Solutions Platform & Due Diligence Executing from the foundation of strategic asset allocation

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1 Solutions Platform & Due Diligence Executing from the foundation of strategic asset allocation We emphasize a thorough, disciplined process designed to identify and monitor what we believe to be the best available investment strategies. Executive summary Today s investment markets offer increasing opportunities for individuals looking to build an effective portfolio. At the same time, the rapid growth in the number of investments to choose from and the pace of change in the financial markets can often be overwhelming for individuals. A structured investment approach can be beneficial for individuals as they seek to achieve their key financial objectives. Critical to the success of this process is identifying appropriate investments that can be used to implement a proposed asset allocation strategy. At The Private Client Reserve of U.S. Bank, we refer to this as our solutions platform and due diligence process. Beginning with a universe of thousands of investment options, our experienced team conducts rigorous due diligence and recommends opportunities that represent approximately 1 percent of that universe. Our solutions platform is built from the guidance we create for our strategic long-term asset allocation and is often complemented by short-term tactical opportunities all incorporated into our portfolio customization process. We believe this comprehensive approach provides you with the guidance you seek to craft a personalized investment strategy to help work towards your specific goals. We help you leverage our vast institutional knowledge of the markets and our experienced judgment about what we believe are the most effective ways to capitalize on the current investment environment. Executing an investment strategy Strategic asset allocation is the starting point in the process of developing a personalized investment strategy. The next step is to determine which specific investment vehicles can be used to carry out a recommended strategy. At The Reserve, we utilize an open architecture platform that gives clients a choice of a wide range of high-quality investment managers. Investment products and services are: NOT A DEPOSIT NOT FDIC INSURED MAY LOSE VALUE NOT BANK GUARANTEED NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY [ 1 ] Important disclosures provided on page 5.

2 A thorough due diligence process is vital to help clients implement an appropriate investment strategy. Dedicated teams of experienced professionals who understand the markets and strategies are critical to our investment process. They use their knowledge and understanding of investment processes and management to help identify investment opportunities they believe have the track record and return potential to be included in our platform of investment options. An open architecture approach An important element that separates The Reserve from many competitors is our independent approach. We offer an open architecture investment platform, providing investors access to what we believe are best in class solutions from the extensive field of choices. Because we do not promote proprietary investments, our professionals can make unbiased recommendations. As your trusted advisor, you can count on us to provide: Reduced fees: Because we manage billions of dollars in assets we are in a strong negotiating position to demand lower-cost investment options from leading providers. More effective management of fees can ultimately result in better net performance. Improved access: Leading asset managers who are in demand may only be available to a limited number of investors and often require large initial investments. We are able to attract these managers to our investment platform because of our size, and often negotiate for lower initial minimum investments for our clients. Unique opportunities: Our corporate size and indepth due diligence process often uncovers access to unique and differentiated opportunities, which may not be sourced by our competitors. Access to information: We believe good information is the lifeblood of successful investing. Unique insight is gathered from the managers we select for our solutions platform, as well as from those that are not selected. Additionally, we re supported by top industry research, both key advantages for an investor. A flexible approach: Unlike some firms, we are not strictly proponents of active-only funds (run by a manager or those that try to outperform the market) or passive-only funds (structured to simply match the market return). We feel there s a place for both strategy types within the same portfolio and will recommend the most appropriate options. Narrowing the universe our approach to due diligence Our due diligence process typically works in two phases: 1. Narrowing and screening a universe of managers to arrive at a select group of top candidates for consideration in a client s portfolio. 2. Closely monitoring all selected managers to assure that performance and process continuously meet our expectations. Providing thorough, quality reviews of an ever-expanding universe of investment choices is increasingly challenging. Critical to our success in identifying what we believe are the most effective managers is our dedication to three key facets that help us deliver the potential for superior results related to our: Beliefs People Process Our core beliefs Our dedication to helping clients achieve their financial goals begins with our adherence to seven core beliefs that guide our work every day: 1. Experience matters: Our nimble team of professionals has the expertise and experience required to sort through today s vast universe of investment opportunities. [ 2 ] Important disclosures provided on page 5.

3 2. Collaboration is critical: We maintain a spirit of teamwork and synergistic partnership, but also share open and constructive feedback. This type of working relationship helps provide more thorough vetting of investment options. 3. Establish a repeatable and scalable standard: We use the size of our organization for the benefit of our clients by accessing a broad array of funds, obtaining favorable terms and requiring transparency of investment managers we select. 4. Cast a wide net: Our open architecture platform provides us the flexibility to scour the vast universe of investment managers and market opportunities. 5. Disciplined behavior: We follow a disciplined, repeatable due diligence process to gain an understanding of both investment-related and non-investment-related issues. 6. Consistency: Our review process is flexible to deal with unique situations, but retains a clear and consistent set of criteria applied to our rigorous process. 7. Better information allows for better decision making: We use the latest and most efficient technology to capture relevant information that is critical to our management selection and monitoring process. Even as our process evolves and new innovations are incorporated, these values remain at the core of what our due diligence teams practice. Our people Our institutional due diligence process is applied across a wide range of asset types by assigning specific teams to deal with three key areas of the market: Traditional investments (mutual funds, exchange-traded funds, etc.) Alternative investments (hedge funds, private capital) Special situations (derivatives, structured products) Each group features dedicated and highly skilled individuals, all with significant training. Our teams maintain a nimble approach and work collaboratively to leverage the full value of our professional knowledge. At the same time, they capitalize on the scope of U.S. Bank s nationwide presence to obtain additional insight and constructive feedback about specific managers under consideration for our investment platform. Our process We utilize both quantitative and qualitative analysis to identify investment managers that we believe have the ability to deliver superior performance within the diversified portfolios we recommend. We identify all fund managers that fit our mandate, thoroughly assess the capabilities of each fund manager, evaluate and verify the quality of the investment firm s team and operations and ultimately choose approximately 1 percent of all fund managers reviewed for inclusion on our investment platform. Our process We utilize both quantitative Mandate Identification and qualitative analysis to identify investment managers that we believe have the ability to deliver superior Initial performance Assessment within the diversified portfolios we recommend. Evaluation of Quality We identify all managers that fit our mandate, thoroughly assess the capabilities Verification of each manager, of evaluate and Quality verify the quality of their investment team and operations and ultimately choose approximately 1% Roughly 1 percent only 1% of of all all funds funds make it through reviewed for inclusion on our investment platform. our process for approval Experienced oversight: The work completed by our due diligence teams is presented to senior-level management on our Asset Management Committee, whose members are tasked with reviewing and approving strategies for the platform. Ongoing monitoring: Just as important as the initial selection process is confirming that managers we ve selected for our platform continue to meet [ 3 ] Important disclosures provided on page 5.

4 our standards and expectations. We regularly review managers across the platform and conduct follow-up meetings at the firms we ve selected. If we determine that changes have occurred that may affect a manager s fit or competitiveness, we may remove them from our platform. Generally, less than 10 percent of funds move on or off our platform in a given year. But that does not distract us from our willingness to make changes when warranted. Conclusion In our view, investment plans are unlikely to be fulfilled without effective execution. Critical to that is selecting investments that are positioned to help you work towards meeting your desired goals. We begin with an open architecture approach that makes it possible to capitalize on a broad range of superior investment options that are available in today s market. To help narrow that extensive list of investment choices, we emphasize a thorough, disciplined due diligence process designed to identify what we believe to be the best available investments within various asset classes. Our experienced professionals seek out investment prospects among a significant crosssection of the markets. A broad solution platform and an exhaustive due diligence review process of these investment options is the first step in helping you fulfill a recommended asset allocation strategy with an appropriate menu of specific investments. The next step is the development of a customized investment strategy that is built around your personal needs, goals and risk tolerance level. [ 4 ] Important disclosures provided on page 5.

5 This commentary was prepared in October 2015 and the views are subject to change at any time based on market or other conditions. This information represents the opinion of U.S. Bank Wealth Management and is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. Past performance is no guarantee of future results. All performance data, while deemed obtained from reliable sources, are not guaranteed for accuracy. Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio. Hedged equity and hedged fixed income investment strategies are typically available via hedge funds, which may not be appropriate for all clients due to the speculative nature and high degree of risk involved in these investments. Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. International investing involves special risks, including foreign taxation, currency risks, risks associated with possible difference in financial standards and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. Investing in fixed income securities are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Investment in debt securities typically decrease in value when interest rates rise. The risk is usually greater for longer-term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. There are special risks associated with an investment in commodities, including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes, and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults). An investment in a hedge fund is speculative in nature and involves a substantially more complicated set of risk factors than traditional investments in stocks and bonds. Risk factors include such strategies as short sales, leverage, hedging and non-diversification. Exchangetraded funds (ETFs) are baskets of securities that are traded on an exchange like individual stocks at negotiated prices and are not individually redeemable. Share of ETFs may trade at a premium or a discount to the net asset value of the underlying securities. Structured products are subject to market risk and/or principal loss if sold prior to maturity or if the issuer defaults on the security. Structured Products Pricing Supplements and Prospectuses should be reviewed by the client prior to approving or directing an investment in these securities. Clients should contact their Portfolio Manager directly to request and review Structured Product Pricing Supplements and Prospectuses for each structured product they may wish to purchase. Derivatives can be illiquid, may disproportionately increase losses and may have a potentially large negative impact on performance. Employing leverage may result in increased volatility. These investments are designed for investors who understand and are willing to accept these risks. Mutual fund investing involves risk and principal loss is possible. Investing in certain funds involves special risks, such as those related to investments in small- and mid-capitalization stocks, foreign, debt, and high-yield securities, and funds that focus their investments in a particular industry, or employ a long-short strategy. Please refer to the fund prospectus for additional details pertaining to these risks. Investors should know that investments in private capital investments involve a high degree of risk, can be highly illiquid since securities are not readily marketable and the valuation procedures are often subjective in nature, and typically represent a long-term binding commitment U.S. Bank (10/15) [ 5 ] reserve.usbank.com