The Wealth Management Industry. Richard B. Bindler Bernstein Global Wealth Management Senior Managing Director

Transcription

1 The Wealth Management Industry Richard B. Bindler Global Wealth Management Senior Managing Director

2 The Asset Management Industry Is Traditionally Sized at over $20 Trillion U.S. Assets Under Professional Management, ($ billions) $35,000 $30,000 $25,000 $20,000 $15,000 $18,324 $18,127 $16,757 $19,371 $21,037 $22,846 $10,000 $5,000 $ Source: Cerulli Associates 2

3 Private Wealth Market Has Attractive Attributes Private Wealth Assets North America ($TN) Private Wealth Population* North America (in MM) CAGR 9.6% CAGR 8.1% Sources: CapGemini World Wealth Report 2006 *HNW households with financial assets > $1MM 3

4 Net Work Range Comparison: U.S. Household Distribution 2005E 2008E Net Worth Tiers Segment Investable Asset Range 2005E 2006E 2007E 2008E Tier VI Mass Market <$100k 71.45% 70.71% 69.96% 69.22% Tier V Tier IV Middle Market Emerging Market >$100k - $500k 20.32% 20.72% 21.12% 21.52% >$500k - $2.5m 7.04% 7.33% 7.62% 7.91% Tier III Affluent >$2.5m - $10m 1.00% 1.04% 1.09% 1.13% Tier II Tier I Wealth Market High-wealth Market >$10m - $25m 0.14% 0.14% 0.15% 0.16% >$25m 0.02% 0.03% 0.03% 0.03% Source: The Cerulli Report, Private Wealth Groups

5 Where Does the Wealth Come From? 15% 10% 16% 32% Other - 1% Restricted Stock/ Stock Options Investment Performance Inheritance Income 26% Business Ownership/ Sale of Business Source: CapGemini World Wealth Report

6 HWNI Assets by Investment Class, F 10% 15% 19% 20% 22% Alternative Investments* 25% 30% 20% 16% 16% 15% 13% 13% 11% 24% 21% 21% 28% 30% 31% Real Estate** Cash/Deposits Fixed Income Equities F * Includes: Structured products, hedge funds, managed funds, foreign currency, commodities (including precious metals), private equity and investments of passion (fine art & collectables) **Includes: Direct real-estate investments and REITs Source: CapGemini World Wealth Report

7 History of the Private Wealth Space and Convergence OLD MODEL BANKS RIAs Trust Svc. S & L Inv. Mgt. Open-arc. Objectivity Fincl. Plg. BROKER/DEALERS Inv. Bkg. Inv. Mgt. Research Source: The Cerulli Report, Private Wealth Groups

8 History of the Private Wealth Space and Convergence NEW MODEL BANKS RIAs BROKER/DEALERS Trust Svc. S&L Inv. Mgt. Open-arc. Objectivity Fincl. Plg. Inv. Bkg. Inv. Mgt. Research Source: The Cerulli Report, Private Wealth Groups

9 What is the title for the Professional Managing Relationship? Private Client Advisor 12% Consultant 6% Relationship Manager 35% CEO/Principal 12% Portfolio Manager 18% Managing Director 18% Source: The Cerulli Report, Private Wealth Groups

10 Balancing Priorities Business Development Financial Expertise Service Excellence Source: The Cerulli Report, Private Wealth Groups

11 Financial Planner Compensation has Increased 32% in Two Years $100,000 $99,000 $80,000 $75,000 $60,000 $40,000 $20,000 $ Source: The Cerulli Report, Private Wealth Groups

12 Why the Wealth Management Industry is so Important Mistakes People Make

13 No Market Always Wins Best REITs* 19.5% Major Markets: Annualized Returns Foreign 62.7% Foreign 26.4% Emerging 33.1% Value 17.3% Growth 34.1% REITs 20.3% Bonds* 15.1% Value 25.6% Emerging 26.3% Growth 24.2% REITs 17.1% Value 18.8% Emerging 9.1% U.S. Value* 14.5% Growth 23.8% Value 11.3% Bonds 13.1% Growth 13.4% Foreign 15.7% Bonds 6.8% Foreign Stocks* 6.2% Emerging 20.0% Growth 8.2% Value 12.8% Emerging 12.7% Bonds 5.7% Value 5.6% U.S. Growth* 5.3% REITs 19.1% Bonds 5.3% REITs 7.7% Foreign 8.2% Emerging 3.2% Foreign 1.2% Worst Emerging* (7.7)% Bonds 18.6% REITs 4.6% Foreign (1.7)% Bonds 7.0% REITs (1.8)% Growth (7.0)% Past performance does not guarantee future results. *The following asset classes are represented by the respective indexes REITs: National Association of Real Estate Investment Trusts (NAREIT) Index; Bonds: Lehman Brothers Aggregate Bond Index; U.S. Value Stocks: Russell 1000 Value Index; Foreign Stocks: MSCI EAFE Index of major foreign markets, with countries weighted by market capitalization and currencies unhedged; U.S. Growth Stocks: Russell 1000 Growth Index; Emerging Markets: , IFC World Bank Global Index ( , IFC Index reconstructed), MSCI Emerging Markets Index thereafter. An investor cannot invest directly in an index, and index performance does not represent the performance of any Alliance or mutual fund. Source: Russell Investment Group, IFC, Lehman Brothers, MSCI, NAREIT, and

14 Investors More Risk Averse... ($ Billions) Mutual Fund Flows* More Money into Stocks Market Peak (100) More Money into Bonds SIO_Individuals_Aug 2006 (200) Market Trough *Mutual fund information excludes hybrid funds. Source: Investment Company Institute

15 Market Timing Is Hazardous to Your Wealth S&P 500: Average Monthly Return Full 960 Months 1.0% Best 60 Months (6% of the time) 12.0 All Other Months (94% of the time) 0.2 Source: Compustat; Roger G. Ibbotson and Rex A. Sinquefield, Stocks, Bonds, Bills, and Inflation: Year-by-Year Historical Returns, University of Chicago Press Journal of Business (January 1976); Standard & Poor s, and

16 Investors Have Chased the Past... Annualized Returns % 8.8% 3.0% 3.7% 2.0% SIO_Individuals_Aug 2006 S&P 500 Inflation Average Stock Fund Investor Past performance does not guarantee future results. Source: Dalbar, Inc., Quantitative Analysis of Investor Behavior, July 2005 Lehman Aggregate Bond Index Average Bond Fund Investor

17 ...Combining Multiple Managers Has Proven Difficult Year Returns from U.S. Equities Jul 1994 Jun % 11.8% 12.5% SIO_Individuals_Aug 2006 Combining Managers* Russell 1000 *Median return of U.S. large-cap equity portion of pension plan sponsor **Callan U.S. Large Cap Equity Managers Universe Source: Callan Associates, Frank Russell Company, Pensions & Investments Annual Money Manager Survey, and U.S. Large Cap Equity Managers**

18 Why the Wealth Management Industry is so Important Business Done the Right Way

19 A Written Investment Objective Statement: The Steps Beat inflation by x.x% Limit the annual loss to x.x% Establish the acceptable asset classes Set a strategic asset allocation target with tactical bands Establish rebalancing rules Manage in a tax-savvy manner SIO_Individuals_Aug 2006 Diversify by investment style

20 Setting Investment Objectives: The Process Define overall objective Long-term goal above inflation +3% Limit annual loss (10)% in a calendar year Choose asset classes Stocks, bonds, international, emerging markets, REITs, hedge funds Define the projected risk/return and relationship (correlation) to each other SIO_Individuals_Aug 2006 Create a mix of assets that achieves overall objective

21 Stock Returns Have Been Volatile over the Short Term S&P 500: Annual Returns (%) 50 Best Year 54% Worst Year (43)% (10) Average 12% (10)% (30) SIO_Individuals_Aug 2006 (50) Past performance does not guarantee future results. Source: Compustat; Roger G. Ibbotson and Rex A. Sinquefield, Stocks, Bonds, Bills, and Inflation: Year-by-Year Historical Returns, University of Chicago Press Journal of Business (January 1976); and 05

22 Major Declines in the Stock Market S&P 500* (15)% (41)% $55.0 Mil. (15)% (30)% Growth of $100,000 (29)% (43)% (16)% (22)% (15)% (17)% SIO_Individuals_Aug Past performance does not guarantee future results. *With dividends Source: Compustat; Roger G. Ibbotson and Rex A. Sinquefield, Stocks, Bonds, Bills, and Inflation: Year-by-Year Historical Returns, University of Chicago Press Journal of Business (January 1976); and

23 Five-Year Losses Have Been Rare S&P 500: Rolling Five-Year Periods (Annualized) (%) Average 10% (10) (30) Best Case 29% Worst Case (12)% SIO_Individuals_Aug 2006 (50) Past performance does not guarantee future results. Source: Compustat; Roger G. Ibbotson and Rex A. Sinquefield, Stocks, Bonds, Bills, and Inflation: Year-by-Year Historical Returns, University of Chicago Press Journal of Business (January 1976); and 05

24 Stocks Have Not Lost Money over the Long Term (%) 30 S&P 500: Rolling Periods (Annualized) 15 Years Best Case 19% Worst Case 1% 15 Average 11% SIO_Individuals_Aug Past performance does not guarantee future results. Source: Compustat; Roger G. Ibbotson and Rex A. Sinquefield, Stocks, Bonds, Bills, and Inflation: Year-by-Year Historical Returns, University of Chicago Press Journal of Business (January 1976); and 05

25 Percent of Times Beating Inflation One Year 10 Years 20 Years Stocks 68% 90% 100% T-Bills Bonds SIO_Individuals_Aug 2006 Past performance does not guarantee future results. Treasury securities are guaranteed by the U.S. government as to the timely payment of interest and principal if held to maturity. Stocks are represented by the S&P 500; bonds by long-term government bonds through 1962 and by five-year Treasuries thereafter; and T-bills by three-month Treasury bills. Source: Bureau of Labor Statistics; Center for Research in Securities Prices; Compustat; Federal Reserve; Roger G. Ibbotson and Rex A. Sinquefield, Stocks, Bonds, Bills, and Inflation: Year-by-Year Historical Returns, University of Chicago Press Journal of Business (January 1976); and

26 Why International? Low correlation to U.S. markets Access to successful markets/industries Reduced volatility Historical risk/return sweet spot

27 Global Stocks Produce Superior Returns with Reduced Risk ($) Annualized: Return Risk U.S. Stocks 12.7% 14.9% Global Stocks Developed Foreign Emerging Markets U.S. Stocks Global Stocks Developed Foreign Emerging Markets U.S. stocks are represented by the S&P 500; developed foreign markets by the MSCI EAFE Index of major stock markets in Europe, Australasia, and the Far East, with countries weighted by market capitalization and currencies unhedged; and emerging markets by returns simulated by through 1984, by the International Finance Corp. (IFC) World Bank Global Index from 1985 to 1987 (IFC Index was reconstructed for the period April Dec 1984), and by the MSCI Emerging Markets Index thereafter. Global stocks comprises 70% S&P 500, 25% EAFE, and 5% MSCI Emerging Markets Index. An investor cannot invest directly in an index, and index performance does not represent the performance of any Alliance or mutual fund. Source: IFC, MSCI, Standard & Poor s, and

28 While Underlying Markets Trade Places Developed Foreign Emerging Markets U.S. Stocks ($) ($) ($) ($) Apr 84 Jul 87 Aug 87 Nov 94 Dec 94 Mar 00 Apr 00 Dec 05 U.S. stocks are represented by the S&P 500; developed foreign markets by the MSCI EAFE Index of major stock markets in Europe, Australasia, and the Far East, with countries weighted by market capitalization and currencies unhedged; and emerging markets by returns simulated by through 1984, by the International Finance Corp. (IFC) World Bank Global Index from 1985 to 1987 (IFC index was reconstructed for the period April Dec 1984), and by the MSCI Emerging Markets Index thereafter. An investor cannot invest directly in an index, and index performance does not represent the performance of any Alliance or mutual fund. Source: IFC, MSCI, Standard & Poor s, and

29 International Stocks: A World of Opportunity Stocks: Market Value* U.S. Non-U.S. 66% 34% 48% 52% *U.S. market represented by S&P 500, foreign markets by MSCI All Country World Index Source: MSCI, Standard & Poor s, and

30 Larger Universe of Opportunity Non-U.S. Share of Industry* Automobiles 90% Banking 75% Telecommunications 69% Real Estate 64% Energy 55% *MSCI All Country World Index Source: MSCI, Standard & Poor s, and

31 Why Bonds? Reduce volatility Provide stability of income Preserve capital

32 Factors Governing Bond Return: The Effects of Duration Short Duration* Average Maturity 1.6 Years Intermediate Duration* Average Maturity 5.0 Years Duration 1.3 Years 4.1 Years Change in Yield 2.0% 2.0% = Change in Price (2.6)% (8.2)% + Income = Total Return +0.6% (4.7)% As of December 31, 2005 *AAA insured municipal par bonds; does not include roll, which is worth less than 0.1% for short duration and 0.4% for intermediate duration portfolios today Source:

33 Rolling 12-Month Bond Returns Merrill Lynch 1 3-Year Index (%) (5) Past performance does not guarantee future results. Source: Merrill Lynch and

34 Rolling 12-Month Bond Returns (%) Lehman Brothers Gov t/corp Index (10) Past performance does not guarantee future results. Year-over-year changes in yield. Source: Lehman Brothers and

35 Key to Diversification: Combining Low-Correlated Assets Correlation to S&P High Correlation 1.0 U.S. Growth U.S. Value Emerging Markets Growth* International Growth Multi-Strategy Hedge Funds* Global Hedge Funds* Emerging Markets Value* International Value REITs Bonds SIO_Individuals_Aug 2006 No Correlation 0 Currency Cash *Correlation data for Emerging Markets Growth and Emerging Markets Value begin in January 1997, when their benchmarks, the MSCI Emerging Markets Growth and the MSCI Emerging Markets Value indexes, began; data for Global Hedge Funds and Multi-Strategy Hedge Funds begin in January 1997, when their proxies, Barclay Global HedgeSource and the Barclay Global HedgeSource Multi Strategy indexes, began. Correlation between S&P 500 and other asset classes, which are represented by the following Global Hedge Funds: Barclay Global HedgeSource Hedge Fund Index; Multi-Strategy Hedge Funds: Barclay Global HedgeSource Multi Strategy Index; U.S. Growth Stocks: Russell 1000 Growth; U.S. Value Stocks: Russell 1000 Value; International: Morgan Stanley Capital International (MSCI) EAFE Index; REITs: National Association of Real Estate Investment Trusts (NAREIT) Index; Emerging Markets: MSCI Emerging Markets Index; Bonds: Lehman Brothers Aggregate Bond Index; Currency: exchange value of the U.S. dollar against a broad group of foreign currencies from major markets; Cash: three-month Treasury bills. Source: The Barclay Group, FactSet, Lehman Brothers, MSCI, NAREIT, Russell Investment Group, and

36 Rebalance to Control Risk Rebalancing must be dynamic, not static As an asset class/style outperforms, trim investment As an asset class/style underperforms, add to investment As value/growth outperforms, trim investment Sell Upper Trigger +5% 50/50 Strategic Target Underperform Outperform Rebalance Halfway Rebalance Halfway SIO_Individuals_Aug 2006 Buy As value/growth underperforms, add to investment Lower Trigger 5%

37 The Benefit of Rebalancing 65 50/50 Strategic Value/Strategic Growth* (after fees) SIO_Individuals_Aug 2006 Value Stock Allocation (%) Rebalanced Unrebalanced 28% Value Past performance does not guarantee future results. Rebalancing method assumes one-way transaction costs of 50 basis points, an upper trigger of 5.0% vs. target, and a lower trigger of (5.0)% vs. target. *Accounts over $5 million; see Performance Disclosure at end of presentation. Source: +5 5 Upper Boundary Strategic Target Lower Boundary

38 The Benefit of Rebalancing Annualized Returns ( ) Growth of $1 Million ( ) Average Down-Year Performance: One-Year Rolling Periods ( ) 14.9% 15.3% +0.4% $49.2 $54.1 +$4.9 Million Unrebalanced Rebalanced* +2.1% SIO_Individuals_Aug 2006 Unrebalanced Rebalanced* Unrebalanced Rebalanced* (12.6)% Past performance does not guarantee future results. Rebalancing method assumes one-way transaction costs of 50 basis points, an upper trigger of 5.0% vs. target, and a lower trigger of (5.0)% vs. target. *Taxable clients trigger points may be wider depending on taxes and transaction costs. Source: (10.5)%

39 Cutting-Edge Tax Management Strategies for Optimizing After-Tax Returns Techniques Consider transaction costs Keep turnover low SIO_Individuals_Aug 2006 Assess tax cost either short- or long-term Incur tax cost only when potential return from the alternative outweighs the costs Harvest losses Track holdings by tax lot Avoid short-term gains Delay long-term gains Take advantage of losses to offset gains

40 Performance During Down Stock Market Years: SIO_Individuals_Aug % Stocks/ 70% Bonds 40/60 50/50 60/40 70/30 100% Stocks % 1.9% 1.4% 0.9% 0.5% (1.0)% % 0.1% (1.8)% (3.6)% (5.4)% (10.8)% % 0.8% (0.7)% (2.3)% (3.9)% (8.7)% 1966 (0.6)% (1.9)% (3.3)% (4.7)% (6.0)% (10.1)% 1969 (6.0)% (6.4)% (6.7)% (7.1)% (7.5)% (8.8)% 1973 (2.2)% (4.0)% (5.8)% (7.6)% (9.4)% (14.7)% 1974 (3.7)% (7.2)% (10.6)% (13.9)% (17.1)% (26.5)% 1977 (0.1)% (1.1)% (2.1)% (3.1)% (4.2)% (7.2)% % 4.3% 2.8% 1.2% (0.4)% (4.9)% % 4.6% 3.4% 2.1% 0.8% (3.1)% % 2.5% 0.6% (1.4)% (3.3)% (9.1)% % 0.4% (1.7)% (3.7)% (5.7)% (11.9)% 2002 (0.4)% (3.6)% (6.9)% (10.0)% (13.1)% (22.1)% * 7.6% 8.2% 8.8% 9.4% 10.0% 11.6% Growth of $100,000 $5.5 Mil. $7.7 Mil. $10.5 Mil. $14.1 Mil. $18.9 Mil. $41.7 Mil. Past performance does not guarantee future results. Stocks are represented by the S&P 500 Index; bonds are U.S. long-term government bonds prior to 1972 and U.S. intermediate government bonds thereafter. *Compound annualized return Source: Compustat; Roger G. Ibbotson and Rex A. Sinquefield, Stocks, Bonds, Bills, and Inflation: Year-by-Year Historical Returns, University of Chicago Press Journal of Business (January 1976); Lehman Brothers; Standard & Poor s; and

41 How Much Can I Spend? % Stocks/ Stocks Bonds 40% Bonds Annualized Return* 10.3% 7.6% 9.6% Taxes (1.7) (2.1) (1.8) Nominal Return After Taxes** 8.6% 5.5% 7.8% Inflation*** (4.6) (4.6) (4.6) Real Return After Taxes and Inflation 4.0% 0.9% 3.2% SIO_Individuals_Aug 2006 Amount You Can Spend *Stock returns are based on S&P 500 Index. Bond returns before taxes are based on five-year Treasuries, and after-tax returns are based on five-year municipals. Turnover is assumed to be 5% for stocks and 10% for bonds, with two-way transaction costs of 1.0% for stocks and 0.5% for bonds. All income is reinvested, and the mixed portfolio is rebalanced annually. **After-tax results assume a portfolio with a starting value of $1 million, all taxes are paid, no taxable income outside the portfolio, the filing of a joint return, and taxation at the prevailing federal rates over the years for the amount of income and gains generated. ***The compound inflation rate from is 4.6%. Source: Bureau of Labor Statistics, Center for Research in Security Prices (CRSP), Compustat, Federal Reserve, Lehman Brothers, Standard & Poor s, and

42 The Amount You Could Have Spent Total Annualized Return After Taxes and Inflation % 0.9% 8.0% 8.3% 8.7% 9.0% 9.3% 9.6% 9.8% 10.0% 10.2% 10.3% 1.3% 1.7% 2.2% 2.5% 2.8% 3.2% 3.4% 3.6% 3.9% 4.0% Amount You Can Spend 2.1% 2.1% 2.0% 1.9% 1.9% 1.9% 1.8% 1.8% 1.8% 1.7% 1.7% Taxes 4.6% 4.6% 4.6% 4.6% 4.6% 4.6% 4.6% 4.6% 4.6% 4.6% 4.6% Inflation* SIO_Individuals_Aug 2006 Stocks** 0% Bonds 100% 10% 90% 20% 80% 30% 70% 40% 60% 50% 50% 60% 40% 70% 30% 80% 20% 90% 10% 100% 0% *The compound inflation rate is 4.6%. The rates represented above reflect the difference between the return before and after inflation. **Stock returns are based on S&P 500 Index. Bond returns before taxes are based on five-year Treasuries, and after-tax returns are based on five-year municipals. Turnover is assumed to be 5% for stocks and 10% for bonds, with two-way transaction costs of 1.0% for stocks and 0.5% for bonds. All income is reinvested, and the mixed portfolio is rebalanced annually. After-tax results assume a portfolio with a starting value of $1 million, all taxes are paid, no taxable income outside the portfolio, the filing of a joint return, and taxation at the prevailing federal rates over the years for the amount of income and gains generated. Source: Bureau of Labor Statistics, CRSP, Compustat, Federal Reserve, Standard & Poor s, and

43 Key Wealth Forecasting Questions How long will my money last? How much can I spend without eroding my wealth? On nominal or inflation-adjusted basis How will asset allocation affect my: Wealth? Ability to spend? Risk? SIO_Individuals_Aug 2006

44 Analytical Approach Is Essential SIO_Individuals_Aug 2006 Client Profile Financial Goals Assets Income Requirements Risk Tolerance Tax Rates Time Horizon Inputs Wealth Forecasting Model Simulated observations based on s proprietary capital markets research Assumes uncertainty in the future to determine a realistic range of outcomes Incorporates complex interrelationships among asset classes Takes into account current market conditions Considers historical patterns of returns without relying on averages What are the chances of meeting goals? The Wealth Forecasting System, one of the biggest R&D projects ever undertaken at our firm, is based upon our proprietary analysis of historical capital markets data over many decades. We looked at variables such as past returns, volatility, valuation ratios, and the correlations among them to address the planning questions our clients ask. The model s output is a vast range of possible outcomes relating to market asset classes, not portfolios that serve as grist for a client s decision-making mill. Of course, there is no assurance that any specific outcome suggested by the model will actually come to pass. But by quantifying the possibilities of achieving financial goals under changing, and sometimes extreme, capital markets conditions, the tool should help our clients make better choices. Distribution of 10,000 Outcomes Probability Distribution

45 The Path of Returns Matters Different Paths, Same Compound Return Wealth Value Spending $50,000 Plus Inflation* SIO_Individuals_Aug 2006 Average Return Return Return Path 1 Path 2 Year 1 10% 38% (22)% Year (12) Year (9) Year Year Year 6 10 (9) 33 Year 7 10 (12) 23 Year 8 10 (22) 38 Compound Annual Return 10% 10% 10% ($ Millions) Years Path 1 Average Path 2 Returns for Path 1 represent annual returns for S&P 500 from ; returns for Path 2 are identical to those for Path 1, but the order is reversed. *Spending in the first year is calculated as a percentage (5%) of initial assets; after the first year, spending is assumed to grow with inflation. All figures are pretax. Source: Standard & Poor s and $1.8 $1.6 $1.2 Path 1 ends with 50% more wealth than Path 2

46 How Long Will My Money Last? (%) 80 Probability of Running Out of Money 60% Stocks / 40% Bonds* Chances 7-in-10 Spending** 6% in-10 5% 20 1-in-10 chance 1½-in-10 4% SIO_Individuals_Aug Years *Represents globally diversified balanced portfolio: 21% U.S. growth stocks, 21% U.S. value stocks, 15% developed international stocks, 3% emerging markets stocks, and 40% intermediate municipal bonds **Spending in the first year is calculated as a percentage of initial assets; after the first year, spending is assumed to grow with inflation. Spending represents after-tax net spending from a taxable portfolio. Based on s estimates of the range of returns for the applicable capital markets over the next 30 years. Data do not represent any past performance and are not a promise of actual future results. See Notes on Wealth Forecasting System for further details. 3%

47 How Much Can I Spend Without Eroding My Wealth? Probability of Maintaining Nominal Wealth 60% Stocks/40% Bonds* (%) Spending** 97% 100 2% 80 3% 60 4% 40 40% 20 5% 0 Years Probability of Maintaining Inflation-Adjusted Wealth 60% Stocks/40% Bonds (%) Spending** % 2% 60 3% 40 4% 20 20% 5% 0 Years Year 20 Market Return* 97% 100% 88% 99% 93% 66% 1% Premium to the Market 40% 78% 73% Year 20 Market Return* 93% 84% 55% 36% 1% Premium to the Market 70% 20% 53% SIO_Individuals_Aug 2006 Spending 2% 3% 4% 5% Spending 2% 3% 4% 5% *Represents globally diversified balanced portfolio: 21% U.S. growth stocks, 21% U.S. value stocks, 15% developed international stocks, 3% emerging markets stocks, and 40% intermediate municipal bonds **Spending in the first year is calculated as a percentage of initial assets; after the first year, spending is assumed to grow with inflation. Spending represents after-tax net spending from a taxable portfolio. Based on s estimates of the range of returns for the applicable capital markets over the next 30 years. Data do not represent any past performance and are not a promise of actual future results. See Notes on Wealth Forecasting System for further details.

48 10 Minute Case Study

49 Case Study Client Profile I m 47 years old. I d like to retire in 8 years I spend $25,000 per month after tax. I currently have $4MM. Scenario If I want to spend 4% of my principal and inflation is 3%: How much money do I need to save over the next 8 years assuming I don t want to lose more than 12% in any given year? 49

50 $ GIFT CERTIFICATE $ $ $