1. For broker/dealer use only. Not for use with the public. INVESTMENT PRODUCTS: NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE

2. For broker/dealer use only. Not for use with the public. Before you act on your decision, remember that, first and foremost, you are obligated to act in the best interests of your client or prospective client in all suggestions you provide to them on behalf of their investments or financial situation. As you know, fee-based accounts may not be suitable for all investors. Before transitioning any existing client or prospect into a fee-based account, you, as the Advisor, must ensure that this type of arrangement is appropriate for your client based on their investment objectives, time horizon, risk tolerance, trading history, and overall economic situation. IMPORTANT INFORMATION

3. POINT AND SHOOT: EVOLVING YOUR PRACTICE For broker/dealer use only. Not for use with the public.

4. THE CHALLENGE Evolving your business model

5. THE OPPORTUNITY While no business model is right for everyone, there are many advantages to a fee-based practice.

6. HOW LEGG MASON CAN HELP Step-by-step approach to building a business plan for the transition and clear actions steps and takeaways.

7. Build a business that fits your life… Instead of a life that fits your business! SET A MINIMUM Limit the number of clients Work/life balance: Servicing C and D level clients threatens your ability to have a life outside of work and prevents you from appropriately servicing your larger clients Ability to systematize: If you have too many clients, it will be harder to systematize. Without systems in place, you will lose efficiency, time and money Set a minimum Income: With fewer clients you need a minimum in order to maintain income Differentiation: Setting a minimum tells clients you are committed to serving them and careful about the new clients you accept For broker/dealer use only. Not for use with the public.

8. SET A MINIMUM For broker/dealer use only. Not for use with the public.

9. SET A MINIMUM For broker/dealer use only. Not for use with the public. To account for time for prospecting, managing your business and other activities, you may need to have fewer clients with a higher minimum – or hire staff to handle those activities. AUM Goal Revenue Goal - $1,000,000 Average Annual Fee Assumption – 1% Total Required AUM - $100 million Target Number of clients 46 weeks x 45 hours per week = 2,070 total work hours/year Meet with each client 4 times/year requiring 12 hours of time (including preparation and servicing) 2,070 hours ÷ 12 hours per client = 173 clients you have time for How much do those clients need to invest for you to manage $100 million? – $100,000,000 divided by 173 clients… …$578,034 minimum

10. SET A MINIMUM For broker/dealer use only. Not for use with the public. To account for time for prospecting, managing your business and other activities, you may need to have fewer clients with a higher minimum – or hire staff to handle those activities. AUM Goal Revenue Goal - $500,000 Average Annual Fee Assumption – 1% Total Required AUM - $50 million Target Number of clients 44 weeks x 45 hours per week = 2,070 total work hours/year Meet with each client 4 times/year requiring 12 hours of time (including preparation and servicing) 1,980 hours ÷ 12 hours per client = 165 clients you have time for How much do those clients need to invest for you to manage $50 million? – $50,000,000 divided by 165 clients… …$303,030 minimum

11. You will need to consider how long it will take to complete the process of transitioning your practice. CREATE A TRANSITIONING TIMELINE For broker/dealer use only. Not for use with the public.

12. CREATE A TRANSITIONING TIMELINE For broker/dealer use only. Not for use with the public. Transition Timeline Worksheet: annual, monthly, weekly goals Annual transition figure Revenue Goal = $1,000,000 Average Annual Fee Assumption (excluding manager fee) – 1% Total Required AUM – (goal ÷ by fee) = $100,000,000 Average AUM per Client Assumption - $578,034 (from previous example) Annual Transition Figure (based on a total of 173 clients) o 5 Years: 35 clients per year o 2 Years: 87 clients per year o 1 Year: 173 clients per year Conversion Rate Weekly/Monthly Conversion Rate (clients per year/46 weeks x 4 weeks) o 5 years = approximately 1 client/week, 3 clients/month o 2 Years = approximately 2 clients/week, 8 clients/month o 1 Year = approximately 4 clients/week,16 clients/month

13. CREATE A TRANSITIONING TIMELINE For broker/dealer use only. Not for use with the public. Transition Timeline Worksheet: annual, monthly, weekly goals Annual transition figure Revenue Goal = $500,000 Average Annual Fee Assumption (excluding manager fee) – 1% Total Required AUM – (goal ÷ by fee) = $50,000,000 Average AUM per Client Assumption - $303,030 (from previous example) Annual Transition Figure (based on a total of 165 clients) o 5 Years: 33 clients per year o 2 Years: 82.5 clients per year o 1 Year: 165 clients per year Conversion Rate Weekly/Monthly Conversion Rate (clients per year/46 weeks x 4 weeks) o 5 years = approximately 1 client/week, 3 clients/month o 2 Years = approximately 2 clients/week, 8 clients/month o 1 Year = approximately 4 clients/week, 15 clients/month

14. Utilize internal broker/dealer systems to analyze your book SEGMENT YOUR BOOK Divide clients into two categories, qualified and non-qualified* Analyze Quantitative Factors o Number of clients o Current assets under management per client o Product mix per client o Annual revenue per client o Total investable assets For broker/dealer use only. Not for use with the public.

15. SEGMENT YOUR BOOK For broker/dealer use only. Not for use with the public. Qualitative Factors: Do they follow my advice without question? How often do they refer? What type of wealth management potential do they have? o Retirement planning o Family needs planning o Credit and lending o Business succession plans o Executive compensation management o Insurance and liability management o Estate planning

16. The next step in your plan is to prioritize clients for transitioning. PRIORITIZE CLIENTS FOR TRANSITIONING Prioritize clients for transitioning Prioritize based on segmentation of your book and based on the tiering of clients related to their potential for a fee-based relationship Create a detailed plan of which clients you are going after weekly, monthly, annually that aligns to your transitioning timeline ‘Culling’ your book Consider that not all of your clients will come on the journey with you The sooner you think about the clients that don’t fit into your business model, the better your work/life balance and the better you can serve your top clients The process of ‘culling’ your book is similar to pruning a tree: by culling or pruning your least productive clients you will be able to increase the productivity of your practice and have the time to grow and replicate your best clients For broker/dealer use only. Not for use with the public.

17. The number one fear of financial advisors when transitioning their business to fee-based is the potential impact on revenue. PLAN FOR INCOME NEEDS Understand how the fee schedule is paid out Analyze your current revenue per client and determine how that revenue would be impacted with a transition to an advisory platform Create income projection/cash flow plan aligned to your transitioning timeline, book segmentation and prioritization For broker/dealer use only. Not for use with the public. Tip: Return on Assets (ROA) Calculation ROA = Commissions ÷ Account Size

18. With a fee-based practice, you’ll not only spend more time on fewer clients, you’ll have increased service expectations. EXPAND YOUR KNOWLEDGE Consider practice/staffing operations Line up sources of knowledge/Industry Advisory Board (3-5 people, including internal specialists and wholesalers) o Purpose of Board is to provide expertise and guidance on the following: Your firm’s advisory platforms Portfolio construction Research Consulting skills Wealth Management services For broker/dealer use only. Not for use with the public. Gain working knowledge of advisory platforms Gain working knowledge of any tools your broker/dealer offers o Profiling tools o Asset allocation tools o Analytical tools o Investment proposal tools o Financial planning tools o client review tools

19. An important element in building your transition plan is to spend time developing a compelling value proposition that sets client expectations and differentiates you. DEVELOP YOUR VALUE PROPOSITION Key Components: Mission statement/elevator speech Your approach to working with clients (client experience) Investment management process Wealth management services Service offering For broker/dealer use only. Not for use with the public.

20. Positioning your new business model with existing clients: Articulate why you are changing your business model Differentiate your previous approach from your new fee-based approach If they are interested, then you take them through the entire value proposition DEVELOP YOUR VALUE PROPOSITION For broker/dealer use only. Not for use with the public. Sample openings “I am in the process of evolving my business model to a fee- based model. As the industry and my practice have evolved, I have found that many of my best clients are looking for comprehensive wealth advisory services. My plan is to limit the number of clients in my practice so that each of them can have the best possible experience. Let me explain my new process and services and how I hope we can evolve our relationship…” “Due to innovations in technology and service capabilities, I have evolved my business model, which will provide you with a “new and improved” single-pricing model and expanded wealth advisory services. My plan is to limit the number of clients in my practice so that each of them can have the best possible experience. Let me explain my new model and services and how I hope we can evolve our relationship…”

21. Investing time in understanding the key features of your firm’s advisory platforms will make it easier to be confident in your recommendations later. MARKET YOUR NEW SERVICES Marketing Components Verbal execution Brochure FA website LinkedIn profile Marketing Process Phone call (Use “Sample Conversational Opening”) In-person meeting o Full articulation of value proposition using brochure o Enhanced discovery process For broker/dealer use only. Not for use with the public.

22. Inherent in a fee-based relationship is the process of providing advice. Fee-based advisors employ a consultative advice model when working with their clients. FORMALIZE YOUR CONSULTATIVE PROCESS Components of a consultative process: Setting goals and guidelines Determining asset allocation Selecting investment managers and vehicles Managing and monitoring client accounts Providing ongoing personal service For broker/dealer use only. Not for use with the public.

23. Once you have completed all of the preceding steps, your next step is to begin the transitioning process. BEGIN TRANSITIONING Utilize the resources we have provided (brochure, worksheets) and leverage tools and resources available at your firm throughout the transitioning process For broker/dealer use only. Not for use with the public.

24. ACTION STEPS For broker/dealer use only. Not for use with the public. Develop a transition business plan Step 1: Set a minimum for your practice Step 2: Create a transitioning timeline Step 3: Segment your book Step 4: Prioritize clients for transitioning Step 5: Plan for income needs Step 6: Expand your knowledge Step 7: Develop your value proposition Step 8: Market your new services Step 9: Formalize your consultative process Step 10: Begin transitioning

25. “A journey of a thousand miles begins with a single step.” —Lao-Tzu

26. For broker/dealer use only. Not for use with the public. Legg Mason, Inc., its affiliates, and its employees are not in the business of providing tax or legal advice to taxpayers. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties or complying with any applicable tax laws or regulations. Tax-related statements, if any, may have been written in connection with the “promotion or marketing” of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. Legg Mason Inc. and its affiliates do not provide asset allocation advice. All investments involve risk, including possible loss of principal. Past performance is no guarantee of future advice. IMPORTANT INFORMATION

27. 27 For broker/dealer use only. Not for use with the public. LMTAPP.com 1-800-822-5544 youtube.com/leggmason linkedin.com/company/legg-mason @leggmason Brandywine Global ClearBridge Investments Martin Currie QS Investors Permal Royce & Associates Western Asset Legg Mason is a leading global investment company committed to helping clients reach their financial goals through long term, actively managed investment strategies. A broad mix of equities, fixed income, alternatives and cash strategies A diverse family of specialized investment managers, each with its own independent approach to research and analysis Over a century of experience in identifying opportunities and delivering astute investment solutions to clients The Advisor Partnership Program (TAPP)® is Legg Mason’s landmark value-added offering, featuring a wide range of multidimensional workshops and seminars that empower financial advisors to build successful practices and educate their clients. TAPP delivers value in three areas of importance to advisors: branding and marketing, business management, and client needs. Branding and Marketing Your Business offers comprehensive resources for developing a value proposition and leveraging social media and the wired world for communication, brand building and client acquisition. Running Your Business showcases tactical tools and real-life insights into practice management. Addressing Client Needs provides in-depth materials to help advisors engage and inform their clients on a variety of topics. For broker/dealer use only. Not for use with the public. The Advisor Partnership Program (TAPP) ® and Our Experience. Your Potential are registered trademarks of Legg Mason Investor Services, LLC. © 2015 Legg Mason Investor Services, LLC. Member FINRA, SIPC. Legg Mason Investor Services, LLC is a subsidiary of Legg Mason, Inc. 6/15 FN1512568