Advisory Programs, Tools and Resources WELCOME TO WESTERN UNIVERSITY April 24, 2012, 1:00 P.M. PT Hosted By: Carolyn Armitage, CFP ®, CIMA ® Managing Director,

Advisory Programs, Tools and Resources

WELCOME TO

WESTERN UNIVERSITY

April 24, 2012, 1:00 P.M. PT

Hosted By: Carolyn Armitage, CFP®, CIMA®

Managing Director, Organic Growth

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Carolyn Armitage, CFP®, CIMA®

24 years of financial services experience Started as a Registered Representative Managed a branch office Ran bank marketing program Headed up advisory services for 7 firms Helped thousands of advisors

successfully make the transition

from commission-based to fee-based FINRA 7, 24, 27, 4, 53, 66, 3 CA Life insurance licensed #0G02895 [email protected]

CLU/ChFC, CFS 626.710.3110

BS BA U of MN, Finance/Economics MSM American College

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Programs

Investment Options

Fee Options

Reporting Options

Resources and Tools

Agenda3

Types of Advisory Services

Asset Management

Ongoing Advice

Percentage of Assets Under Management (AUM) Rep Managed

Outsourced

Financial Planning

Hourly

Fixed-Fee or Flat-Fee Plan

Finite Time/Project Work

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Financial Planning

Risk Management and Insurance Planning

Investment and Planning Issues

Retirement Planning

Tax Planning

Estate Planning

Cash Flow and Liability Management

Education Planning for Children & other Family Members

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Advisory Services Documentation

Disclosure Brochure ADV Part II

ADV Part II Supplement

Updated offering annually

Agreements Investment Management Agreement

Financial Consulting Contract

Debit Notices/Invoices Asset Management fees generally taken out of account

Financial Consulting Invoice

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Advisory Services Doc. Continued

Quarterly Performance Reportso In addition to clearing statements

Balances

Transactions

o Investment Objective

oPerformance Quarterly

Since Inception

TWR

IRR

oFeatures Market Commentary

Asset Allocation

Benchmarks

Cost Basis

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Advisory Services Doc. Continued

Investment Policy Statements (IPS)

Most important function performed by a fiduciary

Business plan between the client and Advisor for directing and communicating the activities of the portfolio

Defines the management of the account in a logical and consistent framework

Should be in sufficient detail that a third party should be able to implement the strategy, without being overly cumbersome

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Advice Spectrum

Investment Manager

Investment Planner

Financial Planner

Life Planner

Investment Centric

•Creates stock/bond portfolios for clients and focuses on managing assets

•Does not offer planning services

•Uses mutual funds, SMAs, and alternative investments to build client portfolios

•Offers event-driven planning advice

•Provides comprehensive advice; completes financial plans for most client

•Mostly uses mutual funds and SMAs

•Strong emphasis on life planning and holistic advice

•May use more turnkey asset management programs to focus time on clients

Relationship Centric

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Program Type Features Pros Cons

Advisor Directed

• Advisor manages individual securities, MFs, ETFs on a discretionary basis

• Model Portfolios• Active tax management

• Appeals to affluent clients

• Boutique feel• Allows maximum tax

control• Limitless customization

• Requires greatest time commitment

• Impact Advisor face time

Turnkey Asset Mgmt

Program (TAMP)

• Either mutual funds or ETFs used

• Auto allocation, product selection and rebalancing

• Easy to use• Can range from centrally

managed to open architecture

• SMAs may be more cost effective for large accounts

• Limited ability to control tax consequences

Separately Managed Account

• Manager Individual securities• Institutional-style accounts• Portfolio customization• Active tax management

• Appeals to affluent clients

• Customization can help client hold concentrated stock

• Diversification difficult for < $500,000

• Rebalancing is complex• Few take advantage of

tax & customization

Unified Managed Account

• Multiple security types offered in one account

• Overlay portfolio management

• Overlay management simplifies process

• Eliminates need for multiple accounts

• Limited product options• Marquee SMA

managers are not always wiling to participate

Advisory Programs10

Rep Managed

Advisor DirectedSeperately Managed

Account (SMA)

Turnkey Asset Management Program

(TAMP) & Unified Managed Accounts (UMA)

AdvisorOne Managed Acct Edge Envestnet MFTicket-Based Envestnet SMA Envestnet ETF Client Pays Managed Acct Control Envestnet UMA You Pay Lockwood EquisAsset-Based GenworthEnvestnet AB Curian

SEI

Outsourced

Asset Management Programs11

Advisory Assets at Western

Ticket Based; 94%

Asset Based; 4%

Envestnet; 2%

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AdvisorOne

Fee-Based Revenue

Q4 2010

Q1 2011

Q2 2011

Q3 2011

Q4 2011

Q1 2012

14%

15%

16%

17%

18%

19%

20%

21%

22%

23%

16.27%

18.52%

19.38%19.92% 20.12%

22.89%

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AdvisorOne Investment Selection

OTC and Listed StocksCovered OptionsExchange Traded Funds (ETFs)Closed-end Mutual FundsNo-Load Mutual FundsLoad Waived or Institutional Share Class Mutual FundsTreasuriesGovernment BondsMunicipal BondsCorporate BondsUnit Investment Trusts

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Appropriate Clients

Clients you enjoy working with on a regular basis

Clients who invested over two years ago

Clients with money in three or four places

Client accounts that have grown substantially

Client accounts that need a better mix of assets

Clients with $100,000 or more to invest

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Clients who you sold to less than two years ago

Unless new money

A share transfers have a two-year hold

B share transfers have a four-year hold

C share transfers are not allowed Would need to liquidate and transfer cash

Keep in mind that liquidating C shares is a taxable event

Assets under $100,000

Cost of program for your client and you

Your time

Inappropriate Clients16

AdvisorOne

Ticket Based

Client or Rep pays ticket charges

Most have Clients pay

Your fee is for your advice and monitoring, not trading

Unknown trading volume

Asset Based

.38% annually

Good for higher trade volumes

High portfolio turn-over

Client who may be sensitive to ticket charges

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Program MinimumMax Fee

Cost QPR Cost Basis ProposalsTicket

ChargesResearch

AdvisorOne Transaction Based

$25,000 3% ticket chargesAdvent

EnvestnetWIS No

$14.95 MF $19.95

Equity $24.95 Bonds

No

AdvisorOne Asset Based

$25,000 3%

38 bps or $360 per year,

whichever is greater

AdventEnvestnet

WIS No Included No

Envestnet AdvisorOne Asset Based

$10,000 3%

42 bps or $125 + 22bps, whichever is

greater

ENAM Rep Included Included yes

Advisor Directed; AdvisorOne18

AdvisorOne Ticket-Based Pricing

Example: $200,000 account

Client pays a 1.5% advisory fee

You place 20 equity, 3 bond, and 2 NTF mutual fund trades per year

Client pays ticket charges

Client Rep JPMCC

Advisory Fee

20 Equity Trades @ $19.95 each

3 Bond Trades @ $24.95 each

2 NTF MF Trades @ $0.00 each

($3,000.00)

($399.00)

($74.85) $74.85

$399.00

$3,000

($3,473.85) $3,000 $473.85

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AdvisorOne Ticket-Based Pricing

Example: $200,000 account

Client pays a 1.5% advisory fee

You place 20 equity, 3 bond, and 2 NTF mutual fund trades per year

Representative pays ticket charges

Client Rep JPMCC

Advisory Fee

20 Equity Trades @ $19.95 each

3 Bond Trades @ $24.95 each

2 NTF MF Trades @ $0.00 each

($3,000)

($399.00)

($74.85) $74.85

$399.00

$3,000.00

($3,000) $2,526.15 $473.85

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AdvisorOne Asset-Based Pricing

Example: $200,000 account

Client pays a 1.5% advisory fee

You place 20 equity, 3 bond, and 2 NTF mutual fund trades per year

The asset-based pricing charge is the greater of .38% or $360

Client Rep JPMCCAdvisory Fee

Asset-Based Pricing Charge

($3,000)

(760) $760

$3,000

($3,000) $2,260 $760

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Fee Billing; AdvisorOne

Accounts billed in advance each quarterPro-rated adjustments for additions/withdrawalsExample: Account opened on 8/15/2011; 1.5% advisory fee

$265,000 x 0.015 x 46 / 365 = $500.95 $265,000 x 0.015 x 91 / 365 = $991.02

$262,000 $265,000

8/15/2011 12/31/2011

$1,491.97 - GDC in October, Payout: November 15th

9/30/2011

Approved by WIS

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Billing Rebates

Pre-paid, unearned fees must be rebated

Outgoing Transfers

Advisor Termination

Account Termination

Death

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Quarterly Performance Report Options24

JPMCC Performance Reporting Options  Envestnet A-la-Carte Envestnet ABP Advent

Price Per Account Per Year 3.5 bps; $36 min-$300 max 38 bps; $360/yr min $45

Householding/Grouping of Reports

Yes Yes Yes

Rep Online Access To Reports Yes Yes No

Client Online Access To Reports Yes Yes No

Branding Option Yes Yes Yes

Ability to add Market Commentary No No Yes

Custom Benchmark/Blend No No Yes

Reporting Levels/Templates 31 31 over 100

Template Customization Yes Yes Yes

Daily Snapshot Reports Yes Yes Yes

Outside Account AggregationYes

$500 setup fee & $80/acct/yrYes

$500 setup fee & $80/acct/yr

Yes; $45 per/acct/yr if account not on DST, an additional

$25/hr manual entry fee applies)

Billing Reports Yes Yes Yes

www.wisdirect.com | 1-888-793-7717

Advent has been providing portfolio management and reporting solutions since 1983 Over 1,800 asset management firms rely on Advent for reduced operating risk, improved client service,

and increased productivity Benefits:

tangible improved decision making capability increased productivity lower overhead enhanced client communication

You decide what and your clients see Choose from report categories that include:

Portfolio appraisals Realized and unrealized gains and losses Cash activity Purchase and sale Billing Performance Cost Basis

High impact graphics including pie charts, line graphs, bar charts Select from a variety of fonts, sizes and styles giving your reports a signature look that matches your

identity.

Advent Reports25

Online, dynamic reporting

Client online access

Customizable

House holding of accounts

Market Analysis

Holdings

Gains/Loss

Deposit/Withdrawals

Envestnet Reports26

IRR and TWR

Internal Rate of Return (IRR) Calculates the performance of a portfolio over a time period

Timing and size of cash flows impacts the return

Gives greater weight to periods when more money is invested

Time Weighted Return (TWR) Calculates the performance of the manager

Impact of cash flows is minimized

Gives equal weight to time periods regardless of money invested

Ability to compare numbers to indices and other managersIndices are shown in TWR. If there are no cash flows, the TWR and the IRR are identical.

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AdvisorOne Paperwork; JPMCC

Ticket Based

Complete General Account

Opening Documents (Trust, IRA,

Corp., etc.)

Call Pasadena Operations or

Branch Office for a TBP 611

account number

Investment Management

Agreement For Transaction-Based

Pricing Accounts: IMA-TBP

WIS Web Site under “Forms and

Manuals”; “Advisory”

Asset Based

Complete General Account

Opening Documents (Trust, IRA,

Corp., etc.)

Call Pasadena Operations for

account number in the ABP

range: 611-86700

to 611-87999

Investment Management

Agreement For Asset-Based

Pricing Accounts: IMA-ABP

WIS Web Site under “Forms and

Manuals”; “Advisory”

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Advisor One TBP IMA

x

$250,000

$250,000

$500,000

1 50

1 25

1 00

x

19 95

14 9524 95

19 95

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AdvisorOne Paperwork; Envestnet

Complete General Account Opening Documents (Trust, IRA, Corp., etc.)

Call Pasadena Operations for an account number in the Envestnet range; 611-88000 to 611-88999

Complete Envestnet Proposal and Statement Of Investment Selection Form (SIS) and send to client for signature

Documents from Envestnet online

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AdvisorOne; Pershing

Complete General Account Opening Documents (Trust, IRA, Corp. etc.)

Open the account on Pershing’s NetX360 platform using HPE branch code

Complete Investment Management Agreement For Pershing Asset-Based Pricing Accounts; IMA-ABP

WIS Web Site under “Forms and Manuals”; “Advisory”

WIS Operations Department will enter fee-billing information into Pershing’s PMAS system and initiate performance reporting tracking

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Advantages of Outsourcing

Streamline your business with a simple platform

Outsource the management and administration

Spend more time with clients

Add value through professional proposals, research and marketing resources

Feel secure knowing a team of professionals are sharing the fiduciary responsibility

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Custodian # Managers ResearchQuarterly Reports

Managed Account Edge

JPMCC 39 No No

Envestnet JPMCC 709 Yes Yes

Managed Account Control

Pershing 159 Yes Yes

AdvisorFlex Pershing 25 Yes Yes

Separately Managed Accounts33

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Envestnet UMA

Envestnet MF

Curian

Genworth

SEI

Equis

Turnkey Asset Management Programs

Cost of Products & Services*

Oversight Product or Platform Cost to ClientComp to Advisor

FINRA C-Share Mutual Funds 2% Mutual Fund Expenses 1% Annually

SECTAMP or Mutual Fund Advisory Programs

1% Mutual Fund Expenses (Institutional Share Class)1% Advisor FeeTotal Cost = 2%

1% Annually

SECSeparately Managed Account

.45% Clearing and Custody .40% Manager Fee .15% Administrative Fee1% Advisor FeeTotal Cost = 2%

1% Annually

SECUnified Managed Account

.45% Clearing and Custody .30% Manager Fee .15% Overlay Mgmt. Fee .10 Administrative Fee1% Advisor FeeTotal Cost = 2%

1% Annually

* General Fees

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Western Tools and Resources

Western University educational sessions

Break Even Analysis calculator; Fee-Based vs. Ticket Based

At-a-glance grids

Sample Investment Policy Statements

Sample Quarterly Reports

Forms online

Envestnet tools; proposals, reports & research

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Next Steps

Examine your existing book of business

Determine which program would better suite your clients

Work with clients you have a great working relationship and refine the selling process

Be your first client

Open an account within one month’s time

Leverage the experience of our support staff to make the transition be as efficient as possible

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Never Stop Learning; Future WU Advisory Sessions

Biggest Mistakes Advisors Make & How to Avoid Them

Investment Policy Statements (IPS)

Succession Planning

Marketing; Client Appreciation Events

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Advisory Services Team

Guenter Wirth, Managing Director; Advisory & Trading

Carolyn Armitage, Managing Director; Organic Growth

Rachel Baker, Associate Director; Reporting & Billing

Matt Woodward, Specialist, Operations & Billing

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Advisory Mission

To offer the best independent advisory platform

delivering innovative, flexible solutions

and exceptional experiences

for advisors and their clients

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Q & A

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