Path to a Fee-Based Practice Part 1: Third Party Managers Dial-In Number: 1 (213) 929-4232 Webinar ID: 209-612-395 OCTOBER 2016

Welcome Sarah Molitor Stoyan Petev David Hoff Dial-In Number: 1 (213) 929-4232 Webinar ID: 209-612-395

Heartland Huddle: November 2 November 2nd 2016 Learn how to generate Managed360 Proposals in NetX360 Find out where to view products and models offered through Managed360

Study Group Series: Path to a Fee Based Practice October 20: Identifying 3rd Party Managers November 17: Mastering Fee-Based Asset Management

Objectives Series Objective: Develop a successful fee based practice Today’s Objective: Provide a greater understanding of 3rd Party managers and their relative strengths

Agenda: 3rd Party Managers Why would I want to use them? Who are they? Where do they fit? What are their strategies? What investment types do they use? What are their minimums? How much will it cost to use them? How have they performed?

Introductions Sarah Molitor Stoyan Petev David Hoff

Why use 3rd Party Managers? Save Time Eliminate Ticket Charges 20% Increase In Advisor Compensation Keep Client Cost the Same Increase Income

Why use 3rd Party Managers? 20% Increase in Advisor Compensation Growth Fund of America1 Managed360: Vanguard2 Internal Expense: 0.65% Cost to Client 0.65% Net Expense Ratio + 1.00% Advisor Fee 1.65% Total Cost to Client Rep’s Retention: 0.90% Internal Expense & Platform Fee: 0.57% Cost to Client 0.10% Expense Ratio 0.30% Manage 360 Fee 0.17% FHC Platform Fee + 1.08% Advisor Fee 1.65% Total Cost to Client Rep’s Retention: 1.08% 1. American Funds The Growth Fund of America, Class A. (U.S. Stock: 80.46% Bonds/Cash/Non US Stock/Other: 19.54%) 2. Vanguard’s 80/20 (equity/fixed income)Portfolio

Global Assets Under Management Portfolios leverage Vanguard’s 40 years of experience in portfolio construction and indexing Low-cost, passively managed portfolios comprised of Vanguards proprietary ETF’s Emphasize the benefit of low cost investing to achieve long term success Inception Minimums Global Assets Under Management Investment Type 1975 $25,000 3.5 Trillion1 ETFs Home Page About Vanguard 1. As of 6/30/16

Global Assets Under Management The world’s largest fiduciary manager with local presence in every major market, including 65 offices in 30 countries1 Creates targeted income models using a combination of low cost iShares and mutual funds Portfolios can be used as a core investment strategy or to compliment an existing strategy Inception Minimums Global Assets Under Management Investment Types 1988 $25,000 $4.89 Trillion1 ETFs and Mutual Funds Home Page About BlackRock 1.BlackRock. Based on $4.89 trillion in AUM as of 6/30/16

Global Assets Under Management Deliver retirement specific investment solutions for early, middle and late stages of retirement Portfolios created leveraging Ibbotson’s expertise in strategic asset allocation and Morningstar’s manager research capabilities Portfolios are more actively managed and use mutual funds as their primary investment vehicle Zero Proprietary Funds Inception Minimums Global Assets Under Management Investment Types 1984 $50,000 $185 Billion Mutual Funds About Morning Star

Global Assets Under Management Offers solutions for a wide range of investor needs including building, preserving and extending wealth Research and select managers from around the world to create multi-asset portfolio solutions Implement portfolios with proprietary mutual funds Creator of the Russell2000 Small Cap Index Inception Minimums Global Assets Under Management Investment Type 1998 $25,000 $244 Billion Mutual Funds

What Are Their Strategies? Strategy Income / Retirement Focus Strategic Asset Allocation Strategy Explanation focused on maximizing income then growth during retirement years. based on client risk/return objectives. Can be re-allocated on a periodic basis back to the targeted allocation on a quarterly, semiannual or annual basis. 3rd Party Manager

A Quick Comparison Investment Types Minimums 3rd Party Manager BlackRock ETFs and Mutual Funds MorningStar Mutual Funds Russel Investments Vanguard ETFs 3rd Party Manager Minimum BlackRock $25,000 MorningStar $50,000 Russel Investments Vanguard

Client Expense Internal Expenses Manage360 Fee Additional Manager Fees (Applies to BlackRock & MorningStar) FHC Platform Fee Rep Fee Dollar Amount Program Fee First 500K 0.30% Next 500K 0.25% Over 1M 0.20% Additional Fee BlackRock 0.10% Morning Star 0.25% Flat Fee 0.17% Total Client Cost

Client Expense: Vanguard Example Third Party Manager: Vanguard Asset Allocation: 80/10 Client Invests: 500K Source Fee Internal Expense (Asset weighted expense ratio) 10 bps Manage360 Platform Fee 30 bps FHC Platform 17 bps Rep Fee 108 bPs Client Total Cost 165 Bs (1.65%)

Performance

Performance

Performance

Where can I find more information? www.firstheartland.com/managed360

David Questions for us? Stoyan