The Future of Advice: Best Practices of the Leading Financial Advisors

The Future of Advice:Best Practices of the Leading Financial Advisors Tiburon Research October 31, 2013

Outline • Evolution of Financial Advisor Industry • Market History • Market Definition • Market Growth • Leading Financial Advisors • State of the Financial Advisor Industry • Target Marketing • Sales & Marketing Strategies • Investment Management Strategies • Client Service Strategies • Staffing & Compensation Strategies • Firm Cultures • Technology & Outsourcing • Industry Networking • Mergers & Acquisitions • Future Predictions for the Financial Advisor Industry • Continued Growth in the Financial Advisor Industry • Five Best Practices Define Leading Financial Advisor Firms

The Financial Advisor Industry Emerged in XXXX and Has Subsequently Evolved through its Early, Middle, & Recent Phases Financial Advisor Industry History Financial Advisor Industry Emerged Financial Advisor Industry Today Early Phase Middle Phase Recent Phase Approximate Dates: XXXX 1981 - 2000 2001 - 2009 2011 - 2013 2013 Key Steps: • XXXX: Financial Advisor Industry emerged • XXXX: -- • XXXX: -- • XXXX: -- Source: Tiburon Research & Analysis

Financial Advisor Industry Emerged in XXXX Comments • -- Source: Tiburon Research & Analysis

Financial Advisor Industry can be Defined Many Ways Comments • -- Source: Tiburon Research & Analysis

The Financial Advisor Industry can Specifically be Defined to Include Target Marketing, Sales & Marketing Strategies, Investment Management Strategies, Client Service Strategies, Staffing & Compensation Strategies , Firm Cultures, Technology & Outsourcing , Industry Networking, & Mergers & Acquisitions Financial Advisor Industry Market Definition Financial Advisor Industry Market Definition Target Marketing Sales & Marketing Strategies Investment Management Strategies Client Service Strategies Staffing & Compensation Strategies Firm Cultures Technology & Outsourcing Industry Networking Mergers & Acquisitions Source: 5/14/09 1st Global Presentation (Batman); 2/2/09 Investment News (Advisor Benchmarking.Com); Tiburon Research & Analysis

Market Growth in the Financial Advisor Industry can be Measured in a Variety of Ways Comments • -- Source: Tiburon Research & Analysis

Financial Advisor Industry Market Growth can Specifically be Measured by Clients, Spending, Revenues, & Net Profits Financial Advisor Industry Market Growth Measures Financial Advisor Industry Market Growth Measures Clients Spending Revenues Net Profits Source: Tiburon Research & Analysis

The Number of Financial Advisor Industry Clients are Increasing Needs data Financial Advisor Industry Clients (Millions) Source: Tiburon Research & Analysis

Financial Advisor Industry Spending Has Increased Needs data Financial Advisor Industry Spending ($ Billions) Source: Tiburon Research & Analysis

Financial Advisor Industry Generate Over Trillions in Revenue Needs data Financial Advisor Industry Revenues ($ Billions) Source: Tiburon Research & Analysis

Financial Advisor Industry Earn Trillions Needs data Financial Advisor Industry Net Profits ($ Billions) Source: Tiburon Research & Analysis

Leading Financial Advisor Companies can Specifically be Measured by their Number of Clients, Spending, Revenues, & Net Profits Leading Financial Advisor Companies Measures Leading Financial Advisor Companies Measures Clients Spending Revenues Net Profits Source: Tiburon Research & Analysis

There are a Number of Leading Financial Advisor Companies in Terms of Clients Needs data Leading Financial Advisor Companies Clients Source: Tiburon Research & Analysis

There are a Number of Leading Financial Advisor Companies in Terms of Spending Needs data Leading Financial Advisor Companies Spending ($ Millions) Source: Tiburon Research & Analysis

There are a Number of Leading Financial Advisor Companies in Terms of Revenues Needs data Leading Financial Advisor Companies Revenues ($ Millions) Source: Tiburon Research & Analysis

There are a Number of Leading Financial Advisor Companies in Terms of Net Profits Needs data Leading Financial Advisor Companies Net Profits ($ Millions) Source: Tiburon Research & Analysis

Target Marketing Target Marketing Target Marketing • -- • -- Source: Tiburon Research & Analysis 22

Niche Marketing Niche Marketing Niche Marketing • -- • -- Source: Tiburon Research & Analysis 23

Niche Marketing is So Obviously a Smart Idea… Fee-Only Financial Advisor Clients By Occupational Segment Source: 3/1/04 First Trust Advisor Conversation (Sloane); 2/27/04 First Trust Advisor Conversation (Tomlinson); 2/26/04 First Trust Advisor Conversation (Kaiser); 2/26/04 First Trust Advisor Conversation (Tripp); 2/25/04 First Trust Advisor Conversation (Brodeski); 2/2404 First Trust Advisor Conversation (Caldwell); 2/24/04 First Trust Advisor Conversation (Cowles); Tiburon Research & Analysis 24

There are Three Distinct Benefits of Segment Marketing, Including Increased Referrals, Higher Close Rates, & Lower Costs to Serve Segment Marketing Benefits Increased Flow of Referrals Decreased Competition & Better Close Rate Lower Cost to Serve Clients • Target marketing will lead to improved prospecting results due to an increase in real and perceived value • One’s reputation spreads much faster in niche markets than in broad markets • Having a niche will positively affect public relations • Able to better use time and money • Competition decreases as advisors establish themselves as experts in a particular niche • Segment marketers win every time • Isn’t serving the incremental client who looks alike easier? Source: 3/03 Financial Planning; 2/03 On Wall Street; 2/03 Financial Planning; 1/03 On Wall Street; 10/02 Financial Advisor; Tiburon Research & Analysis 25

Other Successful Financial Advisors Follow the Niche (or Segment) Marketing Strategy, Often Overlaid with Some Mass Marketing Techniques Leading Independent Advisors Niche Marketing Ron Blue & Company CMS Companies Hanson McClain Cleary Gull • Based in Sacramento, CA • 2,500 clients • $1.3 billion assets under management • Co-CEOs: Scott Hanson & Pat McClain • -- • -- • Founded in late 1960s • 100 employees Source: 6/28/11 Russell Investments Brochure; Tiburon Research & Analysis 26

Hanson McClain Has Three Core Businesses, Including its Hanson McClain Retirement Planning, Hanson McClain Retirement Network, & Hanson McClain Strategic Advisors Hanson McClain Businesses Hanson McClain Retirement Planning Hanson McClain Retirement Network Hanson McClain Strategic Advisors Hanson McClain Businesses Source: 9/23/11 Hanson McClain Retirement Network Email (Hanson);5/06 Investment Advisor; Tiburon Research & Analysis 27

Hanson McClain’s Hanson McClain Retirement Planning Has 2,500 Clients, Relatively Flat in Recent Years Hanson McClain Retirement Planning Clients Source: 5/06 Investment Advisor; 1/22/04 Hanson McClain Conversation (Neeley); 1/21/04 Hanson McClain Email (Neeley); Tiburon Research & Analysis 28

Hanson McClain’s Hanson McClain Retirement Planning Has $1.3 Billion Assets Under Administration, Up More than 1,300% Since 1996 and 60% Since 2004 Hanson McClain Retirement Planning Assets Under Administration ($ Millions) Source: 9/10/07 Investment News Web Site; 12/06 Research; 5/06 Investment Advisor; 9/04 Registered Rep; 8/04 Investment Advisor; 1/21/04 Hanson McClain Email (Neeley); 1/8/04 Hanson McClain Web Site; 9/03 Registered Rep; 9/02 Registered Rep; Tiburon Research & Analysis 29

Hanson McClain’s Hanson McClain Retirement Network Has $4.0 Billion Assets Under Administration, Up 60% Since 2003 Hanson McClain Retirement Network Assets Under Administration ($ Billions) Source: 9/10/07 Investment News Web Site; 1/25/04 Hanson McClain Conference Brochure; 1/21/04 Hanson McClain Email (Neeley); 1/7/04 Hanson McClain Conversation (Neeley); 10/4/02 Sacramento Business Journal; Tiburon Research & Analysis 30

Hanson McClain’s Hanson McClain Retirement Planning Clients are Slightly More than Half Pacific Bell Retirees Hanson McClain Retirement Planning Clients By Type Source: 12/06 Research Magazine; 5/06 Investment Advisor; 8/04 Investment Advisor; 1/22/04 Hanson McClain Conversation (Neeley); 1/21/04 Hanson McClain Email (Neeley); 1/8/04 Hanson McClain Web Site; 1/7/04 Hanson McClain Conversation (Neeley); Tiburon Research & Analysis 31

Hanson McClain’s New Business Comes Three-Quarters from Client Referrals, Most of Which are a Result of the Firm's Charity Work Hanson McClain Clients By Marketing Method Source: 1/22/04 Hanson McClain Conversation (Neeley); 1/21/04 Hanson McClain Email (Neeley); 1/8/04 Hanson McClain Web Site; 1/7/04 Hanson McClain Conversation (Neeley); 9/03 Registered Representative; Tiburon Research & Analysis 32

Hanson McClain’s Hanson McClain Retirement Planning Believes that it Has Captured Nearly Three-Quarters of the Pacific Bell Retiree Market Pacific Bell Retirees By Financial Advisor Utilized Source: Tiburon Research & Analysis 33

Segments Can be Nearly Anything… Milwaukee-Based Cleary Gull Targets Airline Pilots Comments • Introduction uses pilot terminology such as engineer, safety, stay on course, etc. • Custom seminars for pilots of leading airlines • Services listed for pilots including AA Super Saver 401k Asset Allocation and UAL DAP Asset Allocation • Specialized questionnaires for pilots from American, United, Delta, and others • Several ex-pilots on staff for pilot relationships Source: 11/17/03 Cleary Gull Web Site; Tiburon Research & Analysis 34

…Philadelphia-Based CMS Companies Serves Only Entrepreneurs with Philanthropic Interests… Comments • Founded in the late 1960s • Based in Philadelphia, PA • 100 employees • Several hundred clients • Exclusively serves successful entrepreneurs interested in philanthropy • Creates 4-5 private equity and real estate funds annually • Range from $30-$150 million • Firm and its clients have invested over $3 billion in private equity and real estate • Also offers advice on life insurance, estate planning, and asset allocation • CEO: Mark Solomon • President: Paul Silberberg • Chief Investment Officer: Bill Landman Source: 12/03 Inc Magazine; Tiburon Research & Analysis 35

… And Ron Blue Approaches Christian Clients From a Unique Perspective Ron Blue Client Approach All Clients Christian Clients • Goal setting • Net worth calculations • Income tax projections • Estate & will review • Cash flow projections • Spend less than you earn • Avoid the use of debt • Investment overview • Education analysis • Charitable giving strategies • Retirement analysis • Insurance analysis • God owns it all ~ we are Stewards • Quote biblical principals for each aspect of the financial planning process • Ask “how much is enough?” • Emphasize eternal perspective • Emphasize charitable giving • “Wealth” transference including financial, social and spiritual capital Source: 2/6/02 Ron Blue Email (Guffin); Tiburon Research & Analysis 36

First Allied Holdings’ Wealth Management’s Fourth Business is Greenbook Financial Services which Offers Financial Planning for Healthcare Professionals Comments • Based in San Diego, CA • 65 employees • 60 reps • 1,100 qualified plans • $251 million assets under administration • CEO: Robert Holcomb • Web site: www.gbfs.com Source: 12/15/10 RIA Biz;1/17/06 Greenbook Meeting (Holcomb); 1/12/06 Greenbook Web Site; 1/12/06 Greenbook Email (Holcomb); 1/4/06 Greenbook Email (Holcomb); Tiburon Research & Analysis 37

Silicon Valley Bank Serves Half of All Venture Backed Companies in the United States Venture Backed Companies By Propensity to be Served by Silicon Valley Bank Source: 4/10/12 Joyce Financial Management Email (Joyce);2/22/06 Woordside Meeting (White); 2/6/06 Woodside Asset Management Web Site; 2/2/06 Silicon Valley Bank Web Site; Tiburon Research & Analysis

Silicon Valley Bank’s Commercial Banking Business’ Clients are Two-Thirds Technology Companies Silicon Valley Bank Commercial Banking Clients By Type Source: 2/6/06 Woodside Asset Management Web Site; 2/2/06 Silicon Valley Bank Web Site; Tiburon Research & Analysis

Sales & Marketing Strategies Three models (two of which lead to raging success): mass marketing (Edelman; The Mutual Fund Store; Fisher Investments); niche marketing (Hanson McClain; Ron Blue & Company; Cleary Gull; CMS Companies); & everyone else… Sales & Marketing Strategies • -- • -- Source: 9/20/11 Impact Communications Email (Swift); 9/11/11 Turning Point Email (Vigeveno); 8/26/11 Joyce Financial Management Conversation (Joyce); Tiburon Research & Analysis 41

There are Three Fundamental Sales & Marketing Strategies Sales & Marketing Strategies Mass Marketing Niche Marketing Everyone Else • Financial Institutions • Advertising (Talk to Chuck) • Stadium & sporting event sponsorships • Financial Advisors • Client referrals (generally reactive) • Professional referrals • Community networking • Seminars • Self promotion (articles, books, radio, & television) • Advertising (direct mail, print, web, radio, television) • Public relations • Sales people • Measurement (offices, financial advisors, leads, closure rate, touches, client retention) • Identify niche(s) • Follow more narrow & customized mass marketing approach Source: 6/28/11 Russell Investments Brochure; Tiburon Research & Analysis 42

Mass Marketing Mass Marketing • Sales People • Magazine columns • Radio program • TV shows • Books • Social media (compliance & efficiency concerns) (Kirk Michie) • New media (audio & video; podcasts & digital assets) Source: 9/20/11 Impact Communications Email (Swift); 9/11/11 Turning Point Email (Vigeveno); 8/26/11 Joyce Financial Management Conversation (Joyce); Tiburon Research & Analysis 43

Three of the Top Independent Advisors are Following the Mass Marketing Strategy Leading Independent Advisors Mass Marketing Edelman Financial Services Fisher Investments The Mutual Fund Store • Founded in 1973 • Founded by Ken Fisher • Based in Woodside, CA • 5 offices • 900 employees • 18,000 clients • 37,648 accounts • $35 billion assets under management • $5.0 billion gross new assets • $300 million revenues • CEO: Ken Fisher • Founded in 1973 • Founded by Ric Edelman • 13 states • 30 offices • 300 employees • 18,500 clients • $8.5 billion assets under management • CEO: Ric Edelman • Founded in 1996 • Founded by Adam Bold • Based in Overland Park, KS • 34 states • 73 offices • 104 investment advisors • 32,000 clients • 67,950 accounts • $6.5 billion assets under management • Chairman: Adam Bold • CEO: John Bunch Source: 10/14/12 Edelman Financial Services Email (Edelman); 4/10/12 Impact Communications Email (Swift); 8/18/11 RIA Biz; 6/8/11 The Mutual Fund Store Web Site; 5/31/11 The Mutual Fund Store Web Site; 5/31/11 The Charles Schwab Corporation Email (Salesky); 5/30/11 Investment News; 5/30/11 Kansas City Star;11/28/09 Traders Daily; 5/17/09 Investment News; 5/12/09 Investment News; 3/08 Investment Advisor; Tiburon Research & Analysis 44

Three of the Top Independent Advisors are Following the Mass Marketing Strategy Leading Independent Advisors Mass Marketing Edelman Financial Services Fisher Investments The Mutual Fund Store • Founded in 1973 • Founded by Ken Fisher • Based in Woodside, CA • 5 offices • 900 employees • 18,000 clients • 37,648 accounts • $35 billion assets under management • $5.0 million gross new assets • $300 million revenues • CEO: Ken Fisher • Founded in 1973 • 6 states • 22 offices • 240 employees • 14,200 clients • $6.5 billion assets under management • CEO: Ric Edelman • Founded in 1996 • Founded by Adam Bold • Based in Overland Park, KS • 34 states • 73 offices • 104 investment advisors • 32,000 clients • 67,950 accounts • $6.5 billion assets under management • Chairman: Adam Bold • CEO: John Bunch Source: 4/10/12 Impact Communications Email (Swift); 8/18/11 RIA Biz; 6/8/11 The Mutual Fund Store Web Site; 5/31/11 The Mutual Fund Store Web Site; 5/31/11 The Charles Schwab Corporation Email (Salesky); 5/30/11 Investment News; 5/30/11 Kansas City Star;11/28/09 Traders Daily; 5/17/09 Investment News; 5/12/09 Investment News; 3/08 Investment Advisor; 2/20/08 Investment Advisor; Tiburon Research & Analysis 45

The Edelman Financial Group Has Offices in 21 States, Consistent with 2007, But Down from its Peak of 25 in 2011 The Edelman Financial Group States Source: 9/13/12 The Edelman Financial Group Press Release; 5/18/11 Answers.Com Web Site; 5/10/11 Sanders Morris Harris Group Press Release; 11/29/10 Sanders Morris Harris Group Press Release; 12/5/08 Sanders Morris Harris Group Press Release; 11/13/08 Sanders Morris Harris Group Press Release; 11/10/08 Sanders Morris Harris Group Press Release; Tiburon Research & Analysis

The Mutual Fund Store Has 73 Offices The Mutual Fund Store Offices Source: 8/29/11 Ask.Com Web Site; 5/31/11 The Mutual Fund Store Web Site; 5/30/11 Kansas City Star; Tiburon Research & Analysis 47

The Edelman Financial Group Has 500 Employees, Up 60% Since 2003 But Down from its Peak of 610 in 2007 The Edelman Financial Group Employees Source: 9/14/12 Houston Business Journal; 5/18/11 Answers.Com Web Site; 5/18/11 Funding Universe Web Site; 5/10/11 SMH Group Press Release; 11/29/10 SMH Group Press Release; 12/5/08 SMH Group Press Release; 11/13/08 SMH Group Press Release; 11/10/08 SMH Group Press Release; 11/7/08 SMH Group Press Release; 9/8/08 SMH Group Press Release; 6/12/08 SMH Group Press Release; Tiburon Research & Analysis

The Edelman Financial Group’s Edelman Financial Services Has 240 Employees, Up 200% Since 2004 Added 64 employees in 2010? Edelman Financial Services Employees Expected to add 60 employees in 2011 to reach 300 at 12/11 15 technology people Source: 6/15/11 Financial Advisor; 4/14/11 Edelman Financial Services Presentation (Edelman); 1/18/11 RIA Biz; 10/21/10 RIA Biz; 8/31/09 RIA Biz; 12/04 Research; Tiburon Research & Analysis 49

The Mutual Fund Store Has 104 Investment Advisors The Mutual Fund Store Investment Advisors Source: 8/29/11 Complaints Board Web Site; 6/8/11 The Mutual Fund Store Web Site; 5/31/11 The Mutual Fund Store Web Site; 5/31/11 The Charles Schwab Corporation Email (Salesky); 5/30/11 Investment News; Tiburon Research & Analysis 50

The Future of Advice: Best Practices of the Leading Financial Advisors