Summits' general session panel discussions (Ask the Consumers, Ask the Advisors, & Ask the Distributors) all allow Tiburon CEO-level clients to hear directly from their constituents in an unvarnished way. This is in sharp contrast to most CEOs' daily activities, where they are forced to rely on interpreting marketing data or listening to anecdotal stories from their sales forces. Addressing these clients first-hand through questions & answers helps Tiburon clients further consider innovative ideas for serving these different client groups.

	Consumer Linda T. describes her need to find a financial advisor, acknowledging that if she were good at financial planning she would be in the business

Ask the Consumers

As has become tradition at Tiburon CEO Summits, four off-the-street consumers (Robert F., Alison N., Linda T., and John Y.) joined facilitator Tif Joyce (President, Joyce Financial Management) on the Ask the Consumers panel. Uniquely, the panel this time was made up specifically of next generation investors; all four were in their 30s and 40s engaged in relatively high paying occupations. Robert F. (not his real name) is a 40 year old MD and PhD, working as a clinician and pathologist. Alison N. is a 37 year old pediatrician. Linda T. is a 38 year old marketing executive. And John Y. is a 41 year old small business owner. They had many common views to share:

• Several had started with a financial advisor. For instance, Linda T. was referred by a friend to a Smith Barney broker in New York and inherited a Fidelity relationship through a stock option plan, Alison N. took over management of a bond and bond fund portfolio with a New York CFP from her father, and John Y. mentioned still having an account with an AG Edwards broker
  
• But none of the four had allegiance to any specific financial advisors; none saw anyone as their financial quarterback. This stands in sharp contrast to the perception of many that all consumer households have found financial advisors
  
• Because of their common ages, several had entered the market around 2000, causing some investment challenges, and all had been (or continue to be) disappointed in some way by the industry. For instance, Alison N. recounted the story of meeting her father’s CFP in 2000, where he told her that, “he could move her father’s bond portfolio into stocks and earn her at least 10% per year, even while she was explaining that this was her house down payment fund and her aging father’s nursing home fund.” The CFP subsequently purchased Intel and JDS Uniphase, and the portfolio plummeted 70%, with Alison N. calling it, “a horrifying out-of-control experience.” Proving that behavioral finance is critically important, she added that, even after losing 70% of her money, “I maintained my money with him for six more years, because I could not write it off.” John Y. added that, “I interviewed several financial planners, who ranged from a little to a lot biased.” Robert F. added, “I had a problem with an LPL broker.” All continue to be disappointed by the service of any remaining financial advisors in their lives. Linda T. said that, “my former Smith Barney guy only recommended stocks in his own portfolio,” and added, “I have not heard from my Northwestern Mutual agent in a year”
  
• Several said that fit is important. For instance, Linda T. said that, “The Smith Barney guy was excited to take me on, but it did not work as a connection; it is about relationships and trust.” Utilizing the medical analogy which is her background, Alison N. added that, “credentials do not matter if your bed side manner is poor”
  
• Several tested the discount brokers, but this also was not a positive experience, with three of the four recounting bad experiences in Fidelity branches. Robert F. said that, “I walked into the Fidelity Palo Alto, CA office, and I felt like I was dealing with a guy who could help me make a trade but not give me advice.” He also added that, “the Fidelity Larkspur office is also terrible.” Linda T. added that, “I asked a Fidelity rep to help me with some restricted stock but he never offered me any financial planning assistance”
  
• All have subsequently chose more do-it yourself approaches. For instance, Linda T. said that, “I have sort of given up; I can move things online.” Robert F. added that, “I watch my accounts closely online; I love the Fidelity web site.” Alison N. added that, “I bought Personal Finance for Dummies, which gave me a list of questions to ask advisors. I took my money back from the CFP and put it in index funds and I am making pretty good money in my retirement account.” John Y. (who started a business twenty years earlier), said that, “I first started doing it myself by looking for health insurance for our firm.” He got involved in online trading early, and has, “never been comfortable handing over the reigns to a financial advisor”
  
• Some of the panelists had learned conventional investing wisdom. Robert F. said that, “If I like a company, I buy the product,” adding that, “I think I am reasonably savvy regarding stocks in the medical field.” Others had retreated to perceived safer ground, with Alison N. saying that, “I feel safer now in mutual funds.” Robert F. added, “my friend said that ETFs were the way to go”
  
• Others have seen accountants as a solution. For instance, Alison N. said that, her hospital offers, “Price Waterhouse Coopers guys who offer very comprehensive financial planning; the general two day session is $1,000 and then they will do a custom plan for you for $5,000”
  
• Unlike their parents, many of the panelists were avoiding substantial debt. Robert F. said, “I do not want to take on debt; debt is to be avoided.” Recounting that he learned to be a penny pincher from his Norwegian grandfather, Robert F. had gone as far as enlisting in the Navy to avoid taking on debt for his education. Alison N. added that, “debt and margin scare me”
  
• All find the investment business somewhat intimidating. For instance, Robert F. said that, “there is a fear factor in our generation; we are afraid.” And several made it clear that the industry does not have positive perceptions; Robert F. said that, “the industry has an image problem; I don’t trust anyone.” Asked what he saw in the audience, he humorously said, “vultures,” causing a laugh but also a lot of chatter afterwards
  
• A couple of firms got positive plugs. For instance, Robert F., said, “I have warm feelings regarding TIAA-CREF”
  
• All are still (amazingly) open to financial advisor relationships. For instance, Linda T. said that, “I am still doing my own financial planning and not feeling very good about it; I want an advisor; I know that I am missing things; if I were good at this, I’d be in the business.” Robert F. added that, “I am looking for fatherly advice, which I did not get from my academic father.” John Y. added, “I realize I just do not have enough time”
  
• Three of the four said that they rarely receive marketing from financial advisors
  

The attendees enjoyed the opportunity to hear direct from consumers on the Ask the Consumers panel; Tif Joyce said that, “we all need to look to the end users to direct what we do.” Tiburon's Managing Principal Chip Roame agreed, saying that, "unlike consumer goods, the financial services industry has never had a productive consumer research orientation. The objective here is to remind us all that these are our clients and they have real life needs."

	Tiburon CEO Summit XIII Ask the Advisors panelist Bill Barrett (CEO, Fiduciary Trust International of California, Fiduciary Trust International, Franklin Templeton Investments, Franklin Resources)

Ask the Advisors

With a similar goal to the Ask the Consumers panel, four leading financial advisors participated on the Ask the Advisors panel to allow attendees to better understand the businesses and decision-making criteria of financial advisors. Facilitated by Dennis Clark (CEO, Advisor Partners), the panelists included Bill Barrett (CEO, Fiduciary Trust International of California, Fiduciary Trust International, Franklin Templeton Investments, Franklin Resources), Pat McClain (Senior Financial Advisor, Hanson McClain), Alan Spiegelman (Wealth Management Advisor, Northwestern Mutual), & Jane Williams (CEO, Sand Hill Advisors, Boston Private Financial Holdings). The financial advisors were selected from various different backgrounds, including private banking, financial planning, insurance, and wealth management, to provide a wide range of perspectives. Furthermore, one of the panelists (Alan Spiegelman) essentially functions as a solo practitioner inside a big firm, personally managing $225 million with a six person team. The other three panelists function more as small-to-mid-size firms, with 16 - 36 employees and $1.3 - $1.5 billion assets under management. However, there was complete agreement that the investment advisory business is truly an exciting cottage industry (noted often by Tiburon research, unlike many sectors of the economy, there is no one firm or group of companies with significant market share). Amongst the key points made by the panelists were:

One of the panelists (Alan Spiegelman) essentially functions as a solo practitioner inside a big firm, personally managing $225 million with a six person team. The other three panelists function more as small-to-mid-size firms, with 16 - 36 employees and $1.3 - $1.5 billion assets under management

While all four panelist serve mostly individual clients, with institutional clients making up one-third or less of their client bases, average client sizes varied widely, ranging from $400,000 (Hanson McClain) to $11.1 million (Fiduciary Trust International)

At different levels, all four said that they really position themselves as wealth managers. Two of the four (Hanson McClain & Alan Spiegelman) primarily rely on mutual funds and exchange traded funds, while Fiduciary Trust utilizes mostly individual stocks & bonds (85%) and Sand Hill Advisors more evenly allocates its assets (55% mutual funds & exchange traded funds)

The panelists all market to different niches in different ways. Specifically, Sand Hill Advisors focuses on, “women and wealth in transition,” Hanson McClain targets, “telephone company retirees,” Fiduciary Trust focuses mostly on, “going where the wealthy people are (like non-profit boards) and seeking new business from estate & trust attorneys as well as small & medium-size tax firms that serve high-net-worth families," and Alan Spiegelman serves, “primarily high net worth retirees in the North Bay area.” The group spent a few minutes listening to Jane who explained that divorced and widowed women control a growing amount of investable assets.” Similarly, Pat also explained his strategy as, “ targeting a mature and downsizing industry with a defined benefit plan that allowed a lump sum option,” again pointing to money in motion

In reflecting on the day’s earlier consumer panel, Pat commented that, “it is sad that we can not afford to help many of the people that need us”

When asked, “What keeps you awake at night?”, their answers ranged from hiring & retaining talented staff to concerns about unfair practices of competitors. Pat said that Hanson McClain has, “12 or 13 financial advisors that are all on salaries", acknowledging that he "must allow his firm to grow to offer these people opportunities.” He also added that the firm, “has opened five additional offices and taught other firms to use its marketing programs, raising an incremental $3 billion of assets.” Jane said, “hiring & retaining staff is difficult; others will offer big upfront bonuses.” Bill said, “I worry about the competition; I am not sure when they are calling my clients and I am not sure what false things they are telling them,” recollecting the “vultures” comment made on the earlier consumer panel

All had different succession planning strategies. For instance, Jane Williams (Sand Hill Advisors) has already sold her business to Boston Private Financial Holdings and Bill Barrett is now an employee of a large publicly-traded firm (Franklin Resources). On the other side, Pat said that his firm has recently started a stock ownership plan

Tiburon CEO Summit attendees valued the opportunity to listen to these successful financial advisors discuss their businesses. Dennis Clark (CEO, Advisor Partners) predicted that, "the market will continue to bifurcate with some financial advisors being more client-centric, allowing for a better accommodation of lifestyle needs, while others will be more business focused and will continue to grow share." Tiburon's Managing Principal Chip Roame agreed, saying that, "there is an inaccurate message going around that small financial advisors' existing client bases are under threat; this simply is not supported. They may not grow as fast as others but I am not sure that their client bases are under any threat."

	CEO Summit XIII's panel facilitator Tim Armour (Managing Director, Sales & Marketing, Morningstar)

Ask the Distributors

In keeping with the Tiburon CEO Summit tradition of emphasizing the need to listen carefully to one's clients and prospective clients, the Tiburon CEO Summit Ask the Distributors panel is the third part of this series. For many Tiburon clients (e.g., investment, insurance, & technology firms), understanding the workings of distribution firms is crucial to their firm's success in gaining access to an organization's network of financial advisors. Wirehouses such as Merrill Lynch, independent broker/dealers such as LPL Financial Services, and custodians such as The Charles Schwab Corporation can account for 50% or more of financial product companies' sales. Tiburon's Ask the Distributors panel, facilitated by Tim Armour (Managing Director, Sales & Marketing, Morningstar), allowed these distribution organizations to discuss their needs from investment management firms and other product providers through questions & answers. Five major distribution firms provided insights on how they serve financial advisors and how they would be receptive to hearing from the product manufacturers in the financial services business. Panelists included Keith Hartstein (CEO, John Hancock Funds, John Hancock Financial Services, Manulife Financial), John Iachello (Chief Operating Officer, Pershing Advisor Solutions, Pershing, The Bank of New York Mellon Corporation), Stephen Langlois (Executive Vice President, Research & Financial Planning, LPL Financial Services), John Rooney (Managing Principal, Commonwealth Financial Network), and Chris Wolfe (Chief Investment Officer, Merrill Lynch Private Banking & Investment Group, Merrill Lynch). The panelists represented a huge source of assets in the market, including 94,200 financial advisors and $907 billion assets under administration. Amongst their key points were:

• Tim Armour started the conversation by asking the group what distributors are doing to capture the frequently discussed IRA rollover market. Keith Hartstein said his firm “is working across business units to get better at this, trying to earlier identify departing employees and get them to the right silos.” Chris Wolfe said that, “Merrill Lynch has very specific initiatives around this, dealing with transition events for employees”
  
• The conversation then shifted to financial advisors’ product needs. Lower cost mutual funds, access to closed separately managed account strategies, retirement income planning vehicles, and better technology were all expressed as needs. Many said that mutual funds are serving their financial advisors quite well, with John Rooney summarizing it as “many financial advisors shifted to broader wealth manager roles after the market correction”, but Chris Wolfe said that in Merrill Lynch’s upscale private banking business, “we have a heavier concentration in separately managed accounts (about 45% of their $175 billion in assets under management)”
  
• Both Stephen Langlois and John Rooney emphatically made the observation that what financial advisors are looking for are solutions - solutions for their business practices and solutions for their clients' wealth management needs. All of the panelist agreed that, as platforms and custodians, they are in a unique position to offer these solutions because they have the capital and collective clientele to make such solutions available
  
• Most panelists said that access would be granted to manufacturers with innovative product offerings that address financial advisor needs’, and/or those which pay to be on platforms or by sponsoring conferences. For instance, John Iachello said that, he sees his firm as “a product agnostic supermarket; if it is operationally feasible, and the firm will not generate reputational risk for Pershing, we will add it”
  
• A key theme for the panel was to pick up on a comment by Tiburon’s managing principal, and address the balance of power between distributors and manufacturers. All noted the current power of distributors, including the ability to drive down prices for manufactured products on their platforms. Tim Armour recollected his days running Stein Roe funds, when he thought 25 basis points was a stiff price to pay. Stephen Langlois noted that LPL’s real value proposition is its, “research, services, & training," and that it is "now distributing through independent advisors, banks, and its unique clearing model,” increasing its power as a distributor. Keith Hartstein agreed, saying that, “he sees John Hancock as a distribution powerhouse, utilizing 65 money managers and selling through 250 wholesalers, sending 62% of its assets to third-party managers.” But there also seemed to be a feeling that the industry is reaching a point of equilibrium, as Chris Wolfe noted that, “manufacturers are starting to push back now”
  
• Finally, Tim Armour asked the panelists to make a bold prediction for a year or two out. Keith Hartstein emphasized the “need for solutions for boomers transitioning from the accumulation phase to the distribution phase.” He noted that, “insurance companies are particularly well-suited to deliver these solutions.” Keith also informed the audience that, “John Hancock is the largest owner of timberland in the world, and is analyzing ways to package that as an investment for their clients.” Stephen Langlois emphasized the need “to support financial advisor growth, not only in investment planning, but in administrative tasks.” He noted that, “the demand for advice is starting to outstrip the supply of quality financial advisors.” Chris Wolfe noted that, “the era of enabling choice is over. It is time to think more about how to package and integrate all these choices in ways that make better sense to investors. For example, how many index ETFs do we really need?” John Rooney echoed Stephen Langlois’ comments about supporting business planning for financial advisors, saying the industry needs to “go way beyond just picking investments.” And John Iachello predicted that, “someone will break the back of the cost structure of the multi-custodian business model”
  

	Ask the Distributors Panelist Stephen Langlois (Executive Vice President, Research & Financial Planning, LPL Financial Services)

The panel added perfectly to the Tiburon CEO Summit's agenda of focusing the CEO-level attendees on client needs. Tim Armour (Managing Director, Sales & Marketing, Morningstar) summarized the panel saying that, "these guys know what financial advisors want; the product manufacturers need to see them as their clients too." Tiburon's Managing Principal Chip Roame agreed saying that, "the Ask the Distributors panel adds perfectly to the goal of getting all Tiburon CEO-level clients to see that this industry has three levels of clients - the end clients themselves, their financial advisors, and the firms with which these financial advisors affiliate."

	Tiburon Managing Principal Chip Roame kicks off Tiburon CEO Summit XII with the firm's signature Future of Advice presentation

Tiburon CEO Summit XII kicked off with a keynote presentation by Chip Roame (Managing Principal, Tiburon Strategic Advisors). Chip welcomed the attendees, gave an overview of Tiburon, addressed the state of the financial services industry, offered the group an organized list of current industry issues to consider, and introduced the five guest speakers.

Tiburon Strategic Advisors

In updating the group of clients on Tiburon's activities, Mr. Roame noted that:

• Tiburon has positioned itself uniquely as a market research & strategy consulting firm; the firm's services include a series of research reports, conference speeches, market seminars, and market research & strategy consulting services, with the later two accounting for more than two-thirds of Tiburon's revenues
  
• The firm has served almost 300 corporate clients (107 of which were represented at the CEO Summit) and completed almost 1,000 projects since its founding in 1998
  
• The firm's knowledge base includes mutual funds distribution, separately managed account programs, alternative investments, wealth management services, insurance products, banking services, the fee-only financial advisor market, the CPA firm market, the family office market, and various international markets
  
• The firm has published twenty-six research reports, sends free weekly research reports to 40,000 industry executives, manages 13 free financial advisor benchmarking tools, manages innovative executive programs, and is proud to be hosting Tiburon CEO Summit XII
  

Tiburon's CEO Summits were created after Mr. Roame noted the lack of a CEO-level conference across traditional industry lines, and yet saw the consistency of issues being addressed by these same executives

Tiburon's CEO Summits evolved from a just a handful of industry friends meeting in Tiburon to 100+ CEO-level Tiburon clients attending two day conferences at the Ritz Carlton Hotel

Mr. Roame reiterated the two themes of all CEO Summits - Challenging Conventional Wisdom and Maintaining a Consumer Orientation

Mr. Roame thanked the CEO Summit Planning Committee members (Tim Armour, John Cammack, Dennis Clark, Tif Joyce, Tom Lydon, Kevin Malone, Kirk Michie, and David Smith) for their support in securing guest speakers, nominating attendees, and acting as facilitators

Mr. Roame also thanked Tiburon CEO Summit XII's sponsors (Fiserv, Genworth Financial, Morningstar, and Pershing), represented by Skip Schweiss, Ron Cordes, Chris Boruff, and John Iachello respectfully, whose financial support allowed the CEO Summit to move to the Ritz Carlton hotel and the attendees list to grow in size from 75 to 100+

Finally, Mr. Roame closed this section of his presentation by sharing some statistics about the attendees - 100% are Tiburon clients, 94% are C-level executives, 53% traveled from back east, and about one-third each represent products, distribution, and advisory companies

Attendees at Tiburon's CEO Summit XII held April 18-19, 2007 in San Francisco, CA

Ten Recent News Stories

After addressing the CEO Summit itself, Mr. Roame focused his comments on the key issues that would likely be addressed by the general session guest speakers, the topics that he hoped would be addressed by the general session panel discussions, and the questions that he suggested be debated in the break-out sessions. Specifically, Mr. Roame started by suggesting that at least ten all-encompassing news stories were worth discussing:

• Retail Rules! The substantial attractiveness of retail banking and investments over corporate banking, underwriting, and international businesses is evidenced by the fact that Bank of America's market capitalization recently surpassed that of Citigroup
  
• There has been a focus on eliminating (perceived) conflicts of interest, with two full-service brokerage firms exiting the investment management business. Mr. Roame challenged the group to consider Smith Barney & Merrill Lynch's strategies versus those of Morgan Stanley, Wachovia Corporation, & UBS
  
• Mutual funds still dominate. Mr. Roame called attention to the data ($10+ trillion in mutual funds versus ETFs at $433 billion & separately managed accounts at $720 billion (collectively $1.1 trillion)). Mutual funds make up 40% of financial assets and are used by both of the fast growing independent financial advisor channels, so while other topics may get the press, Mr. Roame encouraged the group to maintain perspective
  
• There is a continuing polarization of the competition. Three mutual fund companies broke $1 trillion assets under management with American Funds leading the way, with only 30 mutual funds! And American Funds manages 7 of the 12 largest mutual funds in the country
  
• Mr. Roame questioned whether scandals continue; are 12b1 fees being used correctly
  
• The Merrill Lynch rule was recently upended. Does this level the playing field? Will anything actually change? Mr. Roame was not so sure
  
• Dozens of firms are entering into the hedge funds business - Citigroup purchased one-year old Old Lane; Morgan Stanley has acquired multiple hedge fund firms. Mr. Roame also noted the attendees at a recent SEI conference maintained an impressive focus on revenues, which they noted are increasingly driven by their lower asset hedge funds
  
• The consolidation of back-office providers continues, including the new Bank of New York Mellon Corporation and the State Street Corporation combination with Investors Bank & Trust
  
• RIAs are emerging as a powerhouse, with The Charles Schwab Corporation adding $100 billion in assets in 2006 just from RIAs
  
• Industry mergers & acquisitions continue with Power Corporation of Canada's acquisition of Putnam Investments, City National Bank's acquisition of Lydian Wealth Management, Merrill Lynch's acquisition of First Republic, and Bank of America's acquisition of US Trust
  

Consumer households have almost $20 trillion of investable assets and $50 trillion of total assets, with an important distinction between the high dollar average and the much lower median amounts

US households control almost three-quarters of all investable assets, more than half invested via financial advisors

Baby boomers are the key market for the next two decades for five reasons, including their retirement & pending liquefaction

Three-quarters of baby boomers over the age of 55 have less than $100,000 in investable assets and the consumer households savings rate continues to hit new all time lows

The median value of baby boomers' inheritance is only $48,000; very few received more than $100,000

Beyond the liquefaction, another opportunity is presented by the risk of baby boomers living too long, with estimates that more than half of 65 year olds will reach age 85 and over one-third will reach 90; amongst 65 year old couples; there is a 50% chance that one (or both) will live another twenty-five years

Captive advisors and retail banks continue to dominate control of consumer investable assets (31% and 27% respectfully) but independent advisors continue to outgrow the competition (18% assets growth rate for fee-only financial advisors and 14% assets growth rate for independent reps)

Mutual funds are the dominant investment product ($10.8 trillion) and used heavily by both the fast growing independent rep and fee-only financial advisor markets - suggesting that mutual funds aren't going away - even if much of the reporting and media focus is on other products, including exchange traded funds, separately managed accounts, and hedge funds

Packaged fee-account assets have grown substantially over the past eight ears to over $1.5 trillion but wirehouses' client assets are still just 15% in packaged fee-accounts and similarly only 16% of independent rep clients assets are in packaged fee-accounts; amazingly, banks have done slightly better with 17% of client assets in fee-based trust accounts but only 4% of bank trust department assets are invested with third-party managers

More broadly, the investment process is being polarized with twin growth patterns in both market-linked products and alternative investments

Investments may matter less than wealth management services as baby boomers move from the liquefaction & retirement income challenge years into their estate planning & charitable giving distribution years; for instance, the fast growing independent rep market puts almost one-third of its clients assets in annuities, but over three-quarters of annuity sales represent transfers from existing policies

And overall there has been more bad news for product companies as distribution continues to take power from manufacturing

Guest Speaker Introductions

To close out his presentation, Mr. Roame introduced the five guest speakers and gave a brief overview of what he expected each speaker to address:

• John DesPrez (CEO, John Hancock Financial Services, Manulife Financial) will explain the impact of life expectancy subtleties, will explain the three legged stool for retirement security, and will suggest some solutions to the retirement income challenge, including hybrid products
  
• Ed Haldeman (CEO, Putnam Investments, Marsh & McLennan) will discuss mergers & acquisitions, explain the keys to Putnam's deal with Power Corporation of Canada, and address the importance of corporate management
  
• Steve Lockshin (CEO, Lydian Wealth Management, Lydian Trust Company) will discuss the recent sale of Lydian Wealth Management to City National Bank and Lydian's success in serving high net worth clients ($7.5 billion in 12 years) through a series of innovations and superior execution
  
• Jim Riepe (Retired Vice Chairman & Senior Advisor, T. Rowe Price Group) will share his views on retirement security (including the three potential retirement solutions), address the evolution of siloed companies & the next steps in open architecture, and share his views for successful investment management firms
  
• Paul Stevens (President & CEO, Investment Company Institute) will share his US policy views, address the changing power in Washington & the changing regulatory agenda, and reveal some new ICI research that, like Tiburon research, supports the growing use of financial advisors
  

Guest Presentations

Aside from Mr. Roame's opening keynote presentation, five guest presentations anchored the CEO Summit agenda:

	Tiburon CEO Summit XII Guest Speaker John DesPrez (CEO, John Hancock Financial Services, Manulife Financial)

John DesPrez (CEO, John Hancock Financial Services, Manulife Financial)

John DesPrez has served as CEO of John Hancock Financial Services, the US division of Toronto-based Manulife Financial, since 2005, shortly after Manulife acquired John Hancock, in what arguably has been one of the most successful mergers in the financial services industry. Mr. DesPrez is also a member of Manulife’s Executive & Management Committees. He is based in Boston and directs all of John Hancock’s operations, including its core life insurance, variable annuities, long-term care insurance, retirement plans, guaranteed & structured financial products, mutual funds, and college savings plans businesses. He also is responsible for the common investment platform that underlies many of these products. In addition, Mr. DesPrez oversees the multiple distribution channels, including non-proprietary broker/dealers, banks, and the John Hancock Financial Network (its career agency system), which distribute the company’s broad range of insurance & investment products.

Mr. DesPrez address, titled Better Than the Alternative: The Longevity Revolution, focused on three key points:

• Longevity will increasingly drive the financial needs of many consumers
  
• Insurance products are best positioned to respond to longevity risk
  
• John Hancock is particularly well-positioned in the insurance industry
  

Echoing the words of Tiburon’s Managing Principal Chip Roame earlier in the day, Mr. DesPrez began with the comment, “increasing life expectancies are creating dynamic changes all around – new products, new technologies, new regulations, and new sources of wealth.” Many agree with that point, but Mr. DesPrez utilized some Madison Avenue examples and also provided some subtle points that further clarified the gravity of the situation:

• Life expectancy at birth is now 76.5 years; this is up dramatically from 68 in 1950, 47 in 1900, and 38 in 1800 (life insurance companies like John Hancock were around in those days!)
  
• Life expectancy at age 65 has risen steadily since 1950; it is now approaching 20 years (18.7), up from 14 years in 1950. This is critical because it helps better define the retirement income challenge
  
• Furthermore, Mr. DesPrez noted that, "there is an increasing need for couples to plan for a three or four decade retirement", with more than half (52%) of couples likely to have at least one member reach age 90
  
• The traditional three-legged stool included Social Security, defined benefit pension plans, and individual savings. Mr. DesPrez joked though, that, "the traditional three-legged stool will end up looking much more like a barstool - with only a single leg of individual savings"
  
• There is too much weight being placed on Social Security. In 1950, there were 16 workers for every Social Security recipient. This number is 3 to 1 today, and will be 2 to 1 in 20 more years (2030). It is increasingly possible that the US will be unable to deliver on the Social Security promise
  
• Meanwhile, employers are backing away from defined benefit pension plans at an alarming rate, with coverage having reached an all time low of only 18% (17.9%), down from 35% in 1984
  
• Furthermore, consumers are not solving their own problems. More than half (52%) of workers over age 55 have less than $50,000 in savings (a statistic similar to one quoted by Tiburon's Managing Principal Chip Roame earlier in the day)
  

	Tiburon CEO Summit XII Guest Speaker John DesPrez (CEO, John Hancock Financial Services, Manulife Financial) & Chip Roame (Managing Principal, Tiburon Strategic Advisors)

In shifting to his second theme, Mr. DesPrez said that there is a need for new products to solve the retirement income challenge, including products that relieve baby boomers of the burden of being investment managers, hybrid products combining insurance, principal protection, and asset management, and life insurance replacing death insurance:

• Lifestyle and lifecycle mutual funds will do well as they relieve baby boomers of the burden of being their own investment managers
  
• Hybrid products will emerge that combine insurance, principal protection, and asset management
  
• Life insurance will displace death insurance as baby boomers' key need
  

In his concluding remarks, Mr. DesPrez expressed that he thinks that the image of life insurance companies will change in the coming decades and that John Hancock is exceedingly well positions to address baby boomers' needs, with its well-recognized 145 year old brand and its Standard & Poor’s AAA rating. After finishing his prepared remarks, Mr. DesPrez conducted a lively 30 minute question & answer session. Tiburon’s Managing Principal Chip Roame said that, “John did a great job of bringing the retirement income challenge to life; this is not a text book issue but the biggest financial challenge ahead for most baby boomers. We are grateful for John's front-line insights, and for his sharing John Hancock’s strategies so openly.”

Manulife Financial and John Hancock Financial Services have both benefited from the purchase of multiple Tiburon research reports and Mr. Roame is speaking at a John Hancock conference this fall. Mr. DesPrez was introduced by Tiburon CEO Summit Planning Committee member Tif Joyce (President, Joyce Financial Management).

	Tiburon CEO Summit XII Guest Speaker Ed Haldeman (CEO, Putnam Investments, Marsh & McLennan)

Ed Haldeman (CEO, Putnam Investments, Marsh & McLennan)

Ed Haldeman has served as CEO of Putnam Investments since 2003, and he was previously co-head of Putnam's Investments Division, which he led from 2002-2003. During his tenure, Putnam became the first firm to adopt reforms based on the Mutual Fund Protection Principles, a series of reforms endorsed by CalPERS and CalSTRS, which are among the largest pension funds in the United States.

With Putnam’s $3.9 billion sale to Power Financial Group in process, Mr. Haldeman candidly provided first-hand insights into industry consolidation. By way of introduction, Mr. Haldeman noted that Power Financial Group has returned 20% per year to its shareholders over the past 15 years, and it is the number two performing financial services stock in that period. He then made three key points:

• Putnam’s struggles were substantial and required quick & decisive action
  
• The core reason Power Financial Group was interested in Putnam was its vison, agenda, business plan, management team, management processes, and culture
  
• Putnam’s turnaround is real
  

Mr. Haldeman began by addressing Putnam’s previous struggles head-on, especially those regarding the 2003 market timing scandal that nearly killed the firm. He shared that his efforts to settle quickly actually partially caused Putnam’s longer recovery, as state regulators saw this as a move of weakness, and held out for larger settlements.

Mr. Haldeman spent the majority of his time addressing his management philosophies and the reasons behind Power Financial Group's interest in acquiring Putnam:

• Putnam created a new vision – we take care of other people’s money. He has encouraged all employees to think of the firm less as a mutual fund company and more as "a trusted advisor in stewardship and management of other people’s money." Mr. Haldeman added that he feels that, "visions must be clear & concise statements of the direction of organizations, that firms should not aim too high, and that executives should repeat their visions often"
  
• Putnam created a decentralized, entrepreneurial, & transparent culture. Mr. Haldeman seeks, "to push decision making down and get out of the way." To facilitate this culture, he made dozens of changes, including eliminating the firm's executive dining room, disbanding its exclusive partners group, eliminating layers of management (saying that, "everyone now has a real job"), and holding meetings of all employees (not just officers). Furthermore, Mr. Haldeman pushes himself and all executives to get out of their offices, saying that, "a minute spent in the office is a minute wasted"
  
• Mr. Haldeman said that Putnam needed to create a new agenda, which he did; it is now to produce results that are, "consistent, dependable, & superior." To support this agenda, Mr. Haldeman said that the firm’s compensation plan for portfolio managers is based 20% on one year performance, and 40% on each three and five year performance, with an emphasis on finishing in the upper half of their competitive peer groups. To emphasize the goal of consistently, Mr. Haldeman said that, “portfolio managers do not receive any additional compensation for being in the top decile, so as to discourage more volatile results"
  
• Putnam created an easy to articulate business plan around retaining all asset classes and distribution channels, while, "taking out as much costs as possible in redundancies, management levels, & infrastructure"
  

	Guest Speakers Paul Stevens (President & CEO, Investment Company Institute) & Ed Haldeman (CEO, Putnam Investments, Marsh & McLennan)

Finally, Mr. Haldeman argued that Putnam’s turnaround is real; he cited that:

• The firm recently rolled out a family of asset allocation funds to allow professional implementation of a balanced strategy; this was the subject of a Wall Street Journal advertisement the day of his presentation and a supportive example to a point made the prior day by John DesPrez (CEO, John Hancock Financial Services, Manulife Financial)
  
• Performance is strong; 69% of Putnam funds beat their Lipper averages for the three years ended March 31, 2007
  
• The firm now has a below average redemption rate
  
• The firm has had 100 retail platform wins in the past 12 months
  
• And the firm has won $5 billion of institutional & global mandates in the past 6 months
  

After his opening comments, Mr. Haldeman engaged in a lengthy question & answer session with the group. Clearly, Mr. Haldeman has faced more difficult audiences with state & federal regulators, as well as previously disenchanted institutional clients and their consultants, though he answered even the toughest of questions from the audience with an inspiring degree of authenticity and an equally engaging sense of humor. At one point, Mr. Haldeman, a graduate of Dartmouth College and with both a JD and MBA from Harvard, suggested that he needed his chief financial officer’s help to understand, “why there was a C$ in front of the amount” in the negotiations with Power Financial Group, poking fun at his lack of foreign currency expertise. One gets the impression that this humility goes a long way for Mr. Haldeman toward building relationships with diverse constituencies of colleagues, employees, clients, and business partners. Tiburon’s Managing Principal Chip Roame summed up Mr. Haldeman’s comments by saying that, “Ed was open & honest regarding both Putnam's regulatory issues and its pending merger; that was terrific. But maybe even more importantly, he taught all attendees about the need for developing sustainable corporate cultures.”

Putnam Investments has benefited from the purchase of multiple Tiburon research reports and Mr. Haldeman was introduced by Tiburon CEO Summit Planning Committee member Kirk Michie (Managing Director, Lenox Advisors).

	Tiburon CEO Summit XII Guest Speaker Steve Lockshin (CEO, Lydian Wealth Management, Lydian Trust Company)

Steve Lockshin (CEO, Lydian Wealth Management, Lydian Trust Company)

Steve Lockshin has served as CEO of Lydian Wealth Management, a unit of Lydian Trust Company, since 1994. Lydian Wealth Management was founded as CMS Financial Services in 1994 with a single $10 million client and $300,000 of personal cash. As the company's founder & visionary, Mr. Lockshin led the firm in becoming a market leader in objective consulting services for affluent families. Mr. Lockshin's focus remains on client service, with a particular emphasis on trust & estate tax strategies, concentrated wealth strategies, and overall family wealth planning.

In the opening comments of his address, humbly titled What You See is What You Get (WYSIWYG), Mr. Lockshin described himself as a businessman in the financial services industry, and said that he runs Lydian accordingly. He also shared that Lydian Wealth Management is under contract to be sold to City National Bank and will be henceforth known as Convergent Wealth Advisors. Beyond this, Mr. Lockshin discussed two key points:

• Lydian Wealth Management has been successful in serving high net worth households (it has gathered $7.5 billion assets under management in twelve years) partly through a series of innovations but more so through superior execution
  
• The firm’s recent sale to City National Bank affords the firm dramatic new opportunities
  

First off, Mr. Lockshin professed that Lydian did little in the way of innovation, but instead, said the firm was an early adopter and that the trick to success has been superior execution:

• Lydian was an early adopter (e.g., Monte Carlo simulation in 1998, asset allocation in 1990, open architecture in 1990, consolidated reporting in 1990, asset location in 1996, estate planning in 1996, concentrated stock positions in 1995, collateralized loans in 1996, alternative investments in 1997, family governance & education in 1997, private travel in 1998, and wealth & happiness in 2000)
  
• Lydian recognized early on that superior execution was the key. Mr. Lockshin said, "there is no secret sauce in this business; back-office service, research, and reporting are the differentiators." Lydian believes that much of its individual success has been built on its investment in people and technology
  
• Mr. Lockshin said that, "financial advisors who provide a strong service should be confident in their fee schedule." He feels that, "there is pricing cannibalism in the industry that is hurting the business." Lydian has a cost allocation & quality assurance process (QUAC) which it uses to measure client profitability annually, calculating revenues and time resources invested; this allows the firm to raise fees with existing clients, evaluate pricing models for new clients, and trim unprofitable and low margin clients
  
• Lydian created an award winning internship program to further its focus on people
  

	Tiburon CEO Summit IX Guest Speaker Michael Sapir (CEO, ProFund Advisors), Tiburon CEO Summit XII Guest Speaker Steve Lockshin (CEO, Lydian Wealth Management, Lydian Trust Company), and Tiburon CEO Summit Planning Committe members John Cammack (Head of Third-Party Distribution, T. Rowe Price Group) & Dennis Clark (CEO, Advisor Partners)

Steve also addressed Lydian's pending sale to City National Bank and its renaming as Convergent Wealth Advisors. Lydian management is also retaining an interest. Fortigent is staying as a subsidiary of Lydian Trust Company. The Sun Trust acquisition of AMA is a good proxy. This being Mr. Lockshin's fourth merger (e.g., sale to Lydian, acquisition of Copper Beach Advisors, acquisition of Windermere Investment Advisory, sale to City National Bank), Mr. Lockshin had sound advice regarding consolidations:

• Discuss management philosophies up-front
  
• Seek synergies (e.g., Mr. Lockshin said that, "everyone is doing the same basic thing - compliance, research, operations, & reporting" but that his firm may be able to extend the use of hedge funds at City National Bank. Specifically, Mr. Lockshin said that, "hedge funds are not an asset class; this is where the alpha is." He said that Lydian clients, "may be over 50% invested in hedge funds one day, and he's happy to pay the managers"
  
• Don't be afraid to use proprietary products if, "they are cheaper, provide better access, and/or are unique"
  
• Don't be afraid to change course
  

Mr. Lockshin was introduced by Chip Roame (Managing Principal, Tiburon Strategic Advisors), who himself recently spoke at a Lydian conference.

	Tiburon CEO Summit XII Guest Speaker Jim Riepe (Retired Vice Chairman & Senior Advisor, T. Rowe Price Group)

Jim Riepe (Retired Vice Chairman & Senior Advisor, T. Rowe Price Group)

Jim Riepe served as vice chairman of T. Rowe Price Group from 1997 until his retirement in 2006. During his 24 year tenure with the firm, he held various positions, including serving as a director of the T. Rowe Price Group and as chairman of the T. Rowe Price Funds. He has also served as chairman of the Investment Company Institute (the CEO of which, Paul Stevens, was also a speaker at Tiburon CEO Summit XII) and currently serves as director of The Nasdaq Stock Market and Genworth Financial (the CEO of which, Mike Fraizer, will speak at Tiburon CEO Summit XIII).

Mr. Riepe offered a wide range of observations about the financial services industry:

• Retirement security is the most fundamental challenge for the financial services industry
  
• Investment companies face a series of challenges that they must address head-on
  
• Successful investment management firms put client interests first
  

Regarding retirement security, Mr. Riepe explained the situation quite simply, saying that, "government entitlements, employer liabilities, and individual savings are the three potential solutions." He addressed the two huge & problematic government programs – Social Security and Medicare, which are now viewed as entitlements by citizens and politicians. Mr. Riepe stated that:

• There is a growing severity in the Social Security system, with too many retirees being supported by fewer and fewer workers, echoing comments made by John DesPrez (CEO, John Hancock Financial Services, Manulife Financial) the prior day
  
• Mr. Riepe believes that, "the Social Security solution entails citizens and politicians reframing Social Security in their minds from an entitlement program to an insurance program." If viewed as insurance, it is much more reasonable not to receive benefits later in life should some Americans not need such, he said. "Three-quarters of the shortfall can be solved by removing benefits gradually for those earning greater than $50,000 when retired." And if the retirement age is raised a few years, the crisis can be solved
  
• "Medicare is the elephant in the room," Mr. Riepe said. To solve this problem, he suggested that Americans with higher incomes should have higher deductibles combined with higher co-payments until one's medical expenses exceed a threshold"
  
• Mr. Riepe said that, "no matter what actions are taken to solve these twin problems, individuals must save more during their lifetimes. The primary place this can happen is with employers. Yet, corporations are shifting responsibility for securing retirement income to individuals, as shown by the decline in defined benefit plans and the assent of defined contribution plans"
  
• We must make the system work, and to do so, we need to continue to educate investors to make wise decisions regarding their savings & investing. The recent introduction of automatic enrollment and target date mutual funds are positive developments
  
• The pending retirement of baby boomers will put $13 trillion into motion over the next two decades, which presents the industry with a wonderful opportunity. But, Mr. Riepe continued, “we must temper our enthusiasm to grow our profits with an understanding that more Americans are relying on us for their financial security”
  

	Tiburon CEO Summit XII Sponsor Ron Cordes (Chairman, Asset Mark Investment Services, Genworth Financial) with Tiburon CEO Summit XII Guest Speaker Jim Riepe (Retired Vice Chairman & Senior Advisor, T. Rowe Price Group), and Tiburon CEO Summit Planning Committee member Tim Armour (Managing Director, Morningstar)

On his second point, Mr. Riepe said that investment companies will face a series of unprecedented challenges that they must address head-on. Success will require responsibility to customers, increasing open architecture, and transparency. Amongst the challenges he identified were:

• The shift in emphasis from accumulation only to accumulation & distribution which will foster a new generation of products & services
  
• Intense competition for clients that will challenge business strategies as well as the ways in which firms conduct their businesses (e.g., active managers will be challenged by exchange traded funds and index funds, while broker/dealers will need to compete against direct sellers)
  
• The erosion of the wall between the institutional and retail businesses, which will create new industry roles
  
• Greater transparency of costs which will result in fee pressure
  
• More strategic alliances between organizations that will seek to combine core competencies to solve customer problems
  
• Greater scrutiny from the public, media, and regulators
  

Finally, to build a sustainable franchise, Mr. Riepe suggested that successful firms must address all of the above challenges and stay profitable. This will require greater operating efficiency and a belief that “all products should be designed and priced for informed consumers.” Mr. Riepe went on to say that, “inherent in a sustainable franchise is creating value that customers want, need, and find useful. The best franchises seem to be able to evolve with their customers, discovering new ways to add value or lower costs.

Prior to taking questions, Mr. Riepe reminded the CEO-level audience of the often unsaid truth, that, “what makes asset managers unique is their fiduciary standards not seen in other industries.” A second difference from other industries is that, “the quality of products (investment returns) is inconsistent. This sets up a very difficult marketing, sales, & service approach. The consequence of forgetting our fiduciary standards was illustrated by the negative impact on Wall Street firms, insurers, and mutual fund companies that placed their interests ahead of those of their customers during recent scandals.” Mr. Roame complimented Mr. Riepe on, “helping to build a terrific firm in T. Rowe Price, and helping it always maintain a consumer orientation.”

T. Rowe Price has benefited from the purchase of multiple Tiburon research reports and Mr. Riepe was introduced by Tiburon CEO Summit Planning Committee member John Cammack (Head of Third-Party Distribution, T. Rowe Price Group).

	Tiburon CEO Summit XII Guest Speaker Paul Stevens (President & CEO, Investment Company Institute)

Paul Stevens (President & CEO, Investment Company Institute)

Paul Stevens has served as President & CEO of the Investment Company Institute since 2004. He also is a director of ICI Mutual Insurance Company. Mr. Stevens' career has encompassed a number of roles in government service and the private sector, including being general counsel of the ICI from 1993 to 1997, general counsel for the mutual funds & international enterprises at The Charles Schwab Corporation from 1997 to 1999 (where he overlapped briefly with Tiburon Managing Principal Chip Roame), and a leader of the financial services practice of Dechert from 1999 to 2004.

In his comments, titled the State of the Mutual Funds Industry, Mr. Stevens addressed:

• The ICI's mission and role in influencing public policy
  
• Shifting policies and priorities on Capitol Hill with the regulators
  
• Some new ICI research that, like Tiburon research, supports the benefits and growing use of financial advisors
  

Mr. Stevens started by describing the ICI’s role in influencing public policy. He detailed the specific activities that the ICI has undertaken as it seeks to execute on its mission to advance the interests of mutual funds, their shareholders, directors, & advisors, to encourage adherence to high ethical standards, and to promote public understanding of mutual funds. Mr. Stevens noted that:

• The ICI’s role is to take member priorities and investor focus, and utilizing legal, government affairs, research, public communication, and outreach, deliver these views to the policy community
  
• The public policy environment has shifted substantially since 2004 when he became President & CEO of the ICI. The key parties – congress, the media, and the regulatory agencies – are still the same, but outside forces and issues have shifted from the Dot.Com bubble, the 2000-2002 bear market, Enron, Sarbanes-Oxley, and the mutual fund trading scandals to 401k fees, proxy voting, digital delivery, 12b1 fees, regulatory rationalization, and the political power shift
  

Second, the audience enjoyed Mr. Stevens’ keen insights into the inter-workings within the Washington, DC beltway. Mr. Stevens said that, “today’s lame duck president and the divided Senate and House will likely result in little real progress on a host of important issues related to taxes, regulation, and retirement security.” He noted that:

• The Democrats are taking charge on Capitol Hill but with a divided government, a lame duck president, and partisanship (over Iraq), gridlock is the likely outcome
  
• He also noted that the 2008 election is starting early, further distracting the players from the legislative landscape
  
• Mr. Stevens predicted that issues, such as the Bush tax cuts set to expire after 2010 and the 15% capital gains & dividends tax rates, would likely not see any near-term action
  
• Possibly most close to home, he addressed the mutual fund disclosure issue before the regulators. He noted that “investors are overwhelmed” (only 34% consult prospectuses and 80% want concise descriptions). He said that the opportunity is “internet disclosure” (92% of mutual fund investors are online, including even 72% of investors 65 years old or older)
  
• Mr. Stevens also added a series of retirement security issues to the regulatory agenda, including the 2006 Pension Protection Act, as well as auto-enrollment, default investments, and investment advice within 401k plans
  
• He also noted that other financial services issues (e.g., executive compensation, corporate governance, privacy & data security, and hedge fund regulations) are the key issues likely to stall
  
• Finally, Mr. Stevens also added a note of caution, saying that, "many of the oversight committees lose sight of the fact that consumer sentiment around the mutual funds industry remains highly correlated with stock market performance." He said that, “investors invest in mutual funds to make money, and if the market goes down, the level of satisfaction and investor confidence goes with it.” He observed that, "the Washington regulators typically respond by increasing oversight and regulation, which is not necessarily in the interests of anyone."
  
• Mr. Stevens shared some new ICI research supporting the benefits of financial advisors. He noted that over three-quarters (82%) of shareholders who own mutual funds outside of retirement accounts do so at least partially with the help of financial advisors. He also called into question any changes to the current 12b1 system, saying that, "over half (52%) of 12b1 fees are used to pay for ongoing shareholder services and 40% are used to compensate financial advisors, and that the financial advisors will get paid somehow.” Mr. Stevens added that “85% of investors receive regular portfolio reviews & recommendations, 83% receive periodic discussions of financial goals, and 75% even say that they receive comprehensive financial planning.” Other ICI research shows that mutual fund fees have been coming down and that 401k plan investors cluster in low cost funds. Mr. Roame congratulated Mr. Stevens on, “running the most important financial services trade group, whose members control 40% of all consumer financial assets.”
  
• Finally, the Investment Company Institute has benefited from the purchase of multiple Tiburon research reports, and Mr. Stevens was introduced by Tiburon CEO Summit Planning Committee member Dennis Clark (CEO, Advisor Partners).
  

General Session Panel Discussions

One of the key themes of every Tiburon CEO Summit is the need to more closely listen to clients. Tiburon CEO Summits' general session panel discussions (Ask the Consumers, Ask the Advisors, & Ask the Distributors) all allow Tiburon CEO-level clients to hear directly from their constituents in an unvarnished way. This is in sharp contrast to most CEOs' daily activities, where they are forced to rely on interpreting marketing data or listening to anecdotal stories from their sales forces. Addressing these clients first-hand through questions & answers helps Tiburon clients further consider innovative ideas for serving these different client groups.

	Consumer Carolyn H. describes her investment philosophy of only investing in companies she knows well and uses their product - like Harley Davidson!

As has become tradition at Tiburon CEO Summits, off-the-street consumers (Carolyn H., John P., Diane S., & Ron V.) in the thick of making retirement planning & other related decisions joined facilitator Tif Joyce (President, Joyce Financial Management) on the Ask the Consumers panel. The panel is the most direct way of hearing from and questioning consumers. The consumers were a 62 year old retired marketing executive, a 75 year old retired not-for-profit president, and a 50 year old sculptor and his 48 year old engineer wife. The panelists told about their experiences with brokers, bankers, insurance agents, independent advisors, and do-it-yourself approaches, making numerous key points:

• Ron V. the 62 year old retired marketing director, claimed to have, “average investment experience in real estate, stocks, and mutual funds.” He needs banking, brokerage, wrap accounts, and long-term care insurance, but he and his wife specifically turned to a financial advisor for, “help in monitoring their retirement plan.”
  
• Carolyn H., the 75 year old retired non-profit president managed her own accounts, “until she was 70.” She had, “served on the board of a bank” and invested in companies she knew (like Harley Davidson) and accumulated a large nest egg. In describing her investment philosophy, she talked about one stock that she knew because of one of her children. This particular stock traded as low as $10 and as high as $50. She said, “I bought it when it got to $10 and sold it when it got to $50.” The group concluded that it was an interesting idea, but not necessarily repeatable. The group saw her as a smart investor who made her own decisions. But she was recently widowed, had needs in, “financial, tax, & estate planning”, and sought out a certified financial planner to, “coordinate with her certified public accountant, attorney, and bank board.”
  
• The married couple (sculptor and engineer) also directed their own investments, rehabbing houses. Unlike the other panelists, they like their situation and see no need for a financial advisor. She is an engineer and her company gave her stock options. Earlier in her career, someone offered her the advice that dramatically impacted their financial future – “keep the stocks and only sell them when the proceeds could change their lives.”
  

The contrast between those consumers who want to take advice and those who want to make their own decisions was quite visible across the panel. The attendees enjoyed the opportunity to hear direct from consumers on the Ask the Consumers panel; Kevin Malone (President, Greenrock Research) said that, “we all need to look to the end users to direct what we do.” Tiburon's Managing Principal Chip Roame agreed, saying, "unlike consumer goods, the financial service industry has never had a productive consumer research orientation."

	Tiburon CEO Summit XI Guest Speaker & Tiburon CEO Summit XII Ask the Advisors panelist Ken Fisher (CEO, Fisher Investments) describes his firm's investment philosophies - coming to a mailbox near you

Ask the Advisors

With a similar goal to the Ask the Consumers panel, four leading financial advisors participated on the Ask the Advisors panel to allow attendees to better understand financial advisor businesses and decision-making. Facilitated by Dennis Clark (CEO, Advisor Partners), the panelists included Steve Hohenrieder (Partner, Think Wealth Management, Think Equity Partners, Panmure Gordon & Company), Ken Fisher (CEO, Fisher Investments), Jeff Lancaster (Managing Principal, Bingham, Osborn, & Scarborough, Boston Private Financial Holdings), and Alan Spiegelman (Wealth Management Advisor, Northwestern Mutual). The financial advisors were selected from various different backgrounds – financial planning, investment banking, insurance, and money management businesses - to provide a wide range of perspectives. Three of those panelists - Steve Hohenrieder, Jeff Lancaster, and Alan Spiegelman - represent successful, and yet far different approaches. The fourth panelist, Ken Fisher, who was a guest speaker at Tiburon CEO Summit XI, added valuable insights, including addressing Fisher Investments' unique (and well-known to us all) direct mail marketing strategy, as well as its investment management & recruiting strategies, which have helped the firm accumulate over $35 billion in assets under management. Amongst the key points made by the panelists were:

The panelists had some similarities and other differences. All are quite successful but their assets under management ranged from a successful solo practitioner model with 6 employees and $225 million (Northwestern Mutual) to a firm with 950 employees and $38 billion assets under management (Fisher Investments)

Three of the four (Bingham, Osborn, & Scarborough, Fisher Investments, and Northwestern Mutual have similar average client relationship sizes between $2.0 - $2.5 million, while Think Wealth Management's average client size is almost double that at $4.0 million

All four panelist serve mostly individual clients, with institutional clients making up one-third or less of their client bases

Three of the four (Bingham, Osborn, & Scarborough, Northwestern Mutual, and Think Wealth Management)  primarily rely on mutual funds and exchange traded funds, while Fisher Investments utilizes mostly individual stocks & bonds (90%)

The audience was treated to an in-depth discussion of each organization's sales & marketing strategies, use of technology, views regarding succession planning, and their needs from product companies and other vendors. Their answers were as varied as the firms themselves

However, there was complete agreement that the investment advisory business is truly a cottage industry. As evidenced by Tiburon research, unlike many sectors of the economy, there is no one firm or group of companies with significant market share. According to Ken Fisher, "the industry is so fragmented that one could have a whole specialization advertising to Americans in Mexico"

Consumer orientation is an often repeated theme at the CEO Summits. Randy Merk (President, Financial Products, The Charles Schwab Corporation) asked how client satisfaction was measured. All the financial advisors agreed that their very low termination rates (1%-3%) was the most telling statistic.

Tiburon CEO Summit attendees valued the opportunity to listen to these successful advisors discuss their businesses. Tif Joyce (President, Joyce Financial Management) predicted that, "the market will continue to bifurcate with some financial advisors being more client centric, allowing for a better accommodation of lifestyle needs for financial advisors like himself, while others would be more business focused and would continue to grow share." Tiburon's Managing Principal Chip Roame agreed, saying that, "there is an inaccurate message going around that small financial advisors' existing client bases are under threat; this simply is not supported. They may not grow as fast as others but I am not sure that their client bases are under any threat."

	Panelists Ron Cordes (Chairman, Asset Mark Investment Services, Genworth Financial), Bill Dwyer (President, LPL Independent Advisor Services, LPL Financial Services), John Iachello (Chief Operating Officer, Pershing Advisor Solutions, Pershing, The Bank of New York Mellon Corporation), and Skip Schweiss (Executive Vice President, Fiserv Investment Support Services, Fiserv) & panel facilitator Kevin Malone (President, Greenrock Research) gave valuable tips for accessing their networks of financial advisors

Ask the Distributors

In keeping with the Tiburon CEO Summit tradition of emphasizing the need to listen carefully to one's clients and prospective clients, Tiburon CEO Summit's inaugural Ask the Distributors panel delivered the goods. For many Tiburon clients, understanding distribution firms is crucial to their firm's success. Gaining access to an organization's network of financial advisors can be crucial to a firm's success. Wirehouses such as Merrill Lynch, independent broker/dealers such as LPL Financial Services, and custodians such as The Charles Schwab Corporation can account for 50% or more of financial product companies' sales. Tiburon's Ask the Distributors panel allowed these distribution organizations to discuss their needs from investment management firms through questions & answers. Four major distribution firms provided insights on how they serve their constituents and how they would be receptive to hearing from the product manufacturers in the financial services business. Panelists included Ron Cordes (Chairman, Asset Mark Investment Services, Genworth Financial), Bill Dwyer (President, LPL Independent Advisor Services, LPL Financial Services), John Iachello (Chief Operating Officer, Pershing Advisor Solutions, Pershing, The Bank of New York Mellon Corporation), & Skip Schweiss (Executive Vice President, Fiserv Investment Support Services, Fiserv). The Ask the Distributors panel was facilitated by Kevin Malone (President, Greenrock Research). Amongst the key points were:

	Panelists Bill Dwyer (President, LPL Independent Advisor Services, LPL Financial Services)

• The panelists represented a huge source of assets in the market, including 37,500 financial advisors and $263 billion assets under management
  
• Their financial advisors rely heavily upon mutual funds, exchange traded funds, & separate accounts, with these three products accounting for the vast majority of assets as Asset Mark, LPL, and Fiserv, and 50% at Pershing
  
• Product needs that were expressed included lower cost mutual funds, access to closed separately managed account strategies, retirement income planning vehicles, and better technology
  
• Most panelists said that access would be granted to manufacturers with innovative product offerings that address financial advisor needs’, and/or those which pay to be on platforms or by sponsoring conferences
  
• Some financial advisor wholesaling strategies recommended included consultative training sessions, break-out sessions at conferences, online educational web demonstrations, and trade publication advertising
  
• Ron Cordes described how for the first time his firm engaged a professional survey firm to interview investors across America. The findings proved to be valuable for the financial advisors using Asset Mark in that they found investors are very concerned about their financial advisors ability to offer and implement solutions which would safeguard them from outliving their savings (Asset Mark moved to solve this need)
  
• Both Bill Dwyer and John Iachello emphatically made the observation that what financial advisors are looking for are solutions - solutions for their business practices and solutions for their clients' wealth management needs. All of the panelist agreed that, as platforms and custodians, they are in a unique position to offer the solutions because they have the capital and collective clientele to make such solutions available
  
• Skip Schweiss made a provocative observation that, "the need for transparency is bunk; clients' don't care . . . they want to feel comfortable that their financial advisors know what is in their prospectuses." He also made a point that all the panelists agreed upon and that was contrary to popular press; that was that most financial advisors are still using mutual funds and very few use new products like hedge funds
  

The panel added perfectly to the Tiburon CEO Summit's agenda of focusing the CEO-level attendees on client needs. Dennis Clark (CEO, Advisor Partners) summarized the panel saying that, "these guys know what financial advisors want; we need to see them as our clients too." Tiburon's Managing Principal Chip Roame agreed saying, that "the Ask the Distributors panel fit in just as hoped, to get all Tiburon CEO-level clients to see that this industry has three levels of clients - the end clients themselves, their financial advisors, and the firms with which these financial advisors affiliate."

• Markets Break-Out Session: Consumer Wealth, Liquefaction, & the Retirement Income Challenge
  • Does the US face a major savings crisis or not?
    
  • Is the savings rate accurately counted (and is this relevant)?
    
  • Will the savings rate increase as baby boomers age?
    
  • Will the wealth transfer from baby boomers’ parents to baby boomers be substantial?
    
  • Will the liquefaction bail out most baby boomers?
    
  • Do IRA rollovers present the biggest opportunity for most financial advisors (or are most rollovers too small)?
    
  • How will the industry address boomers' retirement income need – annuities, reverse mortgages, etc.?
    

• Advisors Break-Out Session: Sales & Marketing
  • Should financial advisors target the high net worth market ($1 million+) or stay focused on more moderate net worth households ($100,000-$1 million)?
    
  • Will various sources of the liquefaction of baby boomer wealth (rollovers, business sales, house downsizing) dominate available investable assets?
    
  • Are baby boomers in mass receiving substantial wealth transfers from their parents?
    
  • Are financial advisors too reliant on passive client referrals?
    
  • What are some strategies for proactively seeking client referrals?
    
  • Do financial advisors invest too heavily in seeking professional referrals (and will more of those professionals soon be their competitors)?
    
  • Do any direct marketing strategies work (cold calling, direct mail, internet & traditional advertising, seminars)?
    
  • Why do so few advisors rely on public relations campaigns (and don’t they have substantial upside)?
    
  • Why do so few advisors rely on target market programs (and don’t they have substantial upside)?
    
    
• Advisors Break-Out Session: Benchmarking & Best Practices
  • How can profitability be increased?
    
  • Is there evidence that more partners leads to more profits (specifically more profits per partner)?
    
  • Is there economic value in adding employees?
    
  • Why do so few advisors broadly leverage technology?
    
  • Is outsourcing growing?
    
  • Why are client satisfaction surveys used so infrequently?
    
  • Are financial advisors managing correctly for profits (or are some stuck on profit margins)?
    
    
• Advisors Break-Out Session: Mergers & Acquisitions
  • Is there actually any substantial number of financial advisory firms being sold now?
    
  • Is there an equal number of buyers and sellers?
    
  • Are the available businesses typically of substantial size?
    
  • Are financial advisors finally taking succession planning seriously?
    
  • Will many financial advisors never retire (die with their boots on)?
    
  • Will most deals continue to be internal deals at low valuations?
    
  • Will larger fee-only financial advisors find secondary markets for their firms at banks and CPA firms?
    
  • How successful have the roll-ups (National Financial Partners), banks (Silicon Valley Bank), and CPA firms (Moss Adams) been as acquirers?
    
  • Who are the new entrants with interesting models (Fisher Investments, Boston Private Financial Holdings, Focus Financial Partners)?
    
  • Why is there so much debate regarding valuation methods (isn’t discounted cash flows the only logical way to value any ongoing concern)?
    
  • Will valuations decline as more baby boomer advisors reach retirement age?
    

Guest Presentations

Aside from Mr. Roame's opening keynote presentation, five guest presentations anchored the CEO Summit agenda:

	Guest Speaker David Carroll from Wachovia Corporation addressed the multi-line businesses of Wachovia Securities and Evergreen Investments that he leads

David Carroll (President, Capital Management Group, Wachovia Corporation)

David Carroll is President of Wachovia's Capital Management Group, which includes three core businesses: Retail Brokerage (Wachovia Securities), Asset Management (Evergreen Investments), and Retirement & Investment Products. Mr. Carroll joined Wachovia in 1981 and has subsequently served in many capacities, including serving as the head of Corporate Support Services, Wachovia Mortgage, & Corporate Marketing, as well as Chief eCommerce & Technology Officer, and President of First Union Florida. Mr. Carroll was also in charge of merger integration during the historic Wachovia and First Union merger.

Mr. Carroll's perspective is unique in that he manages both a manufacturing operation (Evergreen Investments) and a distribution operation (Wachovia Securities), the later of which has four distinct business models. Collectively these businesses represent 10,514 financial advisors, $704 billion assets under administration, $256 billion of assets under management, over $2.0 billion in revenues, and $673 million of earnings. In his comments, Mr. Carroll outlined Wachovia's strategies in both brokerage and investment management, addressing the key timely industry topics laid out by Mr. Roame and saying that, “a separately branded Evergreen will do fine.” He further said that, “Putnam and MFS may have been on the block because firms have to perform when they are parts of public companies.” And finally Mr. Carroll observed that, “Merrill Lynch may have had to do something because it could not get its funds sold at Smith Barney and other broker/dealers.” However he said, “Merrill Lynch hardly distanced itself from its investment management firm with the BlackRock transaction, as it still owns a huge share.” Going beyond Mr. Roame's top news stories, Mr. Carroll also said that his business units were put together because Wachovia Corporation believes that product packaging is at least as important as product manufacturing.

Mr. Carroll also shared dozens of other useful facts and opinions about all three of his businesses; he started with the brokerage business, including his firm's business unit Wachovia Securities:

• Wachovia Securities is made up of 70-80 brokerage firms that have been acquired
  
• Since its Prudential Securities acquisition, Wachovia Securities is the third largest retail brokerage firm with 10,514 financial advisors in 49 states, $704 billion of assets under administration, and $1.2 billion of net revenues
  
• The firm hopes to combine the regional firm culture with wirehouse capabilities
  
• The firm has a strong focus on the financial advisor-client relationship
  
• Wachovia Securities is focused on increasing financial advisor productivity, amongst other issues
  
• The firm is focused on helping its brokers capture managed assets, with $122 billion today
  
• Wachovia Securities is hoping to widely deploy its Envision financial planning program, Which it believes equips financial advisors to understand and address clients' life aspirations
  
• Access to Wachovia Bank’s core banking products allows Wachovia Securities financial advisors to meet a larger set of their clients’ needs
  
• Wachovia offers three financial advisor platforms, including its traditional private client group (5,966 financial advisors, $415 billion assets under administration), its investment services group (bank brokers)(3,785 financial advisors, $125 billion assets under administration), and its independent brokerage group (763 financial advisors & 123 correspondent firms, $141 billion assets under administration)
  
• The bank broker model still has lots of potential, as it can extend brokerage capabilities to bank customers
  
• Wachovia Securities' multi-platform model recently allowed captive employee advisors to move to its independent platform
  
• There is room at Wachovia Corporation for both private banking and brokerage offerings (Wachovia's private bank is the fourth largest wealth manager in the US) with 39,000 clients and $68 billion of assets under management
  

Mr. Carroll also addressed the money management business, including his firm's business Evergreen Investments:

• Evergreen Investments is the 21st largest investment management firm and it seeks to offer diversified products across the equity, fixed income, and short-term asset classes
  
• Evergreen’s $256 billion of assets under management include $103 billion of institutional assets, $100 billion of mutual fund & variable annuity assets, and $53 billion of high net worth assets from its wealth management business
  
• Evergreen Investments' successes have varied by market; in the institutional market, 70% of its assets under management are in its fixed income strategies, while only 23% of its mutual fund & variable annuity assets and 26% of its high net worth client assets are the same (the later having larger equity and/or money market components)
  
• The broader Wachovia Corporation is focused on growing its investment management business (again, unlike Merrill Lynch and Smith Barney that exited)
  
• Along with the Tattersall Group, JL Kaplan Associates, and Golden Capital Management, Evergreen Investments acquired Met West Capital Management in 2004; this is one of the largest third-party lending firms with $60 billion of securities on loan
  
• Lots of alternative investment firms are being shopped; Mr. Carroll noted that his firm has looked at "hundreds"
  
• Acquisitions of money management firms are difficult due to high multiples, and ultimately social issues, such as the ultimate CEO and headquarters location, drive most merger & acquisitions transactions
  

And finally Mr. Carroll noted that Wachovia had sought an increased emphasis on the retirement business by recently bundling various business under his leadership through its retirement & investment products division. The firm sees retirement as the single largest retail growth opportunity in personal financial services:

• Wachovia Corporation's retirement & investment products division is a manufacturer and distributor of key retirement products, including IRAs, 401k plans, and annuities
  
• The firm acquired Ameriprise’s defined contribution record keeping business earlier this year, giving it $98 billion in retirement plan assets under administration and 2.1 million plan participants, and this made the firm the ninth largest manager of institutional retirement plans in this consolidating industry
  
• Wachovia corporation has $145 billion in IRA assets, making it #6 in the US
  
• Wachovia is the #1 seller of annuities in the US, with $5.9 billion in annual annuity premium sales
  

Mr. Carroll's comments were well received; Dave Petersen (President, Financial Services Advisory) said that, "David Carroll is an innovative mover & shaker in our industry; his basic message was lead, follow, or get out of the way." Kirk Michie (Managing Director, Lenox Advisors) said that, "the magnitude of Wachovia Corporation's assets is stunning." After listening to his comments, Tiburon's Managing Principal Chip Roame stated that, "Wachovia really seems to grasp the market opportunity." Tiburon has recently completed several projects for Wachovia Corporation and Mr. Carroll was introduced by Chip Roame (Managing Principal, Tiburon Strategic Advisors).