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0 0ADVANCING THE FUTURE OF INVESTMENT ADVISORY SOLUTIONS
Investors First: Rebuilding the Advice Business Around Client Needs
Introduction:Arlen Oransky, Senior Vice President, Chief Membership & Programs Officer, MMI
Presenters: J. Tyler Cloherty, Senior Manager, Casey Quirk by DeloitteChloe H. Gardner, Consultant, Casey Quirk by Deloitte
NetMeeting
November 15, 2017 | 12:00 PM ET
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1 1ADVANCING THE FUTURE OF INVESTMENT ADVISORY SOLUTIONS
Upcoming MMI Events
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Proprietary and Confidential – For Casey Quirk and Casey Quirk Client Use OnlyCONFIDENTIALITY NOTICE: This presentation and the information contained herein is intended for the
internal use of the client. Any review, dissemination, distribution, or copying of this presentation
or information other than in its intended client business purpose is strictly prohibited.
Investors First: Rebuilding the Advice Business Around Client NeedsCasey Quirk/MMI Key Study Findings
November 15th, 2017
J. Tyler Cloherty, Senior Manager, Casey Quirk by Deloitte
Chloe H. Gardner, Consultant, Casey Quirk by Deloitte
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Our survey encompassed a majority of critical players in US wealth management
Sample Participants
Source: Casey Quirk Advisor Database 2017, Cerulli Associates, Morningstar Direct, Tiburon Strategic Advisors, Casey Quirk Analysis
Survey Sample
28 Asset Managers
Demographics
16 Wealth Managers
$11.8T AUM
$14.1T AUM
Financial Advisors
>650
Key Firm Profiles
Biggest Digital Advice Firms by AUM
40%
Largest 10 Broad Wealth
Platforms by AUM70%
Leading Investment Solutions
Product Providers9/15
Top 10 US Retail Active 3Y Flow Winners
60%
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Changing investor demands will reshape the value chain and product requirements
Changing investor needs will require advice firms to adapt
The value of advice creation and delivery will increase
Asset managers must follow a clear path to succeed
Expand Advice Capabilities into areas
of increasing value1
Provide best-in-class Investment
Components2
Compete by offering product at lower
Cost than competitors3
Investors are demanding advice that aligns with future cash flow needs…
…yet the current approach remains investments-focused and insufficient to produce quality results
Successful advice firms will develop a client-centric offering that:
• Delivers personalized outcomes
• Provides firm-level, data-driven sales and customer experience
The new advice value chain will increasingly emphasize elements outside of product:
Sales/Client Acquisition
Outcome Customization
Advice Delivery
Data and analytics will become key inputs to driving value and scalability
This landscape will change how investment products are distributed
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Investors currently have unmet advice needs and preferences
Source: Casey Quirk Advisor Database 2017, CFA Institute, Casey Quirk Analysis, Fidelity Investments Retirement IQ Survey 2017
…and are placing greater focus on outcomes over investment performance
19%
Achieves specific investment goals/outcomes
Non-investment advice (financial
planning)
73%
2%
Achieves the highest return
Other
6%
Future Expected Most Important Investment Advice to Investors
Investors are not satisfied with the investment services they receive…
ValueTrust
Investors that believe that their advisor charges fees that
“reflect the value” they get
Retail investors that “completely trust”
their financial professional
37%43%
74% of investors in a recent survey underestimated the amount of money
they would need in retirement
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Today’s advisor-driven model is insufficient to deliver high quality outcomes…
Costly
Source: Casey Quirk Advisor Database 2017, Casey Quirk Analysis
Advisors’ preference to control advice and relationship management leads to poor outcomes…
Portfolio Construction Approach
Time Dedicated to a Customized Portfolio Per Year
…and a lack of scalability
31%% Time Spent on
Investment ActivitiesScalable
49%Customized
51%
Average Clients 356
Time Spent Building Customized Portfolios
~3 Hrs.
Costly
Inefficient
Variation in investment results…
…and client experience
Brand confusion
Non-transparent
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…and wealth managers typically focus on accumulation and investment returns
Value Added to Retirement PortfolioAnnualized Asset Growth, Optimized Account vs. Investment-Only Account
Value Trend:
Key
High Relative Growth
Relative Growth
Relative Decline
HighRelative Decline
Traditional Investment
Advice
Traditional emphasis, but less than half of potential
wealth growth
3.53%
1.19%
0.61%
9.66%
2.11%
2.05%
0.18%
Non-Investment Advice
Makes up 63% of potential wealth growth, but typically provided as an
ancillary service or by outside providers (e.g. tax attorneys)
Potential Annualized
Asset Growth
Account Selection
Capital Market Returns
Withdrawal Strategy
Debt and Liability
Advice Capabilities:
Estate Planning
Note: Calculated over 65 year horizon from first contribution to bequeathment. Source: 2016 Casey Quirk Advisor Study, CFP Board, Casey Quirk Analysis
Tax Optimized
Investments
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Advice providers recognize the misalignment and have begun to evolve
Sources: Casey Quirk/MMI Survey 2017, Casey Quirk Advisor Database 2017, Casey Quirk Analysis
They are centralizing portfolio construction and spending more time with clients
27%
27%
12%
13%
Home Office Driven Models
Scalable Advisor Practice Models
-12%Customized
Portfolios-53%
Advisors
Home-Offices
Growth of Portfolio Construction Approach By Type of Respondent, 2017-2020e
Advisors are beginning to emphasize services where they uniquely add value
32%
65% 62%
93%
65%
32% 32%
2%3%
Risk and compliance
analysis
2%
Due diligence on asset
managers
Relationship management
6% 5%
Financial planning
analysis/tools
Activities Best Provided by Home Office vs Advisor% of total FA Respondents, 2017
Advisor Time Spend on Client Facing ActivitiesBy Percent Time Spend, 2015-2020e
Advisor/Practice
NeitherHome Office2015 2017
44%40%38%
2020e
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Winning firms will embrace five systematic changes to their business
Financial Advice Winning Factors
Current State Future State
Value for Fees & Transparency
Standard Market PricingPricing
Sales and Service
Data-driven, Personalized Sales and Service
Relationship-based Model
Advice Value Proposition
Financial Planning & Goals-based Advice
Investment Returns
QualityCustomization
Mass CustomizationLimited to HNW
Customer Experience
Enterprise-WideDriven by the
Advisor
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Future value will be placed on advice customization and delivery rather than product
Investor
Sales/
Client Acquisition
Outcome Customization
Product Selection & Fulfillment
Advice Delivery & Relationship Management
Areas of growing importance
Data & Analytics
Investment Advice Value Chain
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The future advice model will center around the creation of a customized plan
Actuarial
Healthcare Optimization
Long-term Budget Planning
Debt and Credit Management
Tax & Estate Planning
Pivotal Life-Event Advice
Generational Transfer
Aggregating data and creating actionable insights will be the key to a successful outcome customization engine
Ag
gre
ga
tio
n a
nd
In
sig
ht
Cre
ati
on
Client Data
CostlyUnique Blend of Proprietary Data and Third-Party Data
Ability to Aggregate and Centralize Data
Expertise to Synthesize Data into Tangible Advice
Robust Client Data Acquisition & Feedback Loop
Seamless Product Fulfillment
Outcome Customization Winning Factors
Cu
sto
miz
ed
Ou
tpu
ts
Assumption Data
Cash Flow Projections
Health Data
Capital Market Data
Risk Preferences
Education Costs
Household Data
Debt & Liabilities
Plot Client Information Against
Market Data
Design Scenario-Driven Options and
Advice
Refine and Update Through Data and
Client Input
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Historical Present
Sales and delivery will seamlessly deliver the breadth of the firm’s expertise
Single point of contact that is human centric
and investment focused
Specialized services encompassing full wealth
management, but separately
Financial AdvisorD
efin
ing
Feat
ure
s
Financial Advisor
Call Center
Relationship Manager
Investment Experts
Lone Financial Advisor
Multiple Siloed Services
Retirement Planning
Mortgage Services
Future
Level of contact that is complexity-based and can include digital and/or in
person relationships
Modular, Integrated Engagement
Digital
Tax/Legal ExpertsLoan
Specialists
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Percent of Firms* Experiencing Positive & Negative Flows, 2013-2015
Percent of Firms* Experiencing Positive & Negative Flows, 2013-2015
Advisor decision makers decrease
170K
22K
2015
31K
Exiting 2021Outsourcing
102K
15K
Teaming
Number of Advisor Investment Decision Makers2015 vs. 2021, K
Source: Casey Quirk Advisor Database, Cerulli, PriceMetrix, Casey Quirk Analysis
Evolution in advice creation will change how investment product is distributed
• Longer sales cycle
• Larger mandates
• Prevalence of consultants
• Preference for style consistency
• Technical engagement at point of sale
• Longer holding periods
The buying process will change
11%
Positive Impact; HO can better negotiate fees
Most products are commoditized, substitutes are okay
Other39%
Potential deal breaker for relationship
with HO
22%28%
Product menus consolidate
Advisor View on Product Menu Collapse
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Investment product providers must consider three strategic routes to win
Fight on Cost
Fight On Quality
Expand into growing parts of the value chain
Data and analytics to create customized outcomes
Advice delivery through sophisticated expertise, digital offering etc
Leverage scale and efficiency to price out competitors
Low cost product delivered through scale or operational efficiencies
Differentiated fee approaches to better align with investor goals or minimize extraneous fund expenses
Deliver differentiated, high performing products
Target more niche audience with truly unique IP
Create product with specialized customization capabilities
Align components with allocator demands and preferences
Vertically Integrate
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Asset managers have a range of options to extend into more valuable advice services
Data & Analytics Advice Delivery Outcome Construction
Growing Value Chain Components
Entr
y P
oin
tEx
amp
les
Investor
Sales
OutcomeConst.
Product
Advice Delivery
Key Opportunities for Asset Management Expansion
Providing a direct, digital offering
Building network of advisors
Acquisition or exclusive partnership with distributor
Multi-asset products
Embedded solutions at intermediaries
Risk management data
Market assumption data, etc.
Data
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Firms can successfully embrace fee pressure as a differentiator
Sources: Morningstar Direct, Casey Quirk AnalysisNote: Analyses include US mutual funds and ETFs
Buyers are seeking products with lower fees
Low Cost Strategic Paths
-$400 $400$0 $800
Passive
Active
Cheapest 25%
Remaining 75%
US Fund Net New FlowsBy Expense Ratio Quartile, 2014-2016 3Y Flows, $B
1Scale/Volume
2Operating Platform
3Pricing
Structures
Options
Offset the decline in costs through large volume and
operational scale
Minimize extraneous costs in manufacturing, distribution, and operations to maintain margin
amid low pricing
Consider unique pricing structures that align interests and compete
with low-fee offerings
Managers are responding by compressing their fees
0.21
0.80
0.17
0.75
PassiveActive
2013
2016
US Funds Expense Ratio2013, 2016, Active vs Passive
4 Consider methods to minimize the investor cost outside of the mgmt.
fee (admin., tax, vehicles, etc.)Minimize Extra
Expenses
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Managers can win on quality by evolving along several key dimensions
Sources: Morningstar Direct, Casey Quirk Analysis
-$667
$39
Median-75th
-$313
$405
-$322
-$436
$93
-$649
Below 25th Above 75th25th-Median
-$628
$310
$631
$214
Positive Flows
Negative Flows# of Total Funds Included: 4,957
Active products still garner flows, but performance will be table stakes
In addition to performance, managers need to distinguish across four factors
Active U.S. OEF 3Y Flows by 3Y Excess Return Percentilevs. Morningstar Category Peers, Q3 2014 - Q2 2017, $bn
Description
High quality, flexible offerings tailored to meet specific needs of partner
firm
Deep relationships with key distributors/partners
Firm brand and performance tied to
distinct value proposition
Technology-enabled engagement model
complemented by value add tools & services
Differentiated Offerings
Access to Distribution
Investment Leadership
Brand
Specialized Engagement
Winning Characteristics
Number of Funds:
1,2001,226 1,239 1,292
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Tyler Cloherty, Senior ManagerCasey Quirk by Deloitte203-898-4223t.cloherty@caseyquirk.com
Chloe Gardner, ConsultantCasey Quirk by Deloitte917-244-5365c.gardner@caseyquirk.com
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