1. Keys to Building a Successful Advisory Practice
2018
Keys to Building a Successful Advisory Practice
Independent Adviser Group
Eric Davison
Executive Vice President

2. Keys to Building a Successful Consulting Practice
Clear communication to employees, business partners, clients and prospective clients is the key to building and maintaining a successful consulting practice
We work closely with our Advisory firm clients to strategize on business planning issues and existing and prospective client relationships. In order to be effective in our communication, we frequently find ourselves asking very basic questions. Many times we will ask: “Please start at the beginning” or “What are you trying to accomplish?” Our consulting team, as well as many of our IAG Member Firms, have learned that in order to be effective in discussing the complex issues and topics relating to our business, it pays to keep it simple (“KISS”).
In working with some of the most sophisticated and successful advisers over the past twenty years, we have observed an almost perfect correlation between those firms that continually work on clear communication and business planning and those firms running successful consulting practices.
The following slides highlight many of the common business and sales discussions we have with our IAG Member Firms. If you want to discuss any of these concepts in greater detail, or if we can be of assistance in helping you develop policies and procedures or sales and marketing materials, please do not hesitate to contact us.

3. Keys to Building a Successful Consulting Practice
Outline / Objectives
Enhance your ability to assess new business opportunities by understanding key processes
Business Planning
Sales
Investment
Brand
Provide relevant information and “rules of thumb” that will assist you in the assessment of a prospective client and in developing well structured investment portfolios for your clients.

4. To Start the Process… Step back and review the basics
Adviser Requirements
Business strategy
Philosophical investment premises
Ability to add value
Effective sales process
Prospect Needs
Investment plan / Estate plan
Needs, Objectives, Constraints
Philosophical beliefs
Key steps to developing a deep client relationship
Establish Consistent:
Business, Personal, and Philosophical Beliefs
Investment Management Process
Fiduciary Standards of Conduct
Understand:
Prospects Decision Making Process
Key Decision Variables

5. Adviser Requirements Start with the basics of your business Mission
Business Strategy 101
Vision
Internal statement of what you want your organization to look like in the future. Think Big!
Core Strategies
What strategies will you employ in order to reach your vision. Will you develop a niche? Will you be a high price provider? Will you provide a comprehensive service? Will you limit the number of clients you serve? Will you leverage relationships with industry leaders?
Mission
Provide a statement that articulates what you do and what you do not do so that your prospects know if there is a fit. External statement to be shared with clients and prospects.
Business Plan
Develop and maintain a clear business plan with realistic growth expectations and cost estimates. Establish key business benchmarks to assess business success.
Do not forget to assess your: Strengths / Weaknesses / Opportunities / Threats
Do not forget to develop your: Key Marketing Differentiators / Statement of Values / Code of Ethics

6. Adviser Requirements What do you believe in?
Establish Philosophical Investment Premises
Macro Economic Perspective - Strategic Planning
Time horizon
Asset allocation (Strategic vs. Tactical)
Asset class preferences (Financial vs. Hard Assets; Public vs. Private; Long vs. Short)
Diversification
Manager Structure and Manager Search
Active vs. passive
Core vs. satellite
Mutual funds vs. separate accounts
Alternative investments
Hedge Funds or Fund-of-Funds
Performance Measurement and Manager Retention
Hire and firing decisions
Acceptable time frame for evaluation
Style group and benchmark selections

7. Adviser Requirements How do you add value?
What is your value added proposition?
Improved returns and reduced risk
Piece of mind – create order from chaos
How do you add value?
Experience and knowledge
Academic and industry credentials
Similar clients with similar needs
Access to important information and resources
Strategic alliances
Research sources
Ability to provide economies of scale (reduced fees and low minimums)
Best practices
Access to a “System” and effective solutions:
Planning / Process
Investment management products

8. Adviser Requirements The sales process Paperback Sales Process
Assess the Prospect
Find the Problem
Feel the Problem (Empathize)
Present your experience with others that had the same problem
Tell them how you solved the other person’s problem
Provide a Solution
Get out of there before you blow the sale

9. Complicating the Client Relationship
Understand the expectations set during the sales process
Our Culture of Instant Gratification
Give the people what they want
Tell them what they want to hear
Don’t let the details get in the way of the sale
What we need to know …. but are afraid to hear
Set realistic return expectations (Get what you need, not the highest return possible)
Diversification is important
Past performance is not a guarantee of future performance
Focus on appropriate time horizon
Stay committed to sound investment strategies

10. The Client Management Process
Important steps in managing client relationships
Reconcile differences between Adviser and Client’s philosophical investment premises
Discuss asset class preferences with client
Set realistic return expectations
Confirm understanding of various forms of risk
Manager structure considerations include: core / satellite, active / passive, # of managers, bias in structure vs. market, tactical shifts and market timing
Analyze existing portfolio
Managers to terminate/retain are influenced by: client preference and current situation, redundancy of managers, past performance, style, cost structure, and tax situation
Define policy
Establish proposed structure and written policy and guidelines
Implementation
Produce work order to implement proposed manager structure
Identify new managers to hire / execute manager agreements
Establish custody and brokerage agreements
Allocate assets
Monitor
Actual results vs. policy benchmarks

11. Establish Key Tenants of Investment Oversight
Uniform Code of Fiduciary Conduct
Prepare Written Investment Policies, and Document the Process Used to Derive Investment Decisions
Diversify Portfolio Assets With Regard to the Specific Risk/return Objectives of the Beneficiary
Use Professional Money Managers (“Prudent Experts”) to Make Investment Decisions
Control and Account for all Investment Expenses
Monitor the Activities of All Money managers and Service Providers

12. The Investment Management Process
A recommended process for all Fiduciaries and Investors

13. Evaluating the Current Investment Program
Do you really want this prospect as a client
Analyze Current Position
Assess the prospect (Do you want this prospect as a client?)
Is the prospect process or product oriented?
What are the prospect’s investment objectives?
What is the nature of the prospect’s liability?
Who are the beneficiaries of the assets?
How is the current investment portfolio arranged?
Asset classes used
Asset allocation (What is the expected return and risk?)
Number and types of investment vehicles used
Names of investment managers
Custody and Brokerage relationships
Source of current advice
Fees and expenses
Recent performance experience

14. Evaluating Performance over Recent Periods
What type of investment returns has the prospect experienced?
Is their “experience” consistent with reality?
Recent Short Term Influences
Volatile market environment
Wide dispersion of returns still prevalent in most asset styles
High yield fixed income, low quality equity strongest recent performers
Significant changes in sector returns
Significant changes in style benchmarks

15. Primary Consideration
Setting Priorities
Understand the hierarchy of investment decisions
Primary Consideration
What is the Time Horizon of the Investment Strategy?
What Asset Classes will be Considered?
What will be the Mix between Asset Classes?
What Sub-Asset Classes will be Considered?
Which Managers / Funds will be Selected

16. Establishing Strategic Asset Allocation
Define key asset allocation variables
Capital Markets Expectations
Principal Investor Inputs
1. Projected Returns of Asset Classes
2. Projected Levels of Variability of Returns
(Standard Deviation)
3. Projected Correlations (Related Movement) of Asset Classes
T Time Horizon
R Risk Tolerance
E Expected Returns
A Asset Class Preferences
T Tax Status
Asset Allocation Variables
In order to successfully develop and implement an effective strategic asset allocation, one needs to have an expectation of future capital market performance and must also understand the key variables that define the fiduciary/ investor's requirements.

17. Client Objectives and Return Requirements
Reality
Investment Portfolio
+ Investment Return
+ Contributions
Expenses
Disbursements
Inflation
= Remaining Corpus
Current Environment?
$ % +0.0% - 1.0% - 5% % = $97.25

18. Strategic Asset Allocation
2018 comparative study on capital markets
20 Yr Returns
( )
10 Yr Returns
( )
5 Yr Returns
( )
1 Yr Return
(2017)
Modeled Returns
(10-Year Forecast)
Broad Equity
(Russell 3000)
Large Cap Equity
(S&P 500)
Small/Mid Cap Equity
(Russell 2500)
International Equities
(MSCI EAFE)
Emerging Mkt Equities
(MSCI Emerging Markets)
Broad Fixed Income
(Barclays Aggregate)
High Yield Fixed Income
(Bloomberg Barclay Corporate High Yield)
Non-U.S. Fixed Income
(Citi: WGBI Non-U.S.)
Real Estate*
(CAI Real Estate Database)
Cash
(90-Day T-Bill)
U.S. Inflation*
(CPI All Urban)
Callan Real Estate Database and CPI reflect performance for periods ending September 30, 2017.
All other historical performance is for periods ending December 31, 2017

19. Strategic Asset Allocation
Probable range of returns using 2018 Callan projections
Asset Allocation
Probable Range of Modeled Returns
Over a 5-Year Period1
Modeled Loss Scenario In Any Given Year2
Probability of Nominal Annual Return < 0
Low Modeled High
100 Equities % 80 Equities 20 Bonds % 80 Equities 10 Bonds 10 Cash %
80 Equities 20 Cash % 60 Equities 40 Bonds % 60 Equities 20 Bonds 20 Cash % 60 Equities 40 Cash % 40 Equities 60 Bonds % 40 Equities 30 Bonds 30 Cash % 40 Equities 60 Cash % 20 Equities 80 Bonds % 20 Equities 40 Bonds 40 Cash % 20 Equities 80 Cash % 100 Bonds % 100 Cash <1%
Figures used in this chart were obtained using output from Callan’s Asset MAX Program Callan Capital Market Expectation are also presented.
Sources: AssetMAX/Callan Capital Market Presentations.
*Using 2018 Callan Capital Market Projections. Proxies used: Equity (S&P 500), Bonds (Bloomberg Barclays Aggregate), Cash (T-Bill)
1There is a 50% probability that the annualized return will fall between the “High” and “Low” ranges indicated. 2There is a 5% chance that the actual return could be lower than the modeled loss in any one year.

20. Domestic Equity Manager Structure
How diversified is the prospect’s domestic equity portfolio?
Basic Rules of Thumb
Style Allocation
Capitalization Allocation
Large Cap
80%
Large Cap
70%
Value
50%
Growth
50%
Mid Cap 15%
Small Cap 20%
Small Cap 15%
Additional Considerations
Number of managers
Cost Structure
Use of Active vs. Passive
SMID/Small cap exposures
Are biases’ intended or not?

21. International Equity Manager Structure
How diversified is the prospect’s international equity portfolio?
Basic Rules of Thumb
Developed / Emerging
Allocation
Capitalization / Emerging
Allocation
Style Allocation
Developed
85-90%
Large Cap
70%
Value
50%
Growth
50%
Small Cap 15%
Emerging 10-15%
Emerging 15%
Additional Considerations
Benchmark choice: ACWI or EAFE
Use of ADR’s
Exposure to emerging markets and small cap
Use of active vs. passive
Are biases’ intended or not?

22. Fixed Income Manager Structure
How diversified is the prospect’s fixed income portfolio?
Key Considerations
Number of managers /funds
Primary benchmark
Exposure to non-benchmark sectors
Cost structure
Are biases’ intended or not?

23. The Consultant Briefcase (iPad)
Are you prepared?
Important Content
Services Presentation
Organization overview
Philosophical investment premises
Investment Process
Value added proposition
Consulting fees
Educational charts
Market Environment / Capital Markets
Most recent Callan Capital Market Review
Return and risk expectations for common asset allocations
AssetMax output
Manager / Fund Information
Callan Manager Profiles
PEP charts
Manager Information
Manager Structure knowledge
Comparative Fee Information
Callan Manager Fee Survey / Mutual Fund fee distributions