1. Charlotte, NC Houston, TX Pittsburgh, PA Portland, OR Family Office Exchange Houston Roundtable Open Architecture: The Question or the Answer? Roy W. Nichol Managing Director May 2006

2. 2 Will the real open architecture firms please stand up?  “Pure” open architecture: No product, no revenue from anything other than client fees  “Semi-closed” architecture: Sharing manager fees; internal products with some outside managers  “Closed” architecture: Internal products only There is no agreement about the definition of open architecture The Open Architecture Spectrum FOX

3. 3 Will the real open architecture firms please stand up?  Consultants  Multi-family offices  Outsourced CIOs  Managers-of-managers  Pension consultants  Wrap account programs  National trust companies In fact, there is great confusion about the many different models The Open Architecture Spectrum FOX

4. 4 There are bad open architecture firms  Smart people versus non-conflicted people  Cookie-cutter approaches in a custom world  Retailing the work of research analysts  Giving institutional advice to private clients It’s difficult to build a good open architecture firm Open Architecture is Not a Panacea FOX

5. 5 The jury is still out on some larger firms, e.g.:  AMA/SunTrust  Ayco/Goldman  CTC/US Trust/Schwab  In-house OA units at banks, trust companies (e.g., Stolper/Hawthorn- PNC/Veritable  Wilmington Trust/Balantine Firms are trying many different combinations How Is Open Architecture Working Out? FOX

6. 6 While the jury has brought in some death verdicts, e.g.:  Greystone/Morgan Stanley  Sterling/National City  Winter Capital/Citigroup Merging open architecture boutiques with traditional firms is fraught with challenges How Is Open Architecture Working Out? FOX

7. 7 The jury is still out on some boutique firms, e.g.:  Ashbridge  Greycourt  Lydian  Monticello  Offit Hall  Spruce This is where the real action is How Is Open Architecture Working Out? FOX

8. 8 The competitive landscape is changing beneath our feet  Traditional wealth management firms hold huge market share of legacy business BUT:  Open architecture firms are winning a huge share of new business, roughly 85%* This is why the traditional wealth management firms are worried What Is the Competitive Threat? FOX *Source: Capgemini

9. 9 OA is eating the traditional firms’ lunch:  OA market share at 1/99: 0%  OA market share at 1/05: 35%* This is why the traditional firms are worried What Is the Competitive Threat? FOX *Source: Capgemini

10. 10 The OA client base is very desirable:*  @ 10% Forbes 400 families  @ 42% families with less than $50 million  @ 48% in-between: the core of the business is the centimillionaire next door  Clients in 20 states and 5 countries: a global business  73% families; 27% endowments/foundations This is why the traditional firms are worried What Is the Competitive Threat? FOX *Greycourt client base breakdown

11. 11 Competitive strengths of open architecture firms:  Low embedded cost structures  Focus on best investment practices  Avoid style rotation, fickle investor tastes  Market is moving to them  Benefit from big firm talent drain Newer business models tend to be more efficient Strengths of the Open Architecture Platform FOX

12. 12 Competitive challenges for open architecture firms:  Lack global research capabilities  Typically lower profit margins  Questions about scalability  Typically weak management  Problems developing young talent  Extra layer of fees  Difficult to “evolve into” from other platform Client skepticism about experience Challenges Associated with Open Architecture FOX

13. 13 The OA toolbox: What OA firms need to prevail in the intense competition:  Very senior client advisors  Deep family advisory experience  Demonstrated intellectual leadership Without these you will be an also-ran or a regional player Challenges Associated with Open Architecture FOX

14. 14 The OA toolbox: What OA firms need to advise VHNW clients:  After-tax approach to asset allocation  Dynamic asset allocation  Credible selection of best-in-class, tax- aware managers  Accurate, timely performance reporting These are the bare minimum Challenges Associated with Open Architecture FOX

15. 15 The best OA firms try to avoid “soft” services:  They bleed profitability  They rarely add value that families will pay for  To the extent that they do add value, you can’t compete with specialists Are you operating a business or a “lifestyle partnership?” Challenges Associated with Open Architecture FOX

16. 16  Sales-oriented cultures do not mix well with open architecture  High embedded costs eliminate strategic options  Fear of disintermediation How to keep the OA guys away from clients? Introducing Open Architecture Into a Traditional Wealth Management Environment FOX

17. 17 The most likely outcome: larger firms will find a way to integrate OA  Build HNW assets  Develop trusted relationships with substantial families  Use OA-developed knowledge to design new products  Diversify the revenue stream The best of all possible worlds? What Does the Future Hold? FOX

18. 18  Consolidation The “make” decision has often failed, leaving only the “buy” decision What Does the Future Hold? FOX