1. SEPARATELY MANAGED ACCOUNTS
Building your Business
through
SEPARATELY MANAGED ACCOUNTS
For Advisor Use Only. Not to be used in connection with the promotion of investment company products. 1

2. Industry Shift
Financial services products have become a commodity -- investors can execute transactions themselves.
The marketplace is becoming increasingly complex -- people need advice.
Dalbar expects the number of American households that pay for advice to increase from 11 million today to 60 million in 2015.
Commission-based
Transaction- driven
FROM
Fee-based
Advice- driven TO

3. Separately Managed Accounts Continue to Gain Ground
The separately managed accounts industry is likely to achieve 30 percent growth during 2001
High net worth investors seeking personalized service are expected to have poured $400 billion into separately managed accounts by the end of 2001
Lower investment minimums and the tax benefits of separately managed accounts are driving the industry’s growth
Source: Financial Research Corporation, Dec. 13, 2001

4. Growth in Investing
Baby boomers are entering their asset accumulation years in massive numbers
will account for 90% of the growth in investable assets over the next decade
Technological revolution has spurred renewed interest in investing
Recent market volatility and increasingly sophisticated marketplace have left investors seeking advice 2

5. Investors Need Advice Identified as a Big Concern for Investors 62%
The stock market will decline and I will lose a significant portion of my principal
62%
My investments will not be able to support me in retirement
61%
I myself do not have enough knowledge to properly manage my finances
52%
Markets and investments have become too complex for individuals to deal with
51%
Those surveyed had adjusted gross incomes greater than $225,000 annually or net worth greater than $3 million
“Financial Worries of the Affluent,” , Published June 1999
Source: 3/9/00 U.S. Trust Web site: Tiburon Research and analysis – Tiburon Strategic Advisors, LLC

6. “A commission-driven, transaction-based business ran on the fuel of knowledge. A relationship, almost by definition, runs on trust. And, in the end, knowledge of the future is impossible, but faith in the future can be limitless. When that faith is shaken, as it surely will be, knowledge won’t hold it together…Only your faith can rekindle the client’s, and thereby save him.”
-- Nick Murray
The Excellent Investment Advisor
For Advisor Use Only. Not to be used in connection with
the promotion of investment company products. 16

7. Individually Managed Account
The Benefits of an
Individually Managed Account
Diversified portfolio of individually managed securities
Ability to employ personalized, tax-related strategy
All-inclusive, fee-based account aligns everyone’s incentives
Ongoing due diligence process
Active communication between client, consultant and manager fosters long-term consulting relationship 2

8. Transitioning your Business
“The problem is never how to get new, innovative thoughts into your mind, but how to get old ones out.”
-- Dee Hock
Business Visionary and Creator of Visa

9. Make the Commitment
Make the decision to change from a sales professional to a client consultant
The job of a consultant is to provide ongoing advice and service
Be prepared to change your business financially
You will no longer be rewarded for the number of trades you do but for how well your clients do
Transition can be gradual to minimize short-term impact on your income
Get educated
Talk to other advisors who have successfully transitioned to managed money
Meet with a few money managers to get familiar with the process
Create a new business plan
A written plan will help keep you focused on your long-term goals

10. Drive yourself Take the bus Hire a driver Educate the Client
do-it-yourselfer
Take the bus
Hire a driver
mutual funds
managed money 9

11. Educate the Client
Relationship between Client, Consultant and Money Manager
CLIENT
CONSULTANT
Team Owner / Investor
Coach
Hired to help “owner” identify goals
Client accumulates wealth to “buy the team”
Wants a winning team (blending best managers)
Investment goals need to be articulated (retirement, children’s education, etc.)
Has neither time nor expertise to be his own “coach”
Needs to evaluate the talent during the selection process as well as the monitoring/performance reporting process (manager research)
Provides time, expertise and objectivity
Identifies and recommends the right “players” (asset allocation & manager selection)
Ensures that players adhere to their positions (due diligence guarantees consistency)
Provides feedback on how players are doing
(performance monitoring)
Replaces players if performance falters (manager termination if necessary)
MONEY MANAGER
Player(s)
Excel at respective positions (premier institutional money managers)
Focused style of “play” (manager skill sets are unique to their discipline)
Combination of the right players provides chemistry (correlation of value, growth, international)
Each player contributes to a particular position (specific investment style with no “style drift”)

12. Educate the Client
The active management of a portfolio helps to control an investor’s risk. Investor returns are far more dependent on his or her actions than on the actual performance of the investment itself . . .
“The gap is explained by investor behavior. In their attempt to cash in on impressive stock market gains, investors jump on the bandwagon too late, and switch in and out of funds trying to time the market. By not remaining invested for the entire period, they do not benefit from the majority of the equity market appreciation.”
--Dalbar, Inc., “Quantitative Analysis and Investor Behavior,” 1998
INVESTOR RETURN vs. S&P 500
January 1984 through December 1997
800%
600%
400%
200% 0%
820%
148%
The 10-year report tracked money flowing into and out of funds, and measured net sales, redemptions, and the length of time investors remained in the funds.
Average
Investor
Return
S&P
500
Past performance is not indicative of future results.

13. The Managed Account Consulting Process Client Objectives Asset
Manager
Search & Selection
Portfolio
Review
Asset
Allocation

14. Identify Client’s Goals & Objectives
Develop a written Investor Profile with your client that addresses the following:
Amount of Money to Invest
Time Horizons
Tolerance for Risk
Expected Rate of Return
Income and Liquidity Needs
Special Tax Considerations
Written profiles provide a benchmark for referral.

15. Develop an Asset Allocation Plan
According to Gary Brinson’s 1991 landmark research* on the determinants of portfolio return, over 90% of long-term portfolio returns are dictated by asset allocation. In other words, the study concluded that the decision of how to allocate one’s assets is far more important than what individual securities to buy or when to time your investment purchases. This is contrary to many people’s perception of what is important to influencing investment results.
* Gary Brinson, Brian Singer and Gilbert Beebower, “Determinants of Portfolio Performance II: An Update” Financial Analysts Journal, May/June1991

16. Evaluation & Selection
Investment Manager
Evaluation & Selection
Questions to ask a Money Manager:
What is the investment process?
Buy/sell discipline
Criteria for inclusion in the portfolio
Who is responsible for implementing the investment process?
Who is the management team?
Who is on the investment committee and what are their credentials?
Has the manager consistently adhered to the investment process?
Look at the top ten holdings
Have they followed their benchmarks characteristics?
Risk/Return scatter gram -- where are they compared with where they should be?

17. Evaluation & Selection
Investment Manager
Evaluation & Selection
Reasons to Leave a Money Manager:
Right Reasons
Change in client’s investment objectives
Manager drifts from investment style
Investment process has been compromised by investment manager turnover
Wrong Reasons
Short-term performance
Reaction to a specific event
Chasing returns

18. Monitor Progress: The Quarterly Review
Conduct a comprehensive quarterly review of investment profile and strategy with your client
Evaluate portfolio performance on an absolute basis and relative to client’s goals and market benchmarks
Make adjustments in the portfolio as needed to keep client on course to achieve long-term financial goals
Ongoing client communication builds trust. Trust erases worry.

19. A Focus on Value
The fee-based business is more than just a different pricing model
Provides a totally new way of working with the client
Focus on building relationships, not selling performance
You are a relationship manager, not a transaction specialist
Rely on your money managers to provide ongoing, value-added communication
Mailings, seminars, conference calls

20. “There will be financial advisors smarter than you
“There will be financial advisors smarter than you. There will be financial advisors cheaper than you. But there is no financial advisor that a client can trust any more than a client can trust you.”
Nick Murray
The Excellent Investment Advisor
For Advisor Use Only. Not to be used in connection with the promotion of investment company products. 2