Distribution-Focused Strategies A cash flow strategy for retirement

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1 Distribution-Focused Strategies A cash flow strategy for retirement Designed by advisors to meet the need for steady cash flows in retirement with extensive flexibility and control all with low costs. DFS: An income alternative In the search for income that lasts a lifetime, your clients are faced with large fees, limited liquidity and a host of restrictions. The fact is, they gave up a lot in order to find dependable cash flows. At SEI, we think accessing income in retirement should be easier. To create a better alternative, we developed the Distribution-Focused Strategies. A cash flow platform created by advisors The Distribution-Focused Strategies (DFS) platform was borne out of discussions with advisors like you to create a source of retirement income that would raise the industry standard. The insights we gained from the field were combined with SEI s proprietary research and modeling capability to create an income alternative that, we believe, adds significant value to your clients. Put simply, DFS provides your clients with greater control, flexibility and lower fees than many other investment alternatives. Your clients gain: 1 Strategies created to address their need for predictable cash flows in retirement 2 An approach aimed at helping make their assets last a lifetime 3 Access to invested funds any time, without a surrender penalty 4 Low costs compared with other income alternatives 5 Tax management to help reduce taxes and enhance income 6 The ability to pass remaining assets on to heirs

2 Highly customized to your client s needs DFS portfolios are tailored to your client s individual cash flow needs, tax situation, time horizon, and risk tolerance. There are three models designed to meet these customized needs: Stability Tilt, Growth and Stability Blend, and Growth Tilt. To achieve this highly customized experience, DFS assets are spread among three pools each with its own risk/ return objective. By allocating assets among three different pools, SEI believes DFS is better able to provide a steady stream of fixed-dollar cash flows while preserving your client s principal investment for as long as possible. With DFS, you first choose a distribution rate for your client ranging from 4-8%, then customize a strategy from a menu of turnkey options designed to maximize their time horizon, probability of success and residual value. Pool Name Objective Timeline Private Client Defensive Strategy Pool Supports investment goals that seek to manage risk of loss. Short term Private Client Moderate Strategy Pool Supports investment goals that seek growth while managing the risk of loss. Intermediate term Private Client Aggressive Strategy Pool Supports investment goals that seek maximum growth over longterm horizons. Long term 2

3 Distribution-Focused Strategies Underlying Mutual Fund Asset Allocation Aggressive Stability Tilt 4% Distribution Moderate Defensive Multi-Asset Capital Stability...13% Short Duration Government...12% Prime Obligation Money Market..10% Multi-Asset Accumulation...7% Global Managed Volatility...7% Multi-Asset Inflation Managed...6% Large Cap...6% U.S. Fixed Income...5% High Yield Bond...5% U.S. Managed Volatility...5% Real Return...5% Multi-Asset Income...4% Multi-Strategy Alternative...4% Enhanced Income...3% Emerging Markets Debt...3% International Equity...2% Emerging Markets Equity...2% Small Cap...1% Aggressive Defensive Growth & Stability Blend 4% Distribution Moderate Large Cap...12% Multi-Asset Accumulation...11% Multi-Asset Capital Stability...9% Global Managed Volatility...7% Short Duration Government...7% High Yield Bond...6% Multi-Asset Inflation Managed...6% International Equity...5% Prime Obligation Money Market...5% U.S. Managed Volatility...5% U.S. Fixed Income...5% Emerging Markets Debt...5% Multi-Strategy Alternative...4% Multi-Asset Income...3% Real Return...3% Emerging Markets Equity...3% Enhanced Income...2% Small Cap...2% Large Cap...25% Small Cap...4% Defensive Multi-Asset Accumulation...15% Global Managed Volatility...2% Aggressive Growth Tilt 4% Distribution Moderate International Equity...12% High Yield Bond...6% Emerging Markets Equity...6% Emerging Markets Debt...6% Multi-Asset Capital Stability...5% Short Duration Government...5% Multi-Asset Inflation Managed...2% U.S. Fixed Income...2% Real Return...2% U.S. Managed Volatility...1% Multi-Asset Income...1% Multi-Strategy Alternative...1% Prime Obligation Money Market...4% Enhanced Income...1% Hypothetical Asset Class Composition 3

4 A research-driven approach to income The same research and modeling capabilities that back SEI s largest institutional clients were put to work to create the DFS portfolios. Our proprietary research is used to track the interaction between distribution rates for different investment portfolios, time horizons and spending objectives. For advisors who have dedicated time to building their own cash flow strategies, the DFS platform represents an opportunity for significant time savings and seamless implementation. Asset/liability matching DFS portfolio efficiency is greatly enhanced by SEI s proprietary asset/liability matching as applied to asset allocation and portfolio construction decisions. Through the use of an integrated set of proprietary models that include Monte Carlo analysis, asset sales and income received from the underlying assets are timed to coordinate as closely as possible with client withdrawals. By aligning DFS investment strategies with client distribution requirements, we can help reduce risk in the DFS portfolios and help improve your client s probability of meeting their long-term distribution goals. Once a targeted distribution and time horizon is selected, your client will then select a confidence level and targeted time horizon. Confidence levels refer to the probability that there will be a positive residual value at the end of the strategy s stated time horizon. The Stability Tilt Strategy reflects a 95% confidence level, the Growth and Stability Blend Strategy represents an 80% confidence level, and the Growth Tilt Strategy indicates a 70% confidence level. Probabilities are calculated utilizing SEI s proprietary assumptions for investment returns, risks and correlations. The DFS platform represents an opportunity for significant time savings and seamless implementation. 4

5 Keeping options open Knowing that the future can hold unexpected changes, we designed DFS portfolios for maximum flexibility. With DFS, your client s money remains theirs. They keep full control of their assets at all times, and can increase, reduce or stop distributions as their needs change. Your clients are also free to redeem shares without penalty at any time. When the time comes, any remaining assets can be passed on to heirs. Strategy Name Confidence Level Initial Distribution Targeted Time Horizon Stability Tilt 95% 4.0% 60 Stability Tilt 95% 4.5% 60 Stability Tilt 95% 5.0% 54 Stability Tilt 95% 6.0% 27 Stability Tilt 95% 7.0% 20 Stability Tilt 95% 8.0% 16 Growth & Stability Blend 80% 4.0% 60 Growth & Stability Blend 80% 4.5% 60 Growth & Stability Blend 80% 5.0% 60 Growth & Stability Blend 80% 6.0% 44 Growth & Stability Blend 80% 7.0% 25 Growth & Stability Blend 80% 8.0% 18 Growth Tilt 70% 4.0% 60 Growth Tilt 70% 4.5% 60 Growth Tilt 70% 5.0% 60 Growth Tilt 70% 6.0% 60 Growth Tilt 70% 7.0% 32 Growth Tilt 70% 8.0% 21 For example, a 65-year-old woman with a conservative risk profile wants to invest with a 95% confidence level. If her targeted time horizon is 27 years (based on actuarial estimates, the average life expectancy is age 86*), her investment in the Stability Tilt DFS account would stand a 95% probability of lasting until she is 92 years old. Due to the ever-changing nature of investments and retirement objectives, it is critical that the advisor revisit an investor s retirement investment plan at least once a year, and more frequently if possible. There is no guarantee that the investment objective will be fulfilled. The principal balance of the portfolio may be depleted prior to a portfolio s target end-date and, therefore, distributions may end earlier than expected. This risk increases if the distribution amount chosen is a significant portion of the starting principal. The projected time periods do not take into account the payment of fees to the advisor out of the portfolio or any other distribution from the account. *Source: Social Security Administration, June

6 Smart distributions DFS distributions are first funded with income generated by the underlying investments primarily dividends, interest payments and capital gains distributions. If the income is not enough to meet the target payout, a portion of principal will be strategically sold in order to achieve that goal. When principal is sold, the first assets targeted are those with overweighted positions. In this way, we avoid selling assets that are under stress, instead focusing on selling assets that have met or exceeded their price targets. For greater tax efficiency, assets that have depreciated in price are also sold throughout the year to harvest capital losses. Investments with embedded long- and short-term capital losses are sold and paired with gains to help control tax consequences. Assets in underweighted parts of the portfolio are sold only in the absence of other funding alternatives. Aggressive Equities Commodities Moderate Fixed Income Managed Volatility Defensive Short Duration Money Market $ Client Allowance 6

7 Backed by an industry leader Founded in 1968, SEI manages more than $239 billion in total assets, and has relationships with 108 banks and trust institutions in the U.S, including the trust departments of nine of the 20 largest U.S. banks.** Our products and services help corporations, institutions and individuals like you create and manage wealth in a way that supports your personal goals. For almost 40 years, we have used leading-edge research to anticipate changing investor needs and create innovative solutions designed for individual and institutional investors alike. A complete retirement income strategy DFS offers a complete cash flow strategy for your client s retirement years, but can also be used as part of a multifaceted cash flow program. Our investment methodology is backed by thorough research and by the resources of SEI. As you compare options, we don t think you ll find an alternative that more closely meets your client s need for steady income in an environment of flexibility, control and value. **As of 3/31/14. Steady income with flexibility, control and value. Talk to SEI today at about putting DFS to work for your clients.

8 1 Freedom Valley Drive Oaks, PA seic.com/advisors This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice. This information is for educational purposes only. There are risks involved with investing, including loss of principal. Current and future portfolio holdings are subject to risks as well. Diversification may not protect against market risk. Neither SEI nor its affiliates provide tax advice. Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support the promotion or marketing of the matters addressed herein: and (iii) you should seek advice based on your particular circumstances from an independent tax advisor. For those SEI Funds which employ the manager of managers structure, SEI Investments Management Corporation (SIMC) has ultimate responsibility for the investment performance of the Funds due to its responsibility to oversee the sub-advisers and recommend their hiring, termination and replacement. SEI Investments Management Corporation is the adviser to the SEI funds, which are distributed by SEI Investments Distribution Co (SIDCO). SIMC and SIDCO are wholly owned subsidiaries of SEI Investments Company. Neither SEI nor its subsidiaries are affiliated with your financial advisor. To determine if the Funds are an appropriate investment for you, carefully consider the investment objectives, risk factors and charges and expenses before investing. This and other information can be found in the Funds summary and full prospectuses, which may be obtained by calling DIAL-SEI. Read it carefully before investing SEI DFS-M-001 (08/14)