• 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
  

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 Partner, Tiburon Strategic Advisors), who himself recently spoke at a Lydian conference.

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”
  

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).

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 Partner 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.

Ask the Consumers

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 Partner Chip Roame agreed, saying, "unlike consumer goods, the financial service industry has never had a productive consumer research orientation."

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 Partner, 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 Partner 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."

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:

• 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 Partner 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."

Attendees

Tiburon CEO Summit XII had 90 Tiburon client attendees, including:

Chip Roame (Managing Partner, Tiburon Strategic Advisors) Gurinder Ahluwalia (President, Genworth Financial Asset Management, Genworth Financial) Julie Allecta (Partner, Paul, Hastings, Janofsky, & Walker) Mike Apker (Chief Operating Officer, Envestnet Asset Management) Andy Arenberg (Managing Director, Barclays Global Investors, Barclays) Tim Armour (Managing Director, Strategic Relationships & Business Development, Morningstar) Peter Bain (Senior Executive Vice President, US Asset Management, Legg Mason) Chuck Baldiswieler (Group Managing Director, TCW Advisor Group & Private Client Services, Trust Company of the West (TCW), Societe Generale) Bill Barrett (CEO, Fiduciary Trust International of California, Fiduciary Trust International, Franklin Templeton Investments) Andy Baugh (CEO, Niemann Capital Management) Bob Bingham (Partner, Bingham, Osborn, & Scarborough, Boston Private Financial Holdings) Chris Boruff (President, Advisor Business, Morningstar) John Bowen (CEO, CEG Worldwide) Steve Burnett (Principal, Hanson McClain) Dan Byrne (Senior Vice President, Products & Technology, M Financial Group) Eric Byunn (Partner, FT Ventures) John Cammack (Head of Third-Party Distribution, T. Rowe Price Group) Joe Canavan (CEO, Assante Corporation, CI Financial) Amit Choudhury (Managing Partner, Pinnacle Partners) Dennis Clark (CEO, Advisor Partners) John Clendening (Executive Vice President, Schwab Investor Services, The Charles Schwab Corporation) Steve Cohen (Managing Director, ProFund Advisors) Ron Cordes (Chairman, Asset Mark Investment Services, Genworth Financial Asset Management, Genworth Financial) Allison Couch (CEO, The Financial Services Network (FSN)) Ben Cukier (Partner, FT Ventures) Jeff Cusack (Managing Director, Sales & Marketing, Rex & Company) John DesPrez (CEO, John Hancock Financial Services, Manulife Financial) Mike DiGirolamo (Managing Director, Investment Advisors Division, Raymond James Financial Services, Raymond James) Jeffrey Dunham (CEO, Dunham & Associates Investment Counsel) Bill Dwyer (President, LPL Independent Advisor Services, LPL Financial Services) Martuza Ferdous (President, Epluribus, Open Finance Network) Ken Fisher (CEO, Fisher Investments) Jon Foster (CEO, E*Trade Wealth Management, E*Trade Financial) Mike Gianoni (Executive Vice President, Investment Services Division, Check Free) Keith Gregg (Executive Vice President, Sales, Dunham & Associates Investment Counsel) John Hailer (CEO, CDC IXIS Asset Management Advisors Group, Banque Populaire Group & Caisse D'Epargne Group) Ed Haldeman (CEO, Putnam Investments, Marsh & McLennan) Bill Harris (Chairman, My Vest Corporation) David Hearth (Partner, Paul, Hastings, Janofsky, & Walker) Bob Herrmann (CEO, Loring Ward Group) Steve Hohenrieder (Partner, Think Wealth Management, Think Equity Partners, Panmure Gordon & Company) Tao Huang (Chief Operating Officer, Morningstar) John Iachello (Chief Operating Officer, Pershing Advisor Solutions, Pershing, The Bank of New York Mellon Corporation) Bryce James (CEO, Smart Portfolios) Tif Joyce (President, Joyce Financial Management)

Jeff Lancaster (Managing Partner, Bingham, Osborn, & Scarborough, Boston Private Financial Holdings) Greg Leekley (CEO, Phoenix Bay Partners, Open Finance Network) Chuck Lewis (CEO, My Vest Corporation) Steve Lockshin (CEO, Lydian Wealth Management, Lydian Trust Company) Art Lutschaunig (President, Morningstar Investment Services, Morningstar) Tom Lydon (President, Global Trends Investments) Kevin Malone (President, Greenrock Research) Jeff Margolis (Senior Managing Director, Asset Management Business Development, TIAA-CREF) Scott McCartan (CEO, Millennium Trust Company) Pat McClain (Senior Financial Advisor, Hanson McClain) Randy Merk (Executive Vice President, Schwab Financial Products, The Charles Schwab Corporation) Kirk Michie (Managing Director, Lenox Advisors) Karl Mills (President, Jurika, Mills, & Keifer) Keith Mitchell (CEO, Mitchell Advisers) Mitch Nichter (Partner, Paul, Hastings, Janofsky, & Walker) Mike Niedermeyer (Executive Vice President, Asset Management, Wells Fargo Bank) Henry Orvin (Chief Distribution Officer, Index IQ) Purna Pareek (CEO, Advice America) Jon Parker (President, Western Region, Boston Private Financial Holdings) Stuart Parker (Executive Vice President, Jennison Associates, Prudential Financial) Adam Patti (CEO, Index IQ) Mike Perry (Executive Vice President, AIG Valic, American International Group (AIG) Govinda Quish (Partner, Agile Group) Marty Ratner (Chief Financial Officer, Niemann Capital Management) Alan Reid (CEO, Forward Management) Brian Reid (Chief Economist, Investment Company Institute) Jim Riepe (Retired Vice Chairman & Senior Advisor, T. Rowe Price Group) Neal Ringquist (President, Advisor Software) Chuck Robinson (Senior Vice President, Investment Products & Services, Northwestern Mutual) Jeff Roush (Executive Vice President, Strategy & Corporate Development, Agile Group) Michael Sapir (CEO, ProFund Advisors) Catherine Saunders (Managing Director, West Region, Putnam Retail Management, Putnam Investments, Marsh & McLennan) Paul Schaeffer (Managing Director, SEI Investments) Skip Schweiss (Executive Vice President, Fiserv Investment Support Services, Fiserv) David Smilow (Chairman, Jefferson National Financial, Inviva Securities Corporation) David Smith (Group Publisher, Financial Advisor Magazine, Charter Financial Publishing Network) Alan Spiegelman (Wealth Management Advisor, Northwestern Mutual) Greg Stark (Managing Director, US Individual Investor Services, Russell Investment Group, Northwestern Mutual) Paul Stevens (CEO, Investment Company Institute) Nick Stuller (President, Discovery Database, Financial Information Group) Frank Trotter (President, Ever Bank Direct, Ever Bank Financial) John Tyers (Senior Managing Director, Broker/Dealer Clearing & Investment Advisor Services, The Bear Stearns Companies) Enrique Vasquez (President, Personal Advisor Network, Genworth Financial) Gib Watson (CEO, Prima Capital Management, Prima Capital Holding) John Watts (Vice Chairman, BNP Paribas Asset Management, BNP Paribas)

Media Representatives

Tiburon CEO Summit XII had five Tiburon select media attendees, including:

Fred Gabriel (Executive Editor, Investment News, Crain Communications) Janet Levaux (Managing Editor; Research; Highline Media; Summit Business Media; Wind Point Partners) Evan Simonoff (Editor-in-Chief, Financial Advisor Magazine, Charter Financial Publishing Network)

Brooke Southall (Reporter, Investment News, Crain Communications) John Wasik (Personal Finance Columnist, Bloomberg News, Bloomberg)

Also in attendance for Tiburon CEO Summit XII were Tiburon employees Martyn Collins (Business Manager) & Brian Cotter (Marketing Manager).

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Tiburon CEO Summit XI: October 18-19, 2006

Tiburon CEO Summit XI was held October 18-19, 2006 in San Francisco, CA. Tiburon CEO Summit XI started at 8:00am on Wednesday, October 18, included a networking dinner that evening in Tiburon, & concluded at 2:00pm on Thursday, October 19. Over 75 senior industry executives & media representatives took two days out of their busy schedules to participate. Chip Roame (Managing Partner of Tiburon Strategic Advisors), David Carroll (President, Capital Management Group, Wachovia Corporation), Ken Fisher (CEO, Fisher Investments), Lee Kranefuss (CEO, Intermediary & Exchange Traded Funds Group, Barclays Global Investors, Barclays), Andrew Rudd (CEO, Advisor Software & Former CEO, Barra), & Myron Scholes (Professor, Stanford; Chairman, Platinum Grove Asset Management; & Winner, 1997 Nobel Prize for Economics) made general session presentations. Other general session panels included a consumers panel, an advisors panel, a strategic discussion of the investment management market, & a panel featuring the leaders of the largest RIA custodian firms.

Opening Keynote Presentation:

Chip Roame (Managing Partner, Tiburon Strategic Advisors)

Tiburon CEO Summit XI kicked off with a keynote presentation by Chip Roame (Managing Partner, Tiburon Strategic Advisors). Chip welcomed the attendees, gave an overview of Tiburon, and addressed the state of the financial services industry, challenging the group with a long list of current industry issues to consider and discuss.

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 (75 of which were represented at the CEO Summit), and completed almost 900 projects since its founding in 1998, and today, 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.

State of the Financial Services Industry

After sharing the short update on Tiburon, Mr. Roame discussed the state of the financial services industry broadly, leveraging and introducing the CEO Summit agenda. He focused 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 five recent news stories and five recent Tiburon research findings be discussed:

Five Recent News Stories

• Two full-service brokerage firms (Merrill Lynch & Smith Barney) recently exited the investment management business, signaling a perceived conflict of interest, while other firms, including that led by guest presenter David Carroll (President, Capital Management Group, Wachovia Corporation), appear to building their investment management capabilities
• Two leading load mutual fund firms are for sale, initially suggesting challenges in the old investment management models, but possibly being more related to investment performance and talent retention issues
• Product proliferation continues in the mutual funds, exchange traded funds, & hedge fund industries, suggesting opportunities for consolidation (He noted that there are now more hedge funds than mutual funds!)
• Bank of America has almost caught Citigroup in terms of market capitalization, signaling the power of retail distribution and the stock market's reward for building steady fee-oriented retail businesses
  
• Venture capital & technology has entered round two (however Mr. Roame noted that little ever changes in technology vendor market shares in financial services, with long-dominant competitors like Thomson's Beta, Check Free's APL, and Advent's Axys continuing to dominate their respective sub-markets)

Five Recent Tiburon Research Findings

• Fidelity Investments passed Merrill Lynch as the largest financial services firm based on client assets (over $1.5 trillion!), signaling the growth in fast growing business models such as no-load funds, discount brokerage, independent broker/dealers (clearing), RIAs (custody), and 401k plans
• Data for separately managed accounts & other fee-account programs continues to be miscalculated, leaving out the fee-only financial advisor (RIA), bank trust, and true separate account businesses, leading to inaccurate conclusions on the growth of various products and the perceived dominance of separately managed accounts (by calculating correctly, Mr. Roame argued that the mutual fund wrap account and broker wrap account markets may actually be larger than the separately managed accounts market)
• The number of independent reps passed that of wirehouse reps (80,000 versus 70,000), suggesting the power of independence (although he also drew attendees attention to the lower average assets under administration for independent reps $12 million versus $70 million for the average wirehouse broker)
• Online brokerage firms are continuing to gain share in consumer investable assets, suggesting continued success in client acquisition and even client retention
• International markets continue to be sexy but small; while not being anti-international, Mr. Roame cautioned the group simply to keep perspective, offering examples such as the United Kingdom having similar investable assets to those in California and Canada having similar investable assets to those in Pennsylvania

Subsequently, Mr. Roame offered up challenging questions to be raised in each of the nine break-out sessions:

• 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.?
    

• Products Break-Out Session: Mutual Funds & Exchange Traded Funds
  • Are mutual funds dead (or are they America’s core financial product)?
    
  • Do the pending sales of MFS & Putnam represent the death of the traditional model (or do they represent attention to poor investment performance or the inability to retain investment talent)?
    
  • Does the concentration of mutual fund flows in four-to-six mutual fund companies threaten small mutual fund companies?
    
  • Is the centralization of investment selection (e.g., wrap programs) changing the mutual funds game?
    
  • Are target date mutual funds (especially in 401K plans) changing the mutual funds game?
    
  • Will performance fees become the new pricing mechanism?
    
  • Is indexing slowly taking over the industry?
    
  • Will the fast growing segments of independent reps and fee-only financial advisors shift their product use away from mutual funds?
    
  • Will exchange traded funds threaten mutual funds?
    
  • Will actively managed exchange traded funds be approved anytime soon (and will they make the market explode in size)?
    
  • Will Barclays be able to maintain its dominant market share in the growing ETFs market?
    
    
• Products Break-Out Session: Separately Managed Accounts & Other Fee-Account Programs
  • Have fee-accounts become the dominant model at the wirehouses?
    
  • Are fee-accounts concentrated in the wirehouses or are the wirehouses actually pretty small players relative to fee-only financial advisors, bank trust departments, and money managers?
    
  • Will separately managed accounts as a product continue to dominate the press (and maybe the assets)?
    
  • Will fee-only financial advisors shift their product use from mutual funds to separately managed accounts (or will they go in mass to exchange traded funds instead)?
    
  • Will the fast growing independent rep market increase its use of fee-accounts (or is its average client at $142,000 simply too small)?
    
  • Will multiple style portfolios open up the use of separate accounts to part-time investments channels like banks, CPAs, and insurance agents?
    
  • Aren’t unified managed accounts the obvious conclusion (or even better yet, unified managed households)?
    
  • Will turnkey asset management programs gain great share of assets as more firms look to outsource administrative aspects?
    
  • Will money managers see their margins squeezed, leading to exits from some top performing managers?
    
    
• Products Break-Out Session: Hedge Funds, Venture Capital & Private Equity, Real Estate, & Other Alternative Investments
  • Will hedge fund products be utilized by increasing numbers of high net worth and moderate net worth households?
    
  • Will the real growth in hedge funds come from non-taxable institutional investors with unlimited time horizons?
    
  • Will the aggressive investment strategies of some hedge funds and the product proliferation lead to continual blow ups?
    
  • Will the blow ups (and other scandals) hinder industry growth?
    
  • Which investment strategies (equity, arbitrage) will gather substantial consumer assets in the next decade?
    
  • Will hedge fund strategies packaged as mutual fund products ultimately win?
    
  • Do multi-strategy multi-manager hedge funds-of-funds provide diversification (or after taxes & fees, are their average returns poor)?
    
  • What firm will clean up hedge funds data (and how misleading is it today)?
    
  • Are venture capital & private equity potentially the most useful alternative asset classes & will they grow rapidly?
    
  • Will high net worth households gain access to top tier venture capital & private equity funds?
    
  • Does real estate need to be better packaged (or are Americans already overexposed to real estate)?
    

• 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?
    

• Markets Break-Out Session: Captive Advisors (Brokers, Bankers, & Insurance Agents)
  • The sales forces of the wirehouses (Merrill Lynch), captive financial planning firms (Ameriprise Financial), and insurance companies (Northwestern Mutual) have generally not grown over the past five or seven years; is this an intentional focus on quality over quantity?
    
  • Morgan Stanley executive James Gorman boldly commented at a recent SIA meeting regarding no longer tolerating low-end producers; does this represent the industry’s overarching view?
    
  • Instead of quantity, is the industry’s focus one of shifting to high net worth consumers, fee-accounts, & wealth management services?
    
  • Is Morgan Stanley retail on the block (will the firm just maintain the old Morgan Stanley high net worth business)?
    
  • As the independent advisor channels have been outgrowing the captive advisor channels, is the right response the multi-model offerings of Wachovia Corporation, Raymond James, and Ameriprise Financial?
    
  • Are the banks (and even H&R Block) attracting more successful advisors?
    
  • Can Wachovia’s localized wealth management model revolutionize the world?
    
  • Are the insurance companies the likely winners in the market for retirement income products and broader wealth management services?
    
    
• Markets Break-Out Session: Independent Advisors (Independent Reps & Fee-Only Financial Advisors)
  • The number of independent advisors (80,000 independent reps & 20,000 fee-only financial advisors) has now far outdistanced the number of wirehouse brokers (70,000); is independent the future?
    
  • Because of low production, independent advisors account for just 1/3 of the assets of the wirehouses; will this change?
    
  • Independent reps are growing in numbers but fee-only financial advisors are growing much faster in assets under management; what gives?
    
  • Is the slowed flow in numbers into the fee-only financial advisor market indicative of the future?
    
  • With its 98% payouts and high service levels, is LPL going to run away with the independent rep market (and have a hugely successful IPO)?
    
  • Although numerous new competitors have entered the custody business, Charles Schwab & Company still retains asset dominance ($468 billion); will any firm be a real challenger?
    
  • Will future flows into the independent advisor markets be hindered because of the current slow growth of the captive advisor channels (e.g., wirehouses, captive financial planning firms, insurance agents)?
    

The CEO-level attendees really enjoyed Mr. Roame's opening remarks and agenda setting; Dave Petersen (President, Financial Services Advisory) said that, "Chip's take was excellent. It set the stage for our industry by asking insightful questions." Dennis Clark (CEO, Advisor Partners) added that, "Chip is the master of getting everyone focused on the right questions."

Guest Presentations

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

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 Partner 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 Partner, Tiburon Strategic Advisors).

Ken Fisher (CEO, Fisher Investments)

Ken Fisher is CEO of Fisher Investments, a firm he founded thirty years ago. He is best known for his use of both direct mail and advertising, as well as his portfolio strategy investment column in Forbes magazine. His twenty-two year tenure at Forbes makes him the fifth longest running columnist in the magazine's eighty year history. He was also recently named to the Forbes 400 list as the 320th wealthiest American.

Mr. Fisher has been an innovator. His theoretical work in the early 1970s yielded a tool known as the price-to-sales ratio, now a core element of modern financial curriculum. In the 1980s, he helped create a school of equity style management called domestic small cap value equity, now a major category for institutional and retail investors. Mr. Fisher has also written three major finance books, including the 1984 best seller Super Stocks; his recent research focuses on the emerging field of behavioral finance.

Obvious to all of our mailboxes has been Mr. Fisher's unique direct mail strategy, and this has led to an 850 employee, 17,000 client, and $32 billion vertically-integrated operation, making it one of the largest founder run investment management firms. Mr. Fisher's presentation, "Challenging Conventional Wisdom", outlined some of Fisher Investments' unique strategies, including formal hiring discrimination against MBAs and using junk mail as a primary marketing strategy. Said simply, Mr. Fisher refuses conventional thoughts regarding best practices, personal service relationships, and the idea that firms must choose between being distributors and manufacturers.

Mr. Fisher made dozens of interesting points, challenging conventional wisdom and keeping attendees captivated:

• Fisher Investments gathers $400 million of net new assets per month (yes, per month!); if it were a mutual fund company, this would make it the sixteenth largest gatherer of assets
  
• For more perspective, only 23 (out of 793) mutual fund companies recently showed positive net asset flows
  
• Fisher Investments is a direct seller; the firm does not participate in indirect sales (in other words, it participates in no separately managed account programs)
  
• The firm offers no wealth management services, uses no mutual funds, manages mostly individual equities, and typically charges 1.00%
  
• The firm's assets have come from a moderately affluent market as it manages $32 billion for 17,000 clients (about 2/3 high net worth), with an average of $1.4 million per client
  
• Ken Fisher believes that separating manufacturing from distribution leads to the loss of quality control
  
• Ken also believes Fisher Investments to be “the largest junk mailer & web advertiser” in investment management and calls himself a “proud junker”
  
• The firm has the most specialization of labor of any firm in asset management (Tiburon's Managing Partner Chip Roame, who has visited Fisher Investment's facilities, clearly agreed)
  
• Even with its telephone-based service operation, the firm has a client termination rate of just 5% (simply said, Fisher Investments rejects the notion that personal service relationships are mandatory for success)
  
• The firm provides ongoing client seminars within a two hour drive of 90% of all US households
  

Fisher Investment's systemized approach is not done by ignoring investment performance:

• The firm has a fully global money management process, and utilizes both sector rotation and tactical asset allocation
  
• Fisher Investments has a ten-year Global Investment Management Performance Standards (GIPs) (the new AIMR) verified market-beating performance history
  

Finally, Ken offered a useful piece of business advice:

• "Best practices create mediocrity; they make one refine existing models instead of innovating new models"
  

Ken Fisher was a huge hit; attendees loved his challenging thoughts. Mitch Politzer (CEO, First Ameritas Life Insurance Company, Unifi Mutual Holding Company) said, “it is good to see someone who is a proud junker.” Tif Joyce (President, Joyce Financial Management) added, “everything he says flies in the face of conventional wisdom, so I keep reminding myself that he has gathered $32 billion.” Tiburon's Managing Partner, Chip Roame said, "you can't doubt Ken Fisher; his success speaks for itself." Mr. Fisher has attended Tiburon's last two CEO Summits and participated on the Investment Management Firm Founders panel at Tiburon CEO Summit X held this past April. Mr. Fisher was introduced by Chip Roame (Managing Partner, Tiburon Strategic Advisors), who himself spoke at Fisher Investments' sales conference this past year.

Lee Kranefuss (CEO, Intermediary & Exchange Traded Funds Group, Barclays Global Investors, Barclays)

Lee Kranefuss is the CEO of Barclays Global Investors' booming Intermediary & Exchange Traded Funds Business. Mr. Kranefuss joined Barclays in 1997 after spending six years with The Boston Consulting Group in San Francisco, CA, where he focused on consulting to retail and institutional financial services firms.

After swapping a few fun jabs with Tiburon's Managing Partner Chip Roame about prior consulting careers (Mr. Roame was at McKinsey & Company when Mr. Kranefuss was at Boston Consulting Group), Mr. Kranefuss discussed both the tactics around Barclay's iShares offering and more philosophically, the culture at Barclays which enabled it to create such a dominate business in an emerging product area.

Mr. Kranefuss first shared a few related facts:

• Barclays offers 116 exchange traded funds, more than any other firm. Lee explained that, “we looked at the few ETFs available in the 1990s and really liked them, but there just weren’t enough available, so we thought we’d create a modular building set thinking somebody should have done this before us”
  
• Barclays' iShares fund family is equity-biased with 107 of its 116 ETFs being equity funds (the firm does have plans to develop more fixed income funds)
  
• Barclays has no intention of shrinking its ETF family, with Lee saying that because of its indexing infrastructure, “Barclays can make money at pretty low asset levels”
  
• Barclays believes that about 50% of the assets in ETFs are from retail and institutional investors, with about 67% of flows coming from retail investors, a reversal of the earlier experience (he also estimated that about 80% of trades are institutional)
  
• Barclays is capturing 73% of net new assets in the exchange traded funds market
  
• More broadly, including mutual funds, Barclays is now #5 in fund assets and #3 in fund flows
  
• Lee feels that it will be a while before we see ETFs available as investment options within 401k plans, “it’s a plumbing and motivation issue,” he said, explaining the giant batch processes of the payroll vendors (he speculated though that the need for 12b1 fees could more easily be solved)
  
• Lee said there are, “lots of smart people working on active ETFs, but none are yet filed as it comes down to revealing the portfolios”
  

More broadly, Mr. Kranefuss said that he sees big things for all exchange traded funds. He said that, “ETFs continue to provide a very attractive investment option and experience for institutions, advisors, and individual investors." He said that, "exchange traded funds provide a superior business model" and he predicted big success. Tiburon’s Managing Partner Chip Roame agreed, saying that, “exchange traded funds are the fundamental biggest investment innovation since mutual funds.”

Mr. Kranefuss also addressed the Tiburon CEO Summit concept of innovation more broadly, saying, “you need to look at areas where you can get excited and commit fully as a firm. Barclays loved index funds, but more than just the Jack Bogle approach where one index fund would suffice. We thought if advisors had the lego kit, they could build much more dynamic portfolios.” Lee then explained that after detailed research, Barclays made a substantial commitment to the business.

Tom Lydon (President, Global Trends Investments), who himself manages an ETF blog, noted that, “Barclays' success and innovativeness is incredible.” Tiburon’s Managing Partner Chip Roame added, “I would bet that Barclays will next invest in the 401k area; iShares will capture substantial share in that market within three-to-five years. And international markets will see rapid growth of ETF products as well. Lee and Barclays are innovators.” Barclays has recently benefited from the purchase of Tiburon's exchange traded funds research report and Mr. Kranefuss was introduced by Chip Roame (Managing Partner, Tiburon Strategic Advisors).

Andrew Rudd (CEO, Advisor Software & Former CEO, Barra)

Andrew Rudd has been a founder of three successful investment firms - Barra (which he sold in a 1991 initial public offering, and then again in 2004 to Morgan Stanley for $900 million), Advisor Software(in which he is still engaged today), and Advisor Partners (where he partners with Tiburon CEO Summit Planning Committee member Dennis Clark). Previously he was a professor of finance & operations at Cornell University. More broadly, Mr. Rudd is an expert in quantitative analysis, asset allocation, modern portfolio theory, risk management, and performance measurement (as well as, obviously, being an industry-leading entrepreneurial role model). He was the CEO of Barra from 1984 - 1999, and is the co-author of two books on institutional investing: Modern Portfolio Theory - The Principles of Investment Management and Option Pricing.

At Advisor Software, Mr. Rudd is trying to deliver leading-edge analytics to retail investors. At the CEO Summit Mr. Rudd introduced the firm's third software solution which provides advisors with a more relevant approach to financial planning. The approach considers individuals’ entire balance sheets, including the element of human capital. Some of Andrew’s points included:

• Advisor Software was founded in 1995 to apply institutional-caliber analytics, perspectives, and rigor to the advisory marketplace to improve the quality of advice delivered
  
• Advisor Software now offers three technology solutions, one each for client acquisition, wealth management, and portfolio rebalancing
  
• Andrew noted that his research indicates that, "only about 25%-30% of people use financial advisors because of lack of control, arrogance, high fees, and poor support"
  
• He also used himself as an example, saying that in later years, life becomes complex and busy and he does not want to “spend the rest of his life watching a Bloomberg screen”
  
• He said that financial advisors all want to focus on the fun stuff (investments) where they can easily bill fees, while avoiding, often more important financial planning, insurance, and other issues
  
• Andrew believes that financial planning needs to start with the big picture of a family mission statement, which he thinks should identify goals. He sees one's balance sheet as a statement of resources and goals, with the surplus being the margin of safety
  
• Andrew believes that a comprehensive wealth strategy is a road map for success, requiring investment planning, tax planning, and risk management
  
• He believes that wealthy individuals have three choices – do it alone, hire a financial staff, or outsource their financial needs
  
• He also noted that, from personal experience, needs change over time, with simple issues like wills and life insurance giving way to more complex issues like concentrated stock positions, liquidity events, and even multiple generations and/or family units
  
• Mr. Rudd saw a gap in the market for the technology solutions to address these issues
  
• Advisor Software's new wealth management program has five key components, including a comprehensive balance sheet view, multiple-goal framework, asset allocation & investment selection, Monte Carlo simulation to model portfolio behavior versus goals, and dynamic recalibration over the investor's lifecycle
  

Dennis Clark (CEO, Advisor Partners) said that, “Andrew is an inspiration.” Tim Armour (Managing Director, Morningstar) added that, “his holistic approach to financial planning should open some eyes.” Tiburon's Managing Partner Chip Roame stated that, "Andrew Rudd's entrepreneurial spirit exemplifies what is right in financial services." Advisor Software has recently benefited from the purchase of Tiburon's technology research report and Mr. Rudd was introduced by Tiburon CEO Summit Planning Committee member Dennis Clark (CEO, Advisor Partners).

Myron Scholes (Professor, Stanford; Chairman, Platinum Grove Asset Management; & Winner, 1997 Nobel Prize for Economics)

Myron Scholes may be best known as one of the authors of the famous Black-Scholes model. In 1997 he won the Nobel Prize in Economics for "a new method to determine the value of derivatives." The model provides the fundamental conceptual framework for valuing options, such as calls or puts, and is referred to as the Black-Scholes model, which has become the standard in financial markets globally. Trillions of dollars of options trades are executed each year using this model and derivations thereof.

Today, Mr. Scholes is a professor at Stanford University and also leads a hedge fund firm called Platinum Grove Asset Management. Mr. Scholes organized his comments around Platinum Grove Asset Management's index plus contingent capital fund excess return strategy. Platinum Grove Asset Management was founded in 1999 and is based in Rye Brook, NY; it has $3.2 billion assets under management. Its core strategy combines investments in a benchmark index with investments in an actively-managed hedge fund that exhibits low correlation with the benchmark. Mr. Scholes most important points were the subtle lessons that were conveyed around the portable alpha concepts that are widely being discussed:

• Broadly, investors earn money in investing through systematic exposures, alpha or abnormal returns, liquidity provisions, and risk transfer
  
• Routes to produce the above types of returns vary in that active managers, hedge funds, banks, and broker/dealers compete to provide these return generating processes
  
• Excess returns and low correlation of returns for a hedge fund is the tool for active management in conjunction with benchmark investing
  
• Actively managed mutual funds compete with hedge funds as providers of excess returns
  
• Managers of every actively managed mutual fund use leverage – whether its obvious or not because it is simply not an index fund
  
• An actively managed mutual fund with net expenses of only 0.4% is in effect charging a management fee of 2.00% (0.40% x 5) on the actively managed component because investors can acquire the passive index component for free
  

David Smith (Group Publisher, Financial Advisor Magazine, Charter Financial Publishing Network) said, "Myron Scholes is a legend; it was a great opportunity to hear his thoughts." Tiburon's Managing Partner, Chip Roame applauded the effort; saying, "Myron's challenge is just what the CEO Summit needs to make all of us think innovatively." Mr. Scholes was introduced by Tif Joyce (President, Joyce Financial Management).

General Session Panel Discussions

Four general session panel discussions were held, including the popular Ask the Consumers and Ask the Advisors panels, as well as a panel on opportunities in the investment management market, and a panel of the leaders of the largest RIA custodians firms. All four panels included wide-open dialogue and received wide praise.

Ask the Consumers

As has become tradition at Tiburon CEO Summits, four high net worth consumers, including one married couple, joined facilitator Tif Joyce (President, Joyce Financial Management) on the Ask the Consumer panel. The panelists told about their experiences with brokers, bankers, insurance agents, independent advisors, and do-it-yourself approaches, making four key points:

• Financial advisors can permanently turn off clients with arrogant attitudes, and a substantial number of high net worth investors do not use financial investors. Three of the four randomly chosen high net worth panelists did not currently utilize financial advisors, which surprised many attendees, but is in-line with Tiburon research (frankly amongst the nineteen high net worth consumers randomly chosen to participate on the Ask the Consumer panel at the last five Tiburon CEO Summits, ten (or 53%) have been self-directed and nine (or 47%) have utilized financial advisors)
  
• Losing confidence in making your own decisions about your finances can be stressful. "I made a lot of mistakes along the way and I wish I could change what I’ve done,” said one panelist
  
• The financial world is getting more intimidating as baby boomers age into retirement. One consumer panelist said that "we’re living longer and have to spend more time planning for retirement savings and healthcare"
  
• Consumers do want trusting advisors. Trust is the overwhelming key component to a successful advisor/client relationship. The panelists said that taking the time to understand their personal situations and knowing their advisors really care goes a long way toward building trust. One consumer stated, "you have to prove to me that you really care about me rather than making money for yourself"
  

The attendees enjoyed the Ask the Consumers panel; Dave Petersen (President, Financial Services Advisory) said that, “we all need to look to the end users to direct what we do.” Tiburon's Managing Partner Chip Roame agreed, saying, "unlike consumer goods, the financial service industry has never had a productive customer research orientation."

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 advisor decision-making. Facilitated by Dennis Clark (CEO, Advisor Partners), the panelists included Kurt Brouwer (CEO, Brouwer & Janachowski), Tom Lydon (President, Global Trends Investments), Dave Petersen (President, Financial Services Advisory), and Alan Spiegelman (Wealth Management Advisor, Northwestern Mutual), who collectively manage over $1.3 billion.

The panelists had some similarities and other differences. Their assets under management ranged from $625 million (Brouwer & Janachowski) to $65 million (Global Trends Investments). Three of the four (Financial Services Advisory, Northwestern Mutual, and Global Trends Investments) served primarily individual clients, while Brouwer & Janachowski served 50% institutional clients. Brouwer & Janachowski and Northwestern Mutual both had average account sizes of ~$2.0 million, while Financial Services Advisory and Global Trends Investments ranged between $600,000 and $800,000. All primarily relied on mutual funds and exchange traded funds, with Northwestern Mutual having the largest use of individual securities at 20%

• All of the panelist agreed that they are correctly labeled as wealth managers but that the scope of their services is a function of their clients’ demands. Importantly, the range of services offered is linked to the size and profitability of the relationships. Mr. Petersen observed that larger relationships are not necessarily profitable relationships. His firm monitors hours spent to service accounts and often revises pricing for larger, service-intensive relationships to ensure profitability
  
• In addition to discussing wealth management, the panelists were queried on whether they ran practices, or businesses. Mr. Spiegelman set a tough standard by saying that his is a business, and cited as an example how smoothly his firm runs during his extended absences, while Mr. Petersen, who considers his firm to be both a practice and business, said that taking long vacations poses a bit greater challenge for him, suggesting his might be more of a practice in the final analysis
  
• In assessing the state of their businesses, all of the panelists agreed that one of the biggest challenges is managing the growth of their practices and finding talented people to bring into their organizations. Mr. Brouwer explained the need for getting the best talent in their small firms, and noted that his firm recently hired a middle level manager only after reviewing 60 candidates
  
• In order to stay abreast of trends, products, and issues, the panel cited a number of helpful steps. Mr. Lydon pointed out the efficiency of using Tiburon’s research and its CEO Summits to get a useful perspective on advisor market issues. Mr. Spiegelman, agreed and added that questioning clients directly was a great benefit
  
• When asked to predict changes in their businesses in the next five to ten years:
  • Mr. Petersen predicted that technology advances would enable economical delivery of more tailored customized solutions for advisors
  • Mr. Brouwer’s firm has embraced technology through telecommuting, and in fact Kurt himself is able to work three weeks per month from Hawaii, while serving clients in real time as if he were in his office in Tiburon.
  • Overall, panelists agreed with Andrew Rudd's (CEO, Advisor Software & Former CEO, Barra) emphasis from earlier in the day, that as the advisor market evolves, wealth mangers will have to better utilize available technology in order to grow their businesses. The market is extremely competitive and establishing and sustaining competitive points of difference will be critical to both survival and growth
    

Mr. Lydon predicted that the market will continue to bifurcate with some advisors being more client centric, allowing for a better accommodation of lifestyle needs for advisors like himself, while others would be more business focused and would continue to grow share. Tiburon's Managing Partner Chip Roame agreed, saying that, "there is an inaccurate message going around that small 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 threat."

Investment Management

Tim Armour (Managing Director, Morningstar) facilitated the Investment Management panel, which included Chuck Baldiswieler (Group Managing Director, TCW Advisor Group & Private Client Services, Trust Company of the West (TCW), Societe Generale), Jud Bergman (CEO, Envestnet Asset Management), Ron Cordes (Chairman, Asset Mark Investment Services, Genworth Financial), and Karl Mills (President, Jurika, Mills, & Keifer).

• Mr. Armour pointed the discussion towards trends from the panel’s perspective
  
• Mr. Cordes zeroed in on “baby boomers moving into the next phase of life, and their need for results-based planning”
  
• Mr. Baldiswieler picked up on that by discussing his firm’s efforts to “focus on outcomes at the client level” and “worrying less about style”
  
• The group all agreed that specialization and technology will continue to be prevalent themes Mr. Bergman said that, “the trick will be to tie front-end financial planning to results-based reporting”
  
• On the business side, Mr. Cordes commented that, "rather than worrying about disappointments with the market and rising business costs, investment managers should be looking ahead. Over the next decade, the combination of demographic changes, shifting investor demand, and a changing regulatory landscape will create opportunities for those managers who are equipped to compete"
  
• Perhaps the most insightful comment of the session came from Mr. Mills, recently returned to the investments business after a three year stint as the president of the San Francisco Opera, who, reflecting on the earlier Ask the Consumer panel, said, “it’s never been cheaper to do yourself harm than it is today.” Others agreed, saying all advisory models would likely grow in the future
  

Tiburon's Managing Partner Chip Roame noted that, "the ability to capture the liquefaction and deliver against the retirement income challenge may be what separates the winners from the losers in the next decade in the investment management market."

Innovative Business Models: RIA Custodians

Because of the boom in the fee-only financial advisor business in recent years, the innovation panel was focused on custodians serving fee-only financial advisors. The panel, facilitated by Chip Roame (Managing Partner, Tiburon Strategic Advisors), offered the perspective of all the leading industry custodians. While representing five of the six-or-seven largest traditional custodians, the panelists represented varying sized and focused businesses. The Charles Schwab Corporation custodies for 5,200 fee-only financial advisors with $468 billion in assets ($85 million average). TD Ameritrade custodies for a similar number of fee-only financial advisors (4,236), but with far fewer assets ($58 billion) and a much lower average account size ($14 million). The other three panelists represented firms closer to the size of TD Ameritrade. Fiserv Investment Support Services serves 500 fee-only financial advisors with $16 billion assets ($32 million average); Pershing serves 450 fee-only financial advisors with $50 billion assets ($125 million average); and The Bear Stearns Companies serves 98 fee-only financial advisors with $45 billion ($550 million average). The Charles Schwab Corporation and TD Ameritrade have balanced asset mixes (52%/48% and 46%/44%) between individual securities and mutual funds & exchange traded funds, while Fiserv Investment Support Services is more heavily weighted to mutual funds & exchange traded funds (80%), and both Pershing and The Bear Stearns Companies custody more individual securities (79% and 75% respectfully).

In the discussion, Randy Merk (President, Schwab Financial Products, The Charles Schwab Corporation) who pinch hit for his peer Debby McWhinney (President, Schwab Institutional, The Charles Schwab Corporation), said that Schwab continues to innovate in financial products for financial advisors. Tom Bradley (President, TD Ameritrade Institutional Services, TD Ameritrade, TD Group) noted the success of his firm's recent merger. Skip Schweiss (Executive Vice President, Fiserv Investment Support Services, Fiserv) detailed his firm’s innovations in custodying unique assets. John Iachello (Chief Operating Officer, Pershing Advisor Solutions, Pershing, Bank of New York) pointed out Pershing & Bank of New York's broader capabilities and John Tyers (Managing Director, Broker/Dealer Clearing & Investment Account Services, The Bear Stearns Companies), detailed some of the cost and pricing innovations that have led to Bear Stearns' success with larger advisors and hedge fund managers.

The group also noted the substantial assets held by other custodians. Tiburon's Managing Partner Chip Roame agreed, saying that, "the custodians at the table, even when including Fidelity Investment's ~$130 billion of assets control $767 billion or only 70% of the market." Ken Fisher (CEO, Fisher Investments) chimed in saying that the largest custodians for his $32 billion firm include UBS, Smith Barney, and US Bancorp (none of which were on the panel).

Attendees

Tiburon CEO Summit XI had 58 Tiburon client attendees, including:

Chip Roame (Managing Principal, Tiburon Strategic Advisors) Vijay Advani (Executive Vice President, Global Advisor Services, Franklin Templeton Investments) Julie Allecta (Partner, Paul, Hastings, Janofsky, & Walker) Andy Arenberg (Managing Director, Barclays Global Investors, Barclays) Tim Armour (Managing Director, Strategic Relationships & Business Development, Morningstar) Chuck Baldiswieler (Group Managing Director, TCW Advisor Group & Private Client Services, Trust Company of the West (TCW), Societe Generale) Jud Bergman (CEO, Envestnet Asset Management) Tom Bradley (President, TD Ameritrade Institutional Services, TD Ameritrade, TD Bank Financial Group) Kurt Brouwer (CEO, Brouwer & Janachowski) David Carroll (President, Capital Management Group, Wachovia Corporation) Larry Chambers (Contributing Editor, Investment Advisor, Wicks Business Information) Amit Choudhury (Managing Partner, Pinnacle Partners) Dennis Clark (CEO, Advisor Partners) Craig Cloyed (President, Calvert Distributors, Calvert, Unifi Mutual Holding Company) Ron Cordes (Chairman, Asset Mark Investment Services, Genworth Financial Asset Management, Genworth Financial) Jeffrey Dunham (CEO, Dunham & Associates Investment Counsel) Nicole Farrar (Associate, Paul, Hastings, Jafosky, & Walker) Ken Fisher (CEO, Fisher Investments) Rob Foregger (Chief Strategy Officer, Ever Bank Financial) Jonathan Foster (CEO, E*Trade Wealth Management, E*Trade Financial) Nick Georgis (Managing Director, USD Marketing & Strategy, Russell Investment Group, Northwestern Mutual) Keith Gregg (Executive Vice President, Sales, Dunham & Associates Investment Counsel) Scott Hanson (CEO, Hanson McClain) Bill Harris (Chairman, My Vest Corporation) John Hurley (President, Associated Securities, Pacific Life Insurance Company) John Iachello (Chief Operating Officer, Pershing Advisor Solutions, Pershing, Bank of New York) Tif Joyce (President, Joyce Financial Management) Jeff Kanaly (Vice Chairman, Kanaly Trust Company)

Lee Kranefuss (CEO, Intermediary Investor Business, Barclays Global Investors, Barclays) Jeff Lancaster (Managing Partner, Bingham, Osborn, & Scarborough, Boston Private Financial Holdings) Stephen Langlois (Senior Vice President, Research, LPL Financial Services) Tom Lydon (President, Global Trends Investments) Lori Medlen (President, Financial Research Associates) Randy Merk (Executive Vice President, Schwab Financial Products, The Charles Schwab Corporation) Kirk Michie (Managing Director, Lenox Advisors) Karl Mills (President, Jurika, Mills, & Keifer) Jim Minnick (President, Lovell Minnick Partners) Greg Pacholski (CEO, Albridge Solutions) Victor Palmieri (Vice Chairman, Mullin TBG) Purna Pareek (CEO, Advice America) Dave Petersen (President, Financial Services Advisory) Mitch Politzer (CEO, First Ameritas Life Insurance Company, Unifi Mutual Holding Company) Andy Putterman (President, Fortigent, Lydian Trust Company) Neal Ringquist (President, Advisor Software) Chuck Robinson (Senior Vice President, Investment Products & Services, Northwestern Mutual) Andrew Rudd (CEO, Advisor Software) Myron Scholes (Professor, Stanford University) Skip Schweiss (Executive Vice President, Fiserv Investment Support Services, Fiserv) David Smith (Group Publisher, Financial Advisor Magazine, Charter Financial Publishing Network) Bob Smoke (CEO, Seton-Smoke Capital Management) Burnie Sparks (President, Client Group, Baliard) Alan Spiegelman (Wealth Management Advisor, Northwestern Mutual) Allen Thorpe (Managing Director, Hellman & Friedman) Frank Trotter (President, Ever Bank Direct, Ever Bank Financial) Ellen Turf (CEO, National Association of Personal Financial Advisors) John Tyers (Managing Director, Broker/Dealer Clearing & Investment Advisor Services, The Bear Stearns Companies) Jerry Wagner (CEO, Flexible Plan Investments) John Watts (Vice Chairman, BNP Paribas Asset Management, BNP Paribas)

Media Representatives

Tiburon CEO Summit XI had six Tiburon select media attendees, including:

Evan Cooper (Director, Wealth Management News, Thomson Financial, Thomson Corporation) Gavin Daly (Executive Editor, Board IQ, Agenda, & Base & Bonus, Money-Media) Chris Larson (Associate Editor, Fund Fire, Money-Media)

Janet Levaux (Managing Editor; Research; Highline Media) Evan Simonoff (Editor-in-Chief, Financial Advisor Magazine, Charter Financial Publishing Network) Brooke Southall (Reporter, Investment News, Crain Communications)

Also in attendance for Tiburon CEO Summit XII were Tiburon employees Brian Cotter (Marketing Manager) & Chuck Roame (Part-Time Database Manager).

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Tiburon CEO Summit X: April 18-19, 2006

Tiburon CEO Summit X was held April 18-19, 2006 in San Francisco, CA. Tiburon CEO Summit X started at 8:00am on Wednesday, April 18, included a networking dinner that evening in Tiburon, & concluded at 12:45pm on Thursday, April 19. Almost 75 senior industry executives & media representatives took two days out of their busy schedules to participate. Chip Roame (Managing Partner, Tiburon Strategic Advisors), Mark Casady (CEO, LPL Financial Services), Greg Johnson (CEO, Franklin Templeton Investments), Dave Pottruck (Former CEO, Charles Schwab & Company), & Norton Reamer (CEO, Asset Management Finance) made general session presentations. Other general session panels included a consumers panel, an advisors panel, a strategic discussion of the investment management & institutional markets, & a series of presentations on innovative business models.

Attendees at Tiburon CEO Summit X held April 19-20, 2006 in San Francisco, CA

Opening Keynote Presentation:
Chip Roame (Managing Partner, Tiburon Strategic Advisors)

The CEO Summit kicked off with a keynote presentation by Chip Roame (Managing Partner of Tiburon Strategic Advisors). Chip welcomed the attendees, gave an overview of Tiburon, and addressed the state of the financial services industry, with a focus on evolving consumer needs and emerging innovative business models.

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, market research, and 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 (75 of which were represented at the CEO Summit), and completed over 800 projects since its founding in 1998 and today, its 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.

After sharing the short update on Tiburon and addressing the CEO Summit agenda, Mr. Roame discussed the state of the financial services industry broadly. This included comments regarding consumer wealth, the competitive playing field, and ways to win in the increasingly competitive market; he focused on thirty key points that he challenged the attendees to consider and debate over the coming two days. Specifically, Mr. Roame noted that:

• The market of consumer wealth is enormous, including $17.1 trillion of investable assets and $7.5 trillion of retirement plan assets held by 283 millions Americans living in 108 million US households; the savings rate and wealth transfer are less exciting than reported but the pending liquefaction of baby boomer wealth could push the size of the market to over $30 trillion
  
• There is a series of ways to win in the financial services industry, including not giving up on mutual funds, participating in the fee-accounts trend, and expanding product & service offers to better address the needs of aging baby boomers. Tiburon predicts that exchange traded funds will take significant market share in investment products, that fee-accounts will continue to take share from the traditional commission model, and that wealth management services will surpass investment management services in importance as boomers age
  
• Three key business building initiatives are critical - target marketing, people & technology leverage, and benchmarking; most financial advisors could improve their marketing through niche marketing strategies, people leverage by looking to build, personnel leverage, and technology use by expanding beyond Morningstar, Quicken, and Yahoo
  
• The competitive playing field is crowded with over 400,000 financial advisors; independent reps have surpassed wirehouse brokers as the largest market by number of advisors but wirehouses and banks still dominate control of consumer assets. At an institutional level, Tiburon expects substantial industry consolidation driven by stock values, and shifting winning markets, with banks being likely acquirers of both discount brokers and independent advisors
  

In short, Mr. Roame suggested that the financial advice market should boom over the coming decade but that increasing numbers of competitors and channel shifts will create a dynamic and opportunistic environment.

Guest Presentations

Four guest presentations anchored the CEO Summit agenda:

Mark Casady (CEO, LPL Financial Services)

Mark Casady (CEO of LPL Financial Services) presented LPL Financial Services' innovative views on the independent rep market and ways of growing and serving this market. On the heels of a historic partial sale of 62% of LPL for $2.5 billion to two leading private equity firms, Mr. Casady started by reinforcing his firm’s commitment to providing the best possible support available in the marketplace for the financial advisors. He stated that he considers himself the head of a technology outsourcing firm. He pointed out that the margins in the independent broker/ dealer market are slim but that LPL is successful because, with its technology, it has been able to obtain scale, leverage its advisors’ time and make them more efficient. Several independent fee-only financial advisors struggling with compliance and technology took note. Mr. Casady also emphasized the importance of culture at LPL. Part of maintaining that culture is doing as much as possible in-house, and another key part has been refusing any special deals with advisors. In commenting on the regulatory environment, Mr. Casady stated that it has determined that full disclosure is the answer to most problems. Mr. Casady ended by stating that LPL has enjoyed consistent increases in revenues every year except 2001, a positive result for the strong support that they offer their financial advisors. He revealed that LPL is likely to be an acquirer in the years going forward (later discussion focused on the struggling insurance company owned independent broker/dealers).

LPL has widely utilized Tiburon’s research and consulting services over the past few years. Mr. Casady was introduced by Chip Roame (Managing Partner of Tiburon Strategic Advisors).

Greg Johnson (CEO, Franklin Templeton Investments)

Greg Johnson (CEO of Franklin Templeton Investments) presented Franklin Templeton Investments' innovative views on being a leading provider of investment services across numerous markets, both domestic and abroad, including wirehouse brokers, independent reps, and 401K plans. Mr. Johnson focused the lion's share of his presentation on his firm's leading-edge global strategy that has made Franklin Templeton a powerful brand name across North America, deep into Europe, and in numerous Asian markets. Franklin Templeton now manages more than $1 billion in sixteen countries, including the US. He surprised much of the crowd with data suggesting that non-US mutual fund assets have now eclipsed the $8.6 trillion in mutual funds in the US, and that the disparity between the two figures is likely to grow. Mr. Johnson also defended the mutual fund structure, saying he did not see the claimed advantages of ETFs or SMAs. Franklin Templeton is a leader overseas, capturing for instance, 80% of the German mutual fund market. Finally, to evidence the power of successful branding in global markets, Mr. Johnson told a personal and humorous story about a Canadian investor that approached him at a conference years back, who was dually surprised that not only did he work out of the firm's California office, but that there was any non-Canadian Franklin Templeton office at all.

Tiburon has completed some projects for Franklin Templeton and Mr. Johnson was introduced by Greg Pusch (Associate of Paul, Hastings, Janofsky, & Walker).

Dave Pottruck (Former CEO, The Charles Schwab Corporation)

Dave Pottruck (formerly CEO of The Charles Schwab Corporation) joined Tiburon Fellow Dennis Clark (CEO of Advisor Partners) on stage and detailed some of the activities in which he is now involved ranging from serving as member of the Intel Board of Directors to a hands on advisory role for the unique start up EOS Airlines, which provides business class only service from New York to London. It became obvious that life after Schwab for Mr. Pottruck is both full and diverse. In a relaxed state, Mr. Pottruck explained how he learned in retrospect that he needed to bring the same vigor to downsizing at Charles Schwab & Company that he had brought to its growth; he is now trying to share this lesson at Intel. On a more personal level Mr. Pottruck shared with the group his perspective that as a high net worth investor, he is concerned as much about risk management as maximizing return in his portfolio. He also revealed that had opened several full-service brokerage accounts, but amazingly (and frightfully) receives a box of statements for his SMA assets. In addition, the CEO Summit attendees heard from him that even as someone who promoted the Schwab brand as a champion of low fees and expenses, David is happy paying the freight for his alternative asset managers.

Tiburon's Managing Partner Chip Roame worked for Mr. Pottruck at Charles Schwab & Company. Tiburon has subsequently served Charles Schwab & Company in several capacities.

Norton Reamer (Founder & Former CEO, United Asset Management and CEO, Asset Management Finance)

Norton Reamer (CEO of Asset Management Finance, formerly CEO of United Asset Management) presented Asset Management Finance's innovative views on the asset management business, firm valuations, mergers & acquisitions activity, and his new leading-edge business strategy. Asset Management Finance was established in 2003 to foster independence for asset managers through innovative financing solutions. In exchange for an upfront capital payment, AMF receives a finite percentage of the firm’s gross revenues for a specified period. AMF has made investments in two companies and expects to add several new companies this year. Many attendees applauded Mr. Reamer’s continued innovative business ideas. Mr. Reamer was one of the pioneers in the mergers and acquisitions, and continues to be innovative in the way he structures debt.

Mr. Reamer was introduced by Tiburon fellow Kevin Malone (President of Greenrock Research).

General Session Panel Discussions

Four general session panel discussions were held, including the popular Ask the Consumers and Ask the Advisors panels, as well as a panel on opportunities in the investment management market, and a panel on innovative business models. All four panels included wide-open dialogue and received wide praise.

Ask the Consumers

Back by popular demand after repeated comments seeking a better understanding of consumer needs, the Ask the Consumers panel drew wide praise. Five high net worth consumers joined facilitator Tif Joyce (President of Joyce Financial Management). The panelists told about their experiences with brokers, bankers, and advisors, making four key points:

• Trusting advisors is paramount. The panelists said that taking the time to understand their personal situations and knowing their advisor really cares goes a long way toward building trust
  
• Consumers want it simple. The fewer relationships, accounts, and securities, the better. One repeat high net worth panelist said I would love to find one company that could provide me with everything I need and give me the level of service for which I am looking
  
• Women are underserved. In an industry dominated by men, advisors need to do a better job of educating women and building trust. More widows and female divorcees are finding themselves responsible for their own financial matters later in life and the reality of the situation is devastating
  
• Choice is overwhelming. One consumer stated "You guys are like vitamins to me. There are so many out there that I am not going to do any of it"
  

The key take-away was that there seemed to be a divergence between extremely happy clients and frustrated & confused clients. Mr. Joyce observed that "the client is happiest when there is a strong relationship with the financial advisor."

Ask the Advisors

Five leading financial advisors participated on a panel to allow attendees to better understand advisor decision-making. Facilitated by Dennis Clark (CEO of Advisor Partners), the panel included Steve Lockshin (CEO of Legacy Wealth Management, Lydian Trust Company), Art Lutschaunig (President of Morningstar Investment Services), Tom Lydon (President of Global Trends Investments), and Burnie Sparks (President of Bailard). All agreed that one of the biggest challenges is managing the growth of their practices and finding talented people to bring into their organizations. Mr. Lutschaunig cited the benefit of being able to attract talented University of Chicago graduates to his local Chicago firm, Morningstar. Mr. Lockshin agreed with the need for getting the best talent and noted a recent middle level manager was hired after reviewing 60 candidates. Additionally, they all agreed that they are aptly labeled as wealth managers but that the scope of their services is a function of their clients’ demands. Importantly, the range of services offered is linked to the size and profitability of the relationship. In order to stay abreast of trends, products and issues the panel cited a number of helpful steps. Mr. Lydon gave support to the efficiency of using Tiburon’s research and the CEO Summits to get a useful perspective on the advisor market issues. Mr. Sparks agreed and added that questioning clients directly was a great benefit. When asked to predict changes in their businesses in the next 5 to 10 years, Mr. Lutschaunig predicted that technology advances would enable economical delivery of more tailored, customized solutions for advisors he serves. Mr. Sparks envisioned opening a broader array of distribution channels. Mr. Lydon predicted that the market will continue to bifurcate with some advisors being more client centric, allowing for a better accommodation of lifestyle needs for advisors like him, while others would be more practice focused and would continue to grow share. Mr. Lockshin observed that larger relationships are not necessarily profitable relationships. His firm monitors hours spent to service accounts and often revises pricing for larger, service-intensive relationships to insure profitability. Overall, panelists agreed with Mr. Pottruck’s emphasis from the previous day, that as the advisor market evolves, wealth mangers will have to better deliver both risk control products and more convenient consolidated reporting. The market is extremely competitive and establishing and sustaining a competitive point of difference is critical to both survival and growth.

Investment Management Firm Founders

The CEO Summit’s traditional investment management panel was structured this time to include only founders of such firms. Kevin Malone (President of Greenrock Research) and Paul Schaeffer (Managing Director of SEI Investments) facilitated this panel, which included Jeffrey Dunham (CEO of Dunham & Associates Investment Counsel), Ken Fisher (CEO of Fisher Investments), and Allan Rudnick (CEO of Kayne, Anderson, & Rudnick, Phoenix Companies). These founders brought a unique perspective to the Summit, with their universal passion for their business model, came through most clearly. Beyond this, they spoke of issues common to all investments organizations. Mr. Schaeffer commented, "Rather than worrying about disappointments with the market and rising business costs, investment managers should be looking ahead. Over the next decade, the combination of demographic changes, shifting investor demand, and a changing regulatory landscape will create opportunities for those managers who are equipped to compete." Mr. Schaeffer suggested that in order to succeed and thrive, managers should think of compliance as a way to gain competitive advantage and keep up with the evolution of traditional and alternative products. The panel led by Mr. Rudnick, continued the ongoing Tiburon CEO Summit debate regarding the size and growth rate of new investment products including ETFs, SMAs, and hedge funds (Kayne Anderson is a leader in the SMA Market). Panelists identified several additional trends that are having an impact on investment management organizations:

• The move to the ownership society, which is shifting responsibility for retirement savings, college savings, and health care costs from institutions to individuals
  
• The sea change pushing the industry from a manager-centric to an investor-centric approach with an emphasis on customization of investment products and a growing demand for investment approaches that meet goals and outcomes, not just market benchmarks
  
• The variety of successful delivery models, as Mr. Fisher predicts the demise of middlemen
  
• Investor demands for comprehensive and customized financial wellness solutions, resulting in investment products wrapped into a broader set of products and services
  
• The willingness to pay for performance. Mr. Dunham has a twenty year track record of charging performance fees
  
• Succession planning is not a given. Mr. Fisher commented that he intends to "die with his boots on"
  

Innovative Business Models

The innovative business models panel Facilitated by Chip Roame (Managing Partner of Tiburon Strategic Advisors), offered the perspective of four unique companies and business practices, encouraging other attendees to think innovatively regarding their own business strategies. Barbara Krumsiek (CEO of Calvert, Ameritas Acacia Mutual) described her company’s intensive research process that leads to its selection of high-performing socially responsive investments, and noted that they also make extensive use of sub-advisors. Jeff Maggioncalda (CEO of Financial Engines) commented on his company’s ability to service many relatively low-balance accounts through innovative, user-friendly and cost-effective means. He noted that to sign up for Financial Engines’ services, company employees need only sign a bar-coded form, bypassing the need for a more complex and costly enrollment process. Pierre Lapomme (CEO of BNP Paribas Asset Management, BNP) detailed his firm’s innovations in financial product distribution, while the final presenter, John McGonigle (Office of the Chairman of Charles Schwab & Company), detailed some of the cost and pricing innovations that have led to Schwab’s success, but also claims to not know why Schwab is perceived as innovative; “it’s all about the customers,” he said.

Attendees

Tiburon CEO Summit X had 67 Tiburon client attendees, including:

Chip Roame (Managing Principal, Tiburon Strategic Advisors) Gurinder Ahluwalia (President, GE Private Asset Management, Genworth Financial) David Akellian (Managing Director, Broadcourt, Merrill Lynch) Julie Allecta (Partner, Paul, Hastings, Janofsky, & Walker) Tim Armour (Managing Director, Morningstar) Chuck Baldiswieler (Group Managing Director, Trust Company of the West, Societe Generale) Bill Banks (President, MCF Wealth Management, Merriman, Curhan, Ford, & Company) Bob Barrett (Venture Partner, FT Ventures) Bob Boulware (CEO, ING Funds Distributor, ING) John Bowen (CEO, CEG Worldwide) Stan Brooks (President, Brookstreet Securities) John Cammack (Head, Third-Party Distribution, T. Rowe Price Group) Mark Casady (CEO, LPL Financial Services) Amit Choudhury (Managing Partner, Pinnacle Partners) Dennis Clark (CEO, Advisor Partners) Steve Cohen (Managing Director, ProFund Advisors) Ron Cordes (Chairman, Asset Mark Investment Services) Kelly Coughlin (CEO, Global Bridge) Steve DeAngelis (President, Advisor Port, PFPC Managed Accounts Services, PNC) Mike DiGirolamo (Managing Director, Raymond James Financial Services, Raymond James) Jeffrey Dunham (CEO, Dunham & Associates Investment Counsel) Phil Edwards (Chief Investment Officer, Standard & Poor's, McGraw Hill) Ken Fisher (CEO, Fisher Investments) Ken George (President, Financial Services Resource Corporation) Steven Graubart (CEO, US Fiduciary) Scott Hanson (CEO, Hanson McClain) David Hearth (Partner, Paul, Hastings, Janofsky, & Walker) Robert Herrmann (President, Loring Ward Advisor Services, Loring Ward) Asiff Hirji (Chief Operating Officer, TD Ameritrade, TD Group) David Johnson (Partner, Harpeth Partners) Greg Johnson (CEO, Franklin Templeton Investments) Tif Joyce (President, Joyce Financial Management) Barbara Krumsiek (CEO, Calvert, Ameritas Acacia Mutual Holding Company)

Jeff Lancaster (Managing Partner, Bingham, Osborn, & Scarborough, Boston Private Financial Holdings) Pierre Lapomme (CEO, BNP Paribas Asset Management, BNP Paribas) Chuck Lewis (CEO, My Vest Corporation) Steve Lockshin (CEO, Lydian Wealth Management) Jeff Lovell (CEO, Lovell Minnick Partners) Art Lutschaunig (President, Morningstar Investment Services, Morningstar) Tom Lydon (President, Global Trends Investments) Jeff Maggioncalda (CEO, Financial Engines) Kevin Malone (President, Greenrock Research) John McGonigle (Office of the Chairman, Charles Schwab & Company) Lori Medlen (President, Financial Research Associates) Kirk Michie (Managing Director, Lenox Advisors) Mitch Nichter (Partner, Paul, Hastings, Janofsky, & Walker) Terry Otton (CEO, RS Investments) Paul Perkins (President, American Securities Group, Open Finance Network) Dave Pottruck (CEO, Red Eagle Ventures) Greg Pusch (Associate, Paul, Hastings, Janofsky, & Walker) Norton Reamer (CEO, Asset Management Finance Corporation) Brian Reid (Chief Economist, Investment Company Institute) Neal Ringquist (President, Advisor Software) Chuck Robinson (Senior Vice President, Northwestern Mutual) Allan Rudnick (CEO, Kayne, Anderson, & Rudnick, The Phoenix Companies) Michael Sapir (CEO, ProFund Advisors) Paul Schaeffer (Managing Director, SEI Investments) Ken Schapiro (President, Condor Capital Management) Skip Schweiss (Executive Vice President, Fiserv Investment Support Services, Fiserv) Bob Smoke (CEO, Seton Smoke Capital Management) Burnie Sparks (President, Client Group, Bailard) Mark Tibergien (Principal, Moss Adams) Frank Trotter (President, Ever Bank Direct, Ever Bank Financial) Carl Verboncoeur (CEO, Rydex Investments) Mitch Vigeveno (CEO, Turning Point) Gib Watson (CEO, Prima Capital Management) John Watts (Vice Chairman, BNP Paribas)

Media Representatives

Tiburon CEO Summit X had two Tiburon select media attendees, including:

Jen Ryan (Reporter, Personal Finance, The Street.Com)

Brooke Southall (Reporter, Investment News, Crain Communications)

Also in attendance for Tiburon CEO Summit X were Tiburon employees Brian Cotter (Marketing Manager) & Matthew McGraw (Senior Research Manager) and Tiburon principal candidate Alo Ghosh (Senior Advisor, TCG Software Services).

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Prior Tiburon CEO Summits

As noted above, details on prior Tiburon CEO Summits are also available here:
Most Recent, 2024-2025, 2022-2023, 2020-2021, 2018-2019, 2016-2017, 2014-2015, 2012-2013, 2010-2011, 2008-2009, (2006-2007), 2004-2005, & 2001-2003.