Mergers and Acquisitions:

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1 RIA Products + Services Mergers and Acquisitions: Top Trends and Best Practices for RIAs Advisors now have the tools to make key choices themselves, including investment choices, providing greater flexibility for their clients. These advances in capabilities are the result of major investments by product providers, platforms, indie broker-dealers, custodians, and other industry players. There has been a huge evolution in terms of options available to an RIA. I would compare it to walking into a Home Depot today versus a mom pop hardware store a few years ago, says John Coyne, Vice Chairman at Brinker Capital. A supplement to Produced by SourceMedia Marketing Solutions Group

2 RIAProducts + Services Advisors Take Control Empowered with these advanced tools that previously only existed in wirehouse firms, RIAs can offer their clients more tailored options. These include more investment choices than provided by yesterday s traditional brokers, including access today to alternative investments. The new array of choices may seem almost dizzying, but most industry insiders would agree, It s a very exciting time to be in the RIA world, Coyne says. Portfolio construction choices One key dimension of control is centered on investing. Advisors today have the information and access to make key investment decisions including manager selection and asset allocation. But these same advances in options mean advisors can more easily outsource some or all of their portfolios if they so choose, in order to concentrate more fully on interaction with the client. In short, there is a spectrum of possibilities today of how much control to take over the portfolio, but the decision is more firmly than ever in the advisor s hands. What is driving much of today s portfolio decisions are lessons learned from the liquidity crisis. There is still this overwhelming feeling that modern portfolio theory and portfolio construction techniques failed, says Bing Waldert, Director at Cerulli Associates. He adds, this has led to advisors taking more control of their clients portfolios as well as being more tactical. A parallel trend is the move towards goal based investing. Here, the benchmark is the client s actual goals, rather than an index. These goals could John Coyne Vice Chairman at Brinker Capital It s a very exciting time to be in the RIA world. be what date to retire by, or reaching the sum necessary to finance a child s college education. Goal based investing typically requires a specialized asset allocation which is now more feasible than ever given all the options open to advisors. Sue Thompson, Managing Director of Blackrock, agrees that, the focus today is on investment outcome, rather than traditional asset allocation. This new approach involves asking the client what they are trying to accomplish with their A2

3 I wanted a culture of yes. What I got was a culture of absolutely. At TD Ameritrade Institutional, advisors are at the center of what we do, and service is at the core of our culture. So if you want to talk about your business, hammer out your goals, or ask us to consider a way to serve you better, we re all ears. Why? Because we re uniquely focused on what s best for our clients. Just like you. TD Ameritrade Institutional. We re listening. Call us at or explore the way we support RIAs at tdainstitutional.com/ourcommitment Follow TD Ameritrade Institutional, Division of TD Ameritrade, Inc., member FINRA/SIPC/NFA. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc., and The Toronto-Dominion Bank TD Ameritrade IP Company, Inc. All rights reserved. Used with permission.

4 RIAProducts + Services money. These advances are not just psychological. Instead, firms such as Blackrock help advisors to stress test model portfolios, letting them see how they perform under differing economic conditions. Not every advisor, however, prefers to construct his or her own portfolios. Phill Rogerson, Managing Director, Consulting and Product Development for Russell s US advisor-sold business, says, successful investing is a complex process involving multiple disciplines that we believe can be best served by employing specialists. He anticipates that though some advisors will join the growing rep-as investment manager trend, others will gravitate to using model portfolios constructed by specialists, depending on client needs and their own practice model. Implementing a plan: Growth in ETFs The greater demand for control of asset allocation by many advisors has been a driver for one marked change in the investment landscape: the rise of ETFs. ETFs are often the vehicle of choice for implementation of the core of a portfolio allocation strategy. If you want to execute asset allocation with the greatest degree of precision, ETFs are the best way to do it, says Blackrock s Thompson, who adds, With ETFs, you know what you have every day. But ETFs can increasingly play a non-core role as well: they can be used as an overlay strategy to complement a static asset allocation. ETFs have also become increasingly granular, allowing advisors to easily execute a particular point of view, and boutique ETF managers are experiencing rapid growth. Managers such as Cougar Global Investments, F-Squared Investments, Windhaven Investment Management, and Good Harbor Financial, which offer tactical solutions, are proving to be useful for advisors who are comfortable choosing their own asset allocation, but don t have the expertise to make tactical calls. This rapid adoption of ETFs for the core portfolio can also be augmented with the advisor relying on third party research as well 3rd party platform solutions for the rest of the portfolio. Brinker s John Coyne observes, Advisors make choices of where they can be most impactful. For many, a hybrid portfolio solution, sometimes also termed a completion portfolio, is most effective. The advisor still controls the core portfolio, but outsources to firms such as Brinker or other Sue Thompson Managing Director of Blackrock If you want to execute asset allocation with the greatest degree of precision, ETFs are the best way to do it. strategists management of absolute return, structured products or emerging market strategies. Coyne says that in the past, outsourcing was an all-or-nothing proposition. Today, firms such as Brinker might be just a part of the solution, giving the advisor more flexibility than ever. It s the result of all of us on the product side and the platform side having to thoughtfully adapt to what the consumer wants and the advisor is looking for. I think it s fabulous. Alternatives The use of alternatives for the non-core portfolio that Coyne alludes to comes from advisor demand for non-correlated assets that can withstand another crisis. But supply is critical as well: for the first time, there is adequate due diligence and other information, execution technology, and finally access, to allow advisors to make truly informed choices about alternative investments. Sean Hanlon, Chairman, CEO and CIO of Hanlon investment Management (HIM), has definitely noticed an uptick in interest by RIAs in alternative investments. The proliferation of information and technology has truly empowered the advisor to be able to choose from among alternatives. HIM offers their own alternative solution, an intermediate term trend following strategy combined with modern portfolio theory, which is delivered through a mutual fund wrap and ETF advised portfolios. It is popular with advisors: Hanlon has garnered nearly $4 billion in assets, the bulk of which are cleared through Pershing. A4

5 I want independence. 94% of financial advisors who moved to independence are happy with their decision. Options for Independence Join an Independent Broker-Dealer Join an RIA Start an RIA Recently, we surveyed advisors about their business. Of the nearly 500 advisors we spoke to, almost 200 chose to go independent. Visit Fidelity.com/goindependent to hear what they had to say about making the switch. Visit Fidelity.com/goindependent or call *Source: Fidelity Insights on Independence Study. The Fidelity Insights on Independence Study was conducted in collaboration with Cogent Research between September 26 and October 13, 2011 among 491 advisors, including 173 advisors who moved to an independent model. Cogent Research is an independent third-party research firm and not affiliated with Fidelity Investments. Fidelity Investments does not provide advice of any kind. You should conduct your own due diligence and analysis based on your specific needs FMR LLC. All rights reserved. The registered trademarks and service marks appearing herein are the property of FMR LLC. Clearing, custody, or other brokerage services may be provided by National Financial Services LLC or Fidelity Brokerage Services LLC, Member NYSE, SIPC

6 RIAProducts + Services Rafay Farooqui Co-Founder and President of CAIS CAIS is a transparent venue for advisors to access indemand financial products. New platforms are also breaking down barriers to investing in alternatives. CAIS, which terms itself is an exchange, is an example of how this works. Rafay Farooqui, co-founder and President of CAIS explains, CAIS is a transparent venue for advisors to access in-demand financial products. We accomplished this by overcoming several challenges. Some of the seemingly insurmountable challenges advisors faced in the past regarding alternatives included the need for 3rd party institutional level due diligence but more subtly, operational due diligence, that the manager is operationally sound. Also, there are tremendous back office and paperwork complications when it comes to investing in alternatives, and so finding an appropriate custodian is key. CAIS has solved for these and other problems, by partnering with Mercer for due diligence and wealth consulting, and integrating custodians, including State Street, onto the exchange. Platforms and exchanges such as CAIS provide true access to the best of the best of alternatives, and a leveling of the playing field with institutional investors. CAIS itself has four product lines: hedge funds; private equity; structured products; and precious metals. This last category includes physical ownership of precious metals, which allows advisors and investors to buy, store, and sell physical gold and precious metals (which are stored in insured vaults across the globe.) Gold Bullion International, one such provider offering advisors with access to physical gold and precious metals recently launched GBI Advisors, and online portal that streams physical precious metals performance data from a client s holdings into advisor reporting software. Such technological developments are empowering advisors to view precious metal allocations alongside overall client portfolios, a powerful resource in portfolio diversification. Putting it all together: independent voices How are RIA firms and their advisors implementing this increased potential for advisor control? Take HighTower, a national boutique partnership of high-end independent advisors. Mike Papedis, EVP, National Business Development for HighTower, says, We offer top-caliber teams the best of both worlds the benefits of being an independent advisor and a fiduciary standard coupled with access to the competitive and sophisticated power of Wall Street. Our objective is to support breadth of capability and choice for fiduciaryminded advisors. HighTower s innovative model is specifically built to foster competition among a wide array of providers for the benefit of advisors and clients, supporting choice of custodian, technology such as CRM and trading systems, and investment platforms. For example, HighTower supports several platforms to access alternative investment solutions, and through direct access, brings the advisor an expanded list of third-party investment strategies. According to Papedis, Our research confirms the independent advisor has access to more alternative managers than are made available to the wirehouse advisor. Papedis notes that although some advisors are making trading and rebalancing decisions themselves, others are using a variety of platforms and due diligence tools to outsource investment decisions to third-party money managers. In either scenario, the advisor gains through increased control by utilizing advanced trading technologies and making the asset allocation decision, including which manager they are allocating to. This search for options, and the ability to make choices, are what cause so many advisors to enter the RIA channel in the first place. Says Papedis, Independent-minded and entrepreneurial advisors are leaving the wirehouses because they seek flexibility, freedom, and greater capabilities. They want to be in the best position to make decisions that put the interests of clients first. A6