Perspectives on Redemption Patterns Across Intermediary-Sold Distribution Platforms September 15, 2011 Dennis Bowden, Senior Research Analyst

2 Evolving Considerations in Intermediary-Sold Space – Growth vs. Stability  Continued expansion of fee-based advisory programs  Within this, recent growth of Rep-as-PM programs, as well as increasing influence of RIAs  Increasing consideration around asset stability features across platforms  Evolving economics of intermediary-sold fund distribution  Asset velocity differences across platform and FA types  Platform and FA characteristics  Demand trends  Portfolio construction methodology  Assessing holistic, long-term opportunity sets across different intermediary-sold distribution avenues

3 Assessing the Fee-Based Platform Landscape – Rep-as-PM Programs Growing Rapidly Source: Coates Analytics Distribution Management System / SI Analysis

4 FA Demand Differences: US Style Box Equity Sales – Post- Crisis Decline in Share within FA & Investor Controlled Wrap Platforms; Continued Significance via Home Office Models Source: Coates Analytics Distribution Management System / SI Analysis

5 Alternative Strategies (Market-Neutral / Long-Short, Commodity, Natural Resources, Bear Market): Most Favored by Rep-as-PM Advisors Source: Coates Analytics Distribution Management System / SI Analysis

6 Source: Coates Analytics Distribution Management System / ICI / SI Analysis Platform Redemption Patterns – Balancing Growth Potential with Asset Stability Considerations

7 Asset Stability Characteristics Across Fee- Based Platform Types  Rep-as-PM  Overall more tactical management of client assets  Full discretion to quickly adjust clients’ portfolio exposure  Tech advances increasingly allowing easier trading across a number of client accounts with a single action  Non-Discretionary Rep-as-Advisor  Relatively stable rate of asset velocity within largest asset base among Nat’l BD wrap platforms  Client approval needed before trades can be executed  Home Office Model-Based  Display sustained periods of strong asset stability  But mixed with significant redemption spikes due to systematic portfolio rebalances

8 Source: Coates Analytics Distribution Management System / ICI / SI Analysis Gauging Redemption Rate Experiences and Expectations; Avoiding the Potential Misleading Nature of Averages

9 Rep-as-PM vs. Rep-as-Advisor Programs – Equity Fund Asset Velocity Significantly Higher and More Volatile within Rep as PM Platforms Source: Coates Analytics Distribution Management System / SI Analysis

10 Source: Coates Analytics Distribution Management System / SI Analysis A Closer Look at FA Behavior: Differences in Rep-as-PM vs. Rep-as-Advisor Redemption Rates

11 Source: Coates Analytics Distribution Management System / SI Analysis Home Office Model Platforms – Periods of Stability Very Similar Across Styles; Scale of Spikes Varying

12 Source: Coates Analytics Distribution Management System / SI Analysis Platform Opportunity Sets: Rep-as-PM’s High Asset Velocity (but High Growth) vs. Rep-as-Advisor & Home Office Model’s Relative Stability

13 Source: Coates Analytics Distribution Management System / SI Analysis Assessing the Characteristics of Equity Fund Opportunity Sets  US Style Box Equity  Led by Rep-as-Advisor, but lowest spread among styles within each platform  Non-US Equity  Lower redemptions via Rep-as-PM advisors leads to greater opportunity  Alternative Equity  Rep-as-PM: asset velocity – high sales outweigh high redemptions  Rep-as-Advisor: asset stability – lower redemptions compensate for lower sales

14 Implications Moving Forward  Expansion of fee-based advisory programs continues to bring higher asset velocity features to growing segments of fund business  Increasingly converse relationship between growth and asset stability within expanding segments of the FA-sold marketplace  Implications around product focus and development, sales force compensation, and other aspects of overall distribution strategy  Growing importance in analyzing holistic combination of new business and asset stability considerations

15 How Can Fund Firms Respond?  Aggregate redemption stats alarming, but Rep-as-PM advisors (and RIAs) can still represent valuable relationship opportunities  Influence of such advisors growing rapidly as trend toward greater FA discretion continues   High-net-worth client base  Increased importance of FA segmentation and targeting around both growth and asset stability considerations  Particularly within high-velocity segments such as Rep-as-PM and RIA  Segments of these advisor bases with strong asset stability characteristics in your firm’s core strategies?  Ability to rethink / retool certain aspects of revenue sharing arrangements with key distribution partners?  Potential to tie payment levels more directly to redemption/holding period metrics?  Revenue sharing grid based on FA holding period?

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