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Advisory Programs, Tools and Resources WELCOME TO WESTERN UNIVERSITY April 24, 2012, 1:00 P.M. PT Hosted By: Carolyn Armitage, CFP ®, CIMA ® Managing Director,

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Presentation on theme: "Advisory Programs, Tools and Resources WELCOME TO WESTERN UNIVERSITY April 24, 2012, 1:00 P.M. PT Hosted By: Carolyn Armitage, CFP ®, CIMA ® Managing Director,"— Presentation transcript:

1 Advisory Programs, Tools and Resources WELCOME TO WESTERN UNIVERSITY April 24, 2012, 1:00 P.M. PT Hosted By: Carolyn Armitage, CFP ®, CIMA ® Managing Director, Organic Growth 1

2 Carolyn Armitage, CFP ®, CIMA ® 24 years of financial services experience Started as a Registered Representative Managed a branch office Ran bank marketing program Headed up advisory services for 7 firms Helped thousands of advisors successfully make the transition from commission-based to fee-based FINRA 7, 24, 27, 4, 53, 66, 3 CA Life insurance licensed #0G02895 CLU/ChFC, CFS BS BA U of MN, Finance/Economics MSM American College 2

3 Programs Investment Options Fee Options Reporting Options Resources and Tools Agenda 3

4 Types of Advisory Services Asset Management Ongoing Advice Percentage of Assets Under Management (AUM) Rep Managed Outsourced Financial Planning Hourly Fixed-Fee or Flat-Fee Plan Finite Time/Project Work 4

5 Financial Planning Risk Management and Insurance Planning Investment and Planning Issues Retirement Planning Tax Planning Estate Planning Cash Flow and Liability Management Education Planning for Children & other Family Members 5

6 Advisory Services Documentation Disclosure Brochure ADV Part II ADV Part II Supplement Updated offering annually Agreements Investment Management Agreement Financial Consulting Contract Debit Notices/Invoices Asset Management fees generally taken out of account Financial Consulting Invoice 6

7 Advisory Services Doc. Continued Quarterly Performance Reports o In addition to clearing statements Balances Transactions o Investment Objective o Performance Quarterly Since Inception TWR IRR o Features Market Commentary Asset Allocation Benchmarks Cost Basis 7

8 Advisory Services Doc. Continued Investment Policy Statements (IPS) Most important function performed by a fiduciary Business plan between the client and Advisor for directing and communicating the activities of the portfolio Defines the management of the account in a logical and consistent framework Should be in sufficient detail that a third party should be able to implement the strategy, without being overly cumbersome 8

9 Advice Spectrum Investment Manager Investment Planner Financial Planner Life Planner Investment Centric Creates stock/bond portfolios for clients and focuses on managing assets Does not offer planning services Uses mutual funds, SMAs, and alternative investments to build client portfolios Offers event- driven planning advice Provides comprehensive advice; completes financial plans for most client Mostly uses mutual funds and SMAs Strong emphasis on life planning and holistic advice May use more turnkey asset management programs to focus time on clients Relationship Centric 9

10 Program TypeFeaturesProsCons Advisor Directed Advisor manages individual securities, MFs, ETFs on a discretionary basis Model Portfolios Active tax management Appeals to affluent clients Boutique feel Allows maximum tax control Limitless customization Requires greatest time commitment Impact Advisor face time Turnkey Asset Mgmt Program (TAMP) Either mutual funds or ETFs used Auto allocation, product selection and rebalancing Easy to use Can range from centrally managed to open architecture SMAs may be more cost effective for large accounts Limited ability to control tax consequences Separately Managed Account Manager Individual securities Institutional-style accounts Portfolio customization Active tax management Appeals to affluent clients Customization can help client hold concentrated stock Diversification difficult for < $500,000 Rebalancing is complex Few take advantage of tax & customization Unified Managed Account Multiple security types offered in one account Overlay portfolio management Overlay management simplifies process Eliminates need for multiple accounts Limited product options Marquee SMA managers are not always wiling to participate Advisory Programs 10

11 Asset Management Programs 11

12 Advisory Assets at Western 12 AdvisorOne

13 Fee-Based Revenue 13

14 AdvisorOne Investment Selection OTC and Listed Stocks Covered Options Exchange Traded Funds (ETFs) Closed-end Mutual Funds No-Load Mutual Funds Load Waived or Institutional Share Class Mutual Funds Treasuries Government Bonds Municipal Bonds Corporate Bonds Unit Investment Trusts 14

15 Appropriate Clients Clients you enjoy working with on a regular basis Clients who invested over two years ago Clients with money in three or four places Client accounts that have grown substantially Client accounts that need a better mix of assets Clients with $100,000 or more to invest 15

16 Clients who you sold to less than two years ago Unless new money A share transfers have a two-year hold B share transfers have a four-year hold C share transfers are not allowed Would need to liquidate and transfer cash Keep in mind that liquidating C shares is a taxable event Assets under $100,000 Cost of program for your client and you Your time Inappropriate Clients 16

17 AdvisorOne Ticket Based Client or Rep pays ticket charges Most have Clients pay Your fee is for your advice and monitoring, not trading Unknown trading volume Asset Based.38% annually Good for higher trade volumes High portfolio turn-over Client who may be sensitive to ticket charges 17

18 ProgramMinimum Max Fee CostQPRCost BasisProposals Ticket Charges Research AdvisorOne Transaction Based $25,0003%ticket charges Advent Envestnet WISNo $14.95 MF $19.95 Equity $24.95 Bonds No AdvisorOne Asset Based $25,0003% 38 bps or $360 per year, whichever is greater Advent Envestnet WISNoIncludedNo Envestnet AdvisorOne Asset Based $10,0003% 42 bps or $ bps, whichever is greater ENAMRepIncluded yes Advisor Directed; AdvisorOne 18

19 AdvisorOne Ticket-Based Pricing Example: $200,000 account Client pays a 1.5% advisory fee You place 20 equity, 3 bond, and 2 NTF mutual fund trades per year Client pays ticket charges Client Rep JPMCC Advisory Fee 20 Equity $19.95 each 3 Bond $24.95 each 2 NTF MF $0.00 each ($3,000.00) ($399.00) ($74.85) $74.85 $ $3,000 ($3,473.85) $3,000 $

20 AdvisorOne Ticket-Based Pricing Example: $200,000 account Client pays a 1.5% advisory fee You place 20 equity, 3 bond, and 2 NTF mutual fund trades per year Representative pays ticket charges Client Rep JPMCC Advisory Fee 20 Equity $19.95 each 3 Bond $24.95 each 2 NTF MF $0.00 each ($3,000) ($399.00) ($74.85) $74.85 $ $3, ($3,000) $2, $

21 AdvisorOne Asset-Based Pricing Example: $200,000 account Client pays a 1.5% advisory fee You place 20 equity, 3 bond, and 2 NTF mutual fund trades per year The asset-based pricing charge is the greater of.38% or $360 Client Rep JPMCC Advisory Fee Asset-Based Pricing Charge ($3,000) (760)$760 $3,000 ($3,000) $2,260 $760 21

22 Fee Billing; AdvisorOne Accounts billed in advance each quarter Pro-rated adjustments for additions/withdrawals Example: Account opened on 8/15/2011; 1.5% advisory fee $265,000 x x 46 / 365 = $500.95$265,000 x x 91 / 365 = $ $262,000$265,000 8/15/201112/31/2011 $1, GDC in October, Payout: November 15th 9/30/2011 Approved by WIS 22

23 Billing Rebates Pre-paid, unearned fees must be rebated Outgoing Transfers Advisor Termination Account Termination Death 23

24 Quarterly Performance Report Options 24 JPMCC Performance Reporting Options Envestnet A-la-CarteEnvestnet ABPAdvent Price Per Account Per Year3.5 bps; $36 min-$300 max38 bps; $360/yr min$45 Householding/Grouping of Reports Yes Rep Online Access To ReportsYes No Client Online Access To ReportsYes No Branding OptionYes Ability to add Market CommentaryNo Yes Custom Benchmark/BlendNo Yes Reporting Levels/Templates31 over 100 Template CustomizationYes Daily Snapshot ReportsYes Outside Account Aggregation Yes $500 setup fee & $80/acct/yr Yes $500 setup fee & $80/acct/yr Yes; $45 per/acct/yr if account not on DST, an additional $25/hr manual entry fee applies) Billing ReportsYes

25 | Advent has been providing portfolio management and reporting solutions since 1983 Over 1,800 asset management firms rely on Advent for reduced operating risk, improved client service, and increased productivity Benefits: tangible improved decision making capability increased productivity lower overhead enhanced client communication You decide what and your clients see Choose from report categories that include: Portfolio appraisals Realized and unrealized gains and losses Cash activity Purchase and sale Billing Performance Cost Basis High impact graphics including pie charts, line graphs, bar charts Select from a variety of fonts, sizes and styles giving your reports a signature look that matches your identity. Advent Reports 25

26 Online, dynamic reporting Client online access Customizable House holding of accounts Market Analysis Holdings Gains/Loss Deposit/Withdrawals Envestnet Reports 26

27 IRR and TWR Internal Rate of Return (IRR) Calculates the performance of a portfolio over a time period Timing and size of cash flows impacts the return Gives greater weight to periods when more money is invested Time Weighted Return (TWR) Calculates the performance of the manager Impact of cash flows is minimized Gives equal weight to time periods regardless of money invested Ability to compare numbers to indices and other managers Indices are shown in TWR. If there are no cash flows, the TWR and the IRR are identical. 27

28 AdvisorOne Paperwork; JPMCC Ticket Based Complete General Account Opening Documents (Trust, IRA, Corp., etc.) Call Pasadena Operations or Branch Office for a TBP 611 account number Investment Management Agreement For Transaction- Based Pricing Accounts: IMA-TBP WIS Web Site under Forms and Manuals; Advisory Asset Based Complete General Account Opening Documents (Trust, IRA, Corp., etc.) Call Pasadena Operations for account number in the ABP range: to Investment Management Agreement For Asset-Based Pricing Accounts: IMA-ABP WIS Web Site under Forms and Manuals; Advisory 28

29 Advisor One TBP IMA x $250,000 $500, x

30 AdvisorOne Paperwork; Envestnet Complete General Account Opening Documents (Trust, IRA, Corp., etc.) Call Pasadena Operations for an account number in the Envestnet range; to Complete Envestnet Proposal and Statement Of Investment Selection Form (SIS) and send to client for signature Documents from Envestnet online 30

31 AdvisorOne; Pershing Complete General Account Opening Documents (Trust, IRA, Corp. etc.) Open the account on Pershings NetX360 platform using HPE branch code Complete Investment Management Agreement For Pershing Asset-Based Pricing Accounts; IMA-ABP WIS Web Site under Forms and Manuals; Advisory WIS Operations Department will enter fee-billing information into Pershings PMAS system and initiate performance reporting tracking 31

32 Advantages of Outsourcing Streamline your business with a simple platform Outsource the management and administration Spend more time with clients Add value through professional proposals, research and marketing resources Feel secure knowing a team of professionals are sharing the fiduciary responsibility 32

33 Custodian# ManagersResearch Quarterly Reports Managed Account Edge JPMCC39No EnvestnetJPMCC709Yes Managed Account Control Pershing159Yes AdvisorFlexPershing25Yes Separately Managed Accounts 33

34 34 Envestnet UMA Envestnet MF Curian Genworth SEI Equis Turnkey Asset Management Programs

35 Cost of Products & Services* OversightProduct or PlatformCost to Client Comp to Advisor FINRAC-Share Mutual Funds 2% Mutual Fund Expenses 1% Annually SEC TAMP or Mutual Fund Advisory Programs 1% Mutual Fund Expenses (Institutional Share Class) 1% Advisor Fee Total Cost = 2% 1% Annually SEC Separately Managed Account.45% Clearing and Custody.40% Manager Fee.15% Administrative Fee 1% Advisor Fee Total Cost = 2% 1% Annually SEC Unified Managed Account.45% Clearing and Custody.30% Manager Fee.15% Overlay Mgmt. Fee.10 Administrative Fee 1% Advisor Fee Total Cost = 2% 1% Annually * General Fees 35

36 Western Tools and Resources Western University educational sessions Break Even Analysis calculator; Fee-Based vs. Ticket Based At-a-glance grids Sample Investment Policy Statements Sample Quarterly Reports Forms online Envestnet tools; proposals, reports & research 36

37 Next Steps Examine your existing book of business Determine which program would better suite your clients Work with clients you have a great working relationship and refine the selling process Be your first client Open an account within one months time Leverage the experience of our support staff to make the transition be as efficient as possible 37

38 Never Stop Learning; Future WU Advisory Sessions Biggest Mistakes Advisors Make & How to Avoid Them Investment Policy Statements (IPS) Succession Planning Marketing; Client Appreciation Events 38

39 Advisory Services Team Guenter Wirth, Managing Director; Advisory & Trading Carolyn Armitage, Managing Director; Organic Growth Rachel Baker, Associate Director; Reporting & Billing Matt Woodward, Specialist, Operations & Billing 39

40 Advisory Mission To offer the best independent advisory platform delivering innovative, flexible solutions and exceptional experiences for advisors and their clients 40

41 Q & A 41

42

43 IRR and TWR Internal Rate of Return (IRR) BMV + [CF 1 /(1+R) t1 ] + [CF 2 /(1+R) t2 ] + … - [EMV/(1+R) tn ] BMV = Beginning Market Value CF = Cash Flows EMV = Ending Market Value 43

44 IRR and TWR Time Weighted Return (TWR) {[(1+R 1 /100) x (1+R 2 /100) x (1+R 3 /100)…] - 1} x 100 R = Return for each sub-period Sub periods are defined by two events: End of Month 10% Cash Flow (+/-) in the portfolio 44

45 IRR and TWR Example: June 30, Market Value = $500,000 July 15, Deposit of $500,000, Market Value = $550,000 July 31, Market Value = $1,040,000 IRR Calculation $500K + [$500K/(1+R) 1 ] - [$1.04M/(1+R) 2 ] = IRR = 2.6% 45

46 IRR and TWR TWR Calculation Return for sub-periods: (EMV – BMV)/BMV June 30 – July 15: ($550K - $500K)/$500K = Multiplier: 1.10 July 15 – July 31: ($1.04M - $1.05M)/$1.05M = Multiplier: 0.99 Linking Returns: (1.10) x (0.99) = 1.09 TWR = 9% 46


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