Wealth Management Redefined. Lifetime Wealth Portfolios SM

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1 Wealth Management Redefined Lifetime Wealth Portfolios

2 Asset Allocation Ibbotson Associates Investment Management Morningstar Investment Services Lifetime Wealth Portfolios Insurance Selection New York Life Insurance Company Three Experts, One Goal. Lifetime Wealth Portfolios marks a unique advance in wealth management by combining Morningstar Investment Services strength in rigorous research and strategic investment management, Ibbotson Associates pioneering expertise in asset allocation, and New York Life Insurance Company's innovative approach to insurance product selection together with your financial adviser s knowledge of your objectives and risk preferences to create an integrated investment and insurance strategy to help meet your financial goals.

3 Complex Investment Strategies. Simplified Portfolio Management. Investing wisely can be complicated. In order to make the best decision, you need to know the market intimately, research it obsessively, watch it carefully, and manage it actively. Most people, however, have neither the time nor the specialized knowledge to navigate these complexities. Lifetime Wealth Portfolios is a managed account solution developed by Eagle Strategies LLC that provides you with all the benefits of a comprehensive investment management service including objective and independent research, strategic asset allocation, access to an extensive universe of mutual funds, and quality insurance coverage tailored to your needs in a simplified approach that is focused on maximizing value over your entire lifetime. And because the Lifetime Wealth Portfolios process factors in your changing needs over time, our portfolios provide you with dynamic investment strategies that respond to every stage of your life.

4 A New Definition of Wealth In order to create a comprehensive investment strategy, the Lifetime Wealth Portfolios process looks beyond the traditional definition of wealth and examines all the components of your total economic wealth. What do you include when asked to determine the value of your total economic wealth? If you are like most savvy investors, you probably turn to a balance sheet of financial assets such as stocks, bonds, mutual funds, real estate holdings, and retirement savings accounts to calculate your financial net worth. This traditional definition of wealth, however, is incomplete. It overlooks what may be your largest asset your human capital. The Human Capital Concept An investor s true total economic wealth consists of two components. The first is made up of tradable financial assets such as stocks and bonds known as financial capital and the second is comprised of human capital. Your human capital is the present value of all your expected future wages, including pension income and Social Security benefits. To derive this figure, Lifetime Wealth Portfolios considers a few key factors, including your current income, your savings rate, your working status, and the volatility of your chosen profession. Expected Human Capital and Financial Capital over Lifetime $$$$ $$$ $$ Human Capital An individual s ability to earn and save. Financial Capital An individual s total saved assets. $ 45 Retirement 85 Age 65

5 How the Stage of Your Career Affects Your Human Capital To give this concept some context, consider yourself first embarking on your career. Your human capital represents a disproportionate share of your total economic wealth, as you have amassed relatively little financial wealth, but have many more years to earn. As time passes, however, the mix of your total economic wealth shifts as you convert human capital into financial capital by saving some of your earnings. As you approach retirement, your financial capital is likely to be larger than your human capital because you have fewer prime earning years left, but will have accumulated financial wealth over a long career. Age 30 Age 45 Age 65 Asset Allocation that Incorporates Human Capital If you knew the exact value of your human capital and its risk profile, how might that affect your investment strategy? Would you invest more aggressively or more conservatively? The Lifetime Wealth Portfolios managed account solution is based on the premise that determining your ideal investment strategy begins with your human capital. Ibbotson Associates has done extensive research on human capital and its important implications on your asset allocation and portfolio construction. This includes specific research on how human capital pertains to life insurance and guaranteed lifetime income recommendations. Using this groundbreaking work and including the current value of your human capital, as well as its inherent elasticity, the Lifetime Wealth Portfolios solution can provide investment strategies that suit your individual needs now and well into the future. Higher future earning potential relative to savings amount How the Volatility of Your Career Affects Your Human Capital Higher assumed savings but lower earning potential In addition to its size, your human capital also has a risk profile, which is affected by the volatility of your labor income and its correlation to the financial markets. If you are a tenured professor, your income may be relatively consistent, almost bond-like in its return. If you have a more volatile profession such as a real estate broker whose annual income ebbs and flows with the real estate market, your income may be more variable. Moreover, the correlation of your labor income with the financial markets adds to the volatility or riskiness of your human capital. Consider a younger investor, age 30, with relatively stable income. Human capital represents the lion s share of his current total economic wealth. Because of this investor s time horizon and risk tolerance, he may choose to be more aggressive with his financial capital. Accordingly, he may receive a portfolio recommendation weighted more heavily towards stock funds. In this case, the stability of this investor s human capital helps to balance out the increased volatility associated with stock funds in his portfolio. Age 30 Age 45 Age 65 Greater Human Capital Higher Stock Allocation Greater Financial Capital Higher Bond Allocation Professor Average Broker Stable Income Bond-Like in Return Human Capital Variable Income Stock-Like in Return As this investor ages, however, his future earnings potential declines and, thus, human capital becomes a less significant part of his total economic wealth. Accordingly, Lifetime Wealth Portfolios provides for a gradual reduction in the equity portion of that investor s financial portfolio and an increase in the fixed income percentage in order to ensure continuous alignment with the investor s investment objectives and risk tolerance. By considering your total economic wealth over time, the Lifetime Wealth Portfolios managed account solution creates an optimal investment strategy that adapts to the different stages of your life and career.

6 Protecting Your Wealth Lifetime Wealth Portfolios is developed to provide a dynamic investment portfolio with tailored asset allocations for both pre-retirees and retirees by addressing the unique needs and risks faced during these life stages. Whereas your financial assets will pass on to your beneficiaries following your death, your human capital will not. Moreover, you do not get paid to take risk with your human capital, as the financial markets do not reward additional human capital risk. As such, it is essential to hedge against its potential loss. Ultimately, when you consider that human capital may be your largest asset and is vital to your family s financial security, protecting it from mortality risk must be a critical component of your overall investment strategy. Protecting Against Mortality Risk in Pre-Retirement Life insurance is uniquely suited to guard against the potential loss of human capital in the event of premature death. Traditionally, it has been difficult to determine the appropriate amount of insurance coverage needed, or which product represents the best solution for your particular situation. Conventional wisdom has suggested various multiples of your annual salary to determine an amount, but this approach is neither ideal nor objective. Alternatively, by using your human capital value as a minimum value of life insurance coverage (subject to legacy desire constraints) you can insure a significant portion of your future labor income for your beneficiaries. This value serves as a floor for life insurance coverage. Reasons other than human capital protection can also drive the need for life insurance (e.g., business or estate planning) and it is important to also consider those reasons separately when determining the right amount of overall life insurance coverage. Lifetime Wealth Portfolios considers that as you progress in your career or your job situation changes, your traditional asset allocation and life insurance needs evolve. How much life insurance a person should carry is seldom framed in these terms, and it tends to be a decision made separately from asset allocation. Because human capital impacts both asset allocation and life insurance decisions, however, these two decisions should be made jointly. By using New York Life Insurance Company s patent-pending optimal product recommendation capability, the Lifetime Wealth Portfolios process helps to ensure that your protection needs are met while improving the economic potential of your portfolio by optimizing for mortality-risk adjusted returns (i.e., taking into account how much your assets are worth while you are alive and how much they are worth after you pass away). Total Economic Wealth $$$ Without Life Insurance With Life Insurance The Impact of Life Insurance Combining your asset allocation strategy with life insurance protects your human capital while optimizing the mortality-risk adjusted economic value of your portfolio. $$ Human Capital Financial Capital Life Insurance $ While Alive At Death While Alive At Death

7 Hedging Longevity Risk in Retirement When you enter retirement, your needs are different than they were while you were working. By this point, the value of your human capital has decreased and your financial capital has potentially blossomed. The period of time for which you have been accumulating wealth is upon you, and, aside from Social Security and potential pension benefits, you may lack another source of income that is not contingent upon market performance. Moreover, changes in the market, especially market losses and inflation, which are easier to tolerate over a long pre-retirement investment horizon, become a greater concern in retirement. Your objectives shift from growing wealth and protecting human capital to ensuring you can live the life you want in retirement. When you consider the dramatic increases in life expectancy over the last century, this shift presents a major challenge. You are faced with the question, What if I outlive my retirement savings? The chance of outliving your retirement savings is known as longevity risk. Your retirement savings will continue to provide you with income only as long as there is a balance in your accounts. Without the inclusion of a guaranteed income stream, uncertainty about length of life carries the risk that retirees may outlive their assets or be forced to substantially reduce their living standards at advanced ages. Recognizing this risk, the Lifetime Wealth Portfolios process recommends that investors first cover their basic expenses such as food, housing, health care, and lifestyle needs with guaranteed 1 sources of income that they cannot outlive and then optimize the remainder of their investment portfolio for discretionary expenses and bequest desires. To accomplish these goals, the Lifetime Wealth Portfolios process recommends using a portion of your retirement savings to purchase a single premium immediate annuity, also known as guaranteed lifetime income. It is important to note that the Lifetime Wealth Portfolios process assumes that clients have ensured that they have sufficient guaranteed income to be able to meet basic living expenses before optimizing the remainder of their investment portfolio with the Lifetime Wealth Portfolios solution. Maximizing Your Portfolio s Additional Assets Once you have covered your basic needs with guaranteed income, Lifetime Wealth Portfolios optimizes your portfolio s ability to meet your discretionary income and growth objectives. To do so, Lifetime Wealth Portfolios accounts for your annual Social Security benefits and other guaranteed sources of income, and factors in your risk tolerance and annuitization desires to determine an optimal guaranteed lifetime income recommendation. Consider an investor, age 75, who has $1 million dollars saved for retirement. This investor decides she needs $50,000 in annual discretionary income to replace her former salary. In order to achieve this goal, this investor can either withdraw 5% from the $1 million dollars she has in her balanced retirement portfolio and hope that she does not outlive her retirement savings, or she can use about $750,000 2 of her original savings to purchase a guaranteed lifetime income annuity that generates the required $50,000. With a guaranteed stream of income, she can now allocate the remaining $250,000 towards accumulation and growth goals, thus maximizing her estate without increasing her overall risk profile. In addition, if the investor passes away before receiving payments that total the initial single-premium amount, the cash refund option on her annuity allows her to pass along the unpaid difference of her guaranteed lifetime income annuity to beneficiaries. Life Expectancy Table 3 The Impact of a Guaranteed Lifetime Income Annuity 4 Life Expectancy Age Male Female $$$$ Investments Only GLI and Investments Life Expectancy Annual Income $$$ $$ Total Desired Income Income for Basic Expenses $ ) Subject to the claims paying ability of insurer. 2) New York Life $747,122 income annuity for Female, 75 years-old, Single Life with Cash Refund payout option, with 3% COLA, pays $50,000 before-taxes the first year. New York Life income annuity illustration run on 06/07/ ) Source: 2000 mortality table (loaded) 4) Source: Ibbotson Associates. Graph does not include pension and Social Security.

8 Discerning Management of Your Financial Assets Lifetime Wealth Portfolios marks an innovative advance in wealth management on two fronts. First, it balances protection needs with goal achievement, which are two decisions that most investors typically make separately. Second, it factors in the mortality-risk adjusted economic value of your portfolio in addition to the market-risk adjusted value to optimize the total risk adjusted economic value across your lifetime. Because you will invest a meaningful portion of your liquid wealth in financial assets, such as stock funds and bond funds, Lifetime Wealth Portfolios integrates the deep capabilities of Morningstar Investment Services, who selects the mutual funds that populate the various sleeves of your financial asset allocation. Morningstar Investment Services Investment Process Asset Allocation Fund Selection Portfolio Construction Risk Management Risk/Return Models are based on long-term risk and return profile Diversification Diversified across multiple asset classes, including insurance products Quantitative Analysis Rigorous fund analysis based on several risk metrics Qualitative Due Diligence Interview managers, conduct on-site visits, and examine a fund s merits across various attributes Portfolio Level Conduct holdings-based analysis and assess fund interaction/ overlap and risk Suitability Consider best-in-class funds and the strategies to which they are best suited Monitoring Constant monitoring and evaluation to identify changes within funds Adjustments Rebalance and reallocate accounts to ensure they are consistent with risk/return objectives

9 Asset Allocation Ibbotson Associates analysis forms the basis for the strategic asset allocation that is applied to each portfolio. Ibbotson Associates forecasts are rooted in thorough analysis of long-term historical performance and relationships between asset classes. This better ensures that the asset allocations will confer to the risk/return profile that you expect, thereby preventing the need for Morningstar Investment Services to make dramatic shifts between asset classes. This stability helps to facilitate financial planning while also helping to ensure that you avoid the excessive risk and transaction costs normally associated with frequent trading. Fund Selection Morningstar Investment Services searches the universe of more than 2,050 U.S. mutual funds to fill the asset allocation recommendation provided by Ibbotson Associates. To narrow down this potential universe to managers it believes are "best-in-class," Morningstar Investment Services conducts a disciplined and thorough fund evaluation process. Some attributes considered when examining a fund s merits include: Investment Process Only consider fund managers who employ a disciplined, proven process, exemplified by insightful security and valuation analysis, active risk management, and strong idea generation. People Judge the depth and capabilities of the investment team and stability of the organization, as well as management s tendency to act in the best interests of shareholders. Performance Only consider funds that have the potential to deliver solid, risk-adjusted performance in a consistent manner over time. Capacity Evaluate if the investment strategy is constrained by assets under management and what steps management has taken to address capacity. Expenses Review the fund s expenses from multiple angles and within the proper context, which is important for understanding future performance activity. Other Factors Consider the fund s fit within a portfolio, attractiveness within a given market environment, access to fund management and information, and other subtle yet important factors. Portfolio Construction After Morningstar Investment Services identifies the funds it considers best-in-class, it determines the strategies to which they re best suited. As part of this review, Morningstar Investment Services carefully considers the nature of each fund s strategy, how the fund is likely to perform in a variety of market climates, and, in turn, the incremental diversification benefits it s likely to confer to each portfolio. The goal is to construct portfolios that span a diverse, yet highly cohesive, set of funds that remain consistent with your objectives. Risk Management Working with your financial adviser, Morningstar Investment Services continuously monitors your portfolio to ensure that it is consistent with your risk and return objectives. Rebalancing and Reallocating If a fund s performance falls short of expectations, or Morningstar Investment Services detects other changes, such as personnel turnover, it will reallocate your portfolio to ensure that it contains only those funds in which it has the highest conviction. In addition, Morningstar Investment Services regularly evaluates the target position and rebalancing threshold for every mutual fund in your portfolio. Whenever a fund reaches its predetermined deviation threshold, Morningstar Investment Services immediately evaluates your account to determine if it needs to make adjustments to bring your portfolio back into alignment. Morningstar Investment Services follows Ibbotson Associates asset allocation models to explicitly manage your portfolio, factoring in your insurance allocations. For instance, Morningstar Investment Services will consider the cash value of your life insurance in ensuring that your portfolio s asset allocation remains consistent with your objectives and risk parameters, adjusting the portfolio s financial assets as necessary. Annual Review With Your Financial Adviser Your adviser understands that, as you move through the various stages of your lifetime, your needs and risks will change. The Lifetime Wealth Portfolios process calls for meeting with your financial adviser regularly at a minimum on an annual basis to ensure that your portfolio continues to reflect your goals and individual needs. Your adviser is committed to reviewing your account and to recommending distinct solutions to meet your protection needs and to maximize your portfolio s economic value over your lifetime.

10 Get Started For more information on Lifetime Wealth Portfolios and how to incorporate the concepts presented here in your financial strategy, please contact your Eagle Strategies financial adviser. Lifetime Wealth Portfolios is a proprietary managed account offered exclusively through Eagle Strategies LLC. It was developed in conjunction with Morningstar Investment Services, Ibbotson Associates, and New York Life Insurance Company. Eagle Strategies LLC Eagle Strategies provides professional oversight of fee-based financial planning and investment advisory services. Eagle Strategies is a registered investment adviser and wholly owned subsidiary of New York Life Insurance Company. Morningstar Investment Services Morningstar Investment Services allows financial advisers to delegate portfolio management to an independent, experienced investment team so they can spend more time on financial planning and business development. The full range of portfolios enables advisers to align client goals with specific strategies and deliver against their long-term financial needs. Morningstar Investment Services is a registered investment adviser and wholly owned subsidiary of Morningstar, Inc. Ibbotson Associates Ibbotson Associates is a leading independent provider of asset allocation, manager selection, and portfolio construction services. The company leverages its innovative academic research to create customized investment advisory solutions that help investors meet their goals. Founded by Professor Roger Ibbotson in 1977, Ibbotson Associates is a registered investment adviser and a wholly owned subsidiary of Morningstar, Inc. New York Life Insurance Company Since 1845, New York Life Insurance Company has been providing quality insurance products to individuals, families, and businesses. For more than 160 years, the company has conducted its business around the core values of financial strength, integrity and humanity and has remained committed to being a mutual company, owned solely by its policy owners. This means that, regardless of the economy, its focus is fixed on just one objective: meeting the needs of its customers, now and far into the future.

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