Cerulli Advisor Survey Results WWW.RISYMPOSIUM.COM Presented by:
Topics Large-Scale Advisory Trends Changing Advice Dynamics Product Changes
Asset Marketshare by Channel, 2010-2012E Channel 2010 2011E 2012E Wirehouse 43% 40% 38% IBD 16% 16% 17% Regional 15% 15% 15% RIA 12% 12% 13% Dually registered 7% 7% 7% Bank 4% 5% 5% Insurance 4% 4% 5%
Advisors by Revenue Source, 2003-2010 70% 60% 50% 40% 48% 52% 30% 42% 37% 41% 39% 31% 20% 27% 0% 7% 7% 11% 12% 17% 13% 14% 2003 2004 2005 2006 2007 2008 2009 2010 Fee-only Fee-based
Advisor Business Mix by Channel, 2011 100% 80% 60% 40% 20% 0% 8% 9% 36% 36% 11% 13% 47% 37% Wirehouse RIA IBD All Advisors Retail non-qualified Institutional (including foundations and endowments) Employer plans IRAs
Advisor Portfolio Construction Method, 2011 Method B/D RIA All Advisors Strategic allocation with a tactical overlay 57% 31% 54% Strategic allocation 11% 19% 11% Risk budgeting 8% 2% 8% Other 6% 21% 8% Tactical allocation 7% 12% 7% Style box 7% 2% 6% Mean variance optimization 2% 3% Liability-driven investing 2% 2% 2%
Changing Advice Dynamics Comprehensive advice Challenges Opportunities
Percentage of Clients Receiving Modular or Comprehensive Planning Advice, 2010-2012E 60% 50% 49% 40% 40% 30% 29% 26% 20% 12% 19% 13% 12% 0% Comprehensive financial planning Modular planning Modular Advice w/ no formal documentation No financial planning services Currently Planned for 2012
Anticipated Change in Practice due to Transition to Retirement Income, 2011 80% 70% 60% 50% 40% 30% 20% 0% 73% I expect my practice's revenue to increase as more clients seek retirement income advice 40% I intend to expand my advice offerings to create more revenue opportunity 29% I expect to add clients to compensate for my declining asset base 16% I plan to increase my use of alternative fees to compensate for a smaller accounts
Advisors Cited Obstacles To Retirement Income Planning, 2008 vs. 2011 30% 25% 20% 15% 21% 26% 17% 18% 12% 15% 14% 14% 13% 11% 7% 11% 9% 9% 7% 5% 3% 0% Lack of consumer awareness Too time consuming Poor technology Lack of B/D support Product complexity Lack of planning assistance Lack of training or designations Lack of product offering Client resistance 2008 2011
Factors Address in Advisor Retirement Income Plans, 2011 70% 60% 50% 40% 30% 61% 55% 54% 51% 50% 49% 43% 40% 32% 27% 20% 0% Longevity scenarios Client's budget Health care costs Social security income Client's desired lifestyle NA -do not deliver plans Estate considerations Inflation Taxes Medicare
Planning Services by Channel, 2011 Wirehouse RIA IBD All Advisors Asset allocation 84% 84% 77% 75% Retirement accumulation planning 47% 50% 53% 51% Retirement income planning 50% 55% 44% 47% Insurance (life, health, disability, etc.) 23% 32% 35% 37% Estate planning 34% 35% 27% 28% Employer benefits retirement planning 21% 26% 21% 22% Education funding 17% 19% 16% 19% Elder care planning 11% 12% 12% Business Planning 9% 8% 7% 9%
Product Changes Retirement Income Products Managed Accounts Product Choices
Advisor Preference for Retirement Income Products, 2008 vs. 2011 60% 50% 54% 56% 49% 52% 40% 38% 37% 36% 38% 30% 27% 26% 27% 26% 20% 22% 18% 17% 16% 8% 6% 3% 8% 0% Variable Annuities w ith Living Benefits Bond funds Systematic Withdraw als from Variable Annuities Dividend Paying Equity mutual funds Dividend Paying Stocks Systematic Withdraw als from Mutual Funds Annuitization Individual fixed income securities Packaged Retirement Income mutual funds Reverse mortgages 2008 2011
Advisor Opinion of Retirement Income Mutual Funds, 2008-2011 60% 50% 40% 30% 20% 42% 50% 18% 27% 28% 19% 8% 17% 21% 32% 15% 14% 14% 12% 0% I replicate similar portfolios using other products I use the products as part of a solution. Not enough control over clients' portfolios Part of a prudent portfolio for generating retirement income The products are too expensive I will use the products if they add guarantees The strategies are unproven 2008 2011
Managed Accounts Assets and Growth Rates, 2Q 2011 Program Types Separate Account Consultant Programs Mutual Fund Advisory Programs ETF Advisory Programs Rep as Portfolio Manager Rep as Advisor Unified Managed Accounts Description 2Q 2011 ($B) YOY 2-Year Asset managers administer portfolios of securities for investors in discretionary separate accounts. (ML Consults, UBS Access) $615.5 16.9% 31.0% Allocates investors assets across mutual funds. Range of FA Control: packaged, hybrid, and open. (EDJ Advisory Solutions, WFA FundSource ) $690.7 28.9% 65.7% Allocates investors assets across ETFs. Range of FA Control: packaged, hybrid, and open. $14.2 94.7% 191.7% Discretionary advisory programs in which financial advisors act as money managers (ML PIA, MSSB Custom Portfolio) $435.5 40.1% 82.3% Nondiscretionary advisory accounts, advisor must obtain approval each time a change is made (ML MLPA, UBS Strategic Advisor) $516.8 35.4% 74.6% Fee-based programs using multiple investment vehicles, with overlay management (MSSB Select UMA, UBS Strategic Wealth) $140.5 76.4% 160.8% Total MA Industry $2,413.2 31.0% 63.0% Note: Numbers presented throughout represent most currently available industry data. Source: Cerulli Associates
Advisor Opinion of Managed Accounts Types, 2011 Program Type Managed Accounts Description Approximate Managed Accounts Marketshare Most Desirable to FA Open The advisor is solely responsible for determining use of asset managers and asset allocation 56% 54% Hybrid Those where recommendations are made by your B/D or third party, but the advisor can adjust those recommendations 23% 26% Packaged Those where asset managers and asset allocation are determined by the broker/dealer or third party 21% 13%
Managed Account Outlook Advisors want / need more flexibility, but also more capabilities This means more broker/dealer involvement and more oversight/compliance Advisors following home office suggestions, but may be only performance-related Third-party strategists may have stronger future role UMAs continue to be hindered by lack of flexibility, particularly compared to rep-driven programs Solving for retirement needs Managed accounts historically positioned for accumulation, not preservation or distribution Insurance programs widely believed to be too expensive, unwieldy Gaining perfect information on client is still a hurdle and dependent on client
Expected Change in Advisor Product Mix, 2011 Products Expecting Share Gains Increase More Than Increase up to No Change Decrease up to Decrease More Than Net % Advisors Expecting Increase Exchange-traded funds 20% 33% 44. 3% 0.1% 50% Variable annuities 12% 30% 51% 5% 2% 35% Variable life//whole life/term/ltc 7% 31% 58% 4% 0.0% 34% Equity mutual funds 18% 28% 40% 13% 2% 32% Commodities 2% 26% 69% 2. 0.0% 26% Other mutual funds 9% 21% 66% 3% 1.0% 26% Individual fixed-income securities 4.5% 12% 60% 17% 7% -8% Fixed-income mutual funds 7.9% 14% 44% 25% 9% -12% Money markets, cash, etc. 1.4% 8% 67% 22% 2% -14%
Questions? For more information: Scott Smith Associate Director 617-437-1098 x132 ssmith@cerulli.com