Wealth Management & Retirement Planning Forum October 19 – 21, 2008

Running Wealth Management as a Business

Russell CampbellExecutive Vice President

Agenda

Wealth management origins

What is possible to achieve financially

Reframing what exists today into what it could be

Digging in

What to do given today’s realities

Future opportunities

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Conclusions

This business falls short of its potentialHuge and growing profits are lurking We do an inadequate job with clientsThere are quick wins and also opportunitiesNo one is saying it’s easy

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Starbucks vs. McDonalds vs. Salvation Army

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Is your business a .org or a .com?

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Need to Balance Profit and Service to Customers

Customer ServiceProfit

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Why is our Business Model the way it is?

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Where Did This Business Come From?

(Origins of Wealth Management)

Family Foundations

Stock Brokerage

Private Equity

Trust / Estate Planning

Land Trust Mutual Funds

Insurance

Personal assistant

Financial Planning –Fee-Based

Private BankingHedge funds

Asset ManagementIRA / 401(k)

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Philanthropy / Charity

Family Office

Business Models Vary As A Result

SalesService levelsProfit to VendorTransaction vs. RelationshipTax sensitivityClient knowledge, their proactivityShort-term vs. long-termRisk

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What do our clients want and how do they feel about us?

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What Are Our Clients Running Away From?

DeathTaxesDivorceIncompetentsInflationCreditors / claimantsBad luckManaging finances themselves

PovertyWasting timeLegal obligationsHealth issues / incapacityAggressive sales peopleThievesPublic knowledge / jealousyRisk

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What Are They Running Towards?

A lifestyleA legacyFinancial security for oneself, othersHappinessPhilanthropy

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Customer Perceptions of Wealth Managers

57% of clients are not advocates40% do not consider their firm a trusted advisor

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Source: IBM Institute for Business Value 2008

Client Assets Annual Growth Rate by Channel (1995-2007)

14Source: Tiburon Strategic Advisors 2007

Fee-only Financial Advisors 18%

Independent Reps 14%

Discount Brokers and Mutual Fund Companies direct 11%

Wirehouses, Regional and Boutique Brokers 9%

Retail Banks and Bank Trust Officers 3%

Life and P & C Insurance 2%

Source: McKinsey15

Sources of Lousy Perceptions (1)

CustomerClients rely on their accountants / attorneys / spouses / cocktail parties / Cramer for second opinionsWe prepare 100 page financial plans for our customers that go unexecuted

Our fee discounting practices undermine respect

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Sources of Lousy Perceptions (2)

PeopleOur people quit to go out on their own and are more successful as wealth advisorsEmployee turnover, internal transfers, reorgs diminish relationships with customersMany of our people are uncomfortable with salesWe treat our people poorly (e.g., pay)

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Sources of Lousy Perceptions (3)

ProductOur investment products tank regularlyOur administration is terrible – mistakesWe send out multiple statements

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Is the Wealth Management business a big opportunity for Banks?

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Source: National Australia Bank Ltd.

What Are The Opportunities?

WealthManagers

InvestmentGeneralists

WealthManagers

InvestmentGeneralists

881,000

279,000

58.7%

39.0%

Average Annual NetIncome by Business Model

Advisors Saying Their BusinessCould Be More Profitable

Source: CEG Worldwide 2007 21

“My Regulator Wants Me to Make a Profit, Too”

Unique assets, fee discountsMultiple products in specialized trustsExceptionsLegacy fee schedulesOverall profitabilityStrategy

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My PhilosophyProfitGrow profitReduce profit volatility by seeking annuity streams i.e., asset management using multiple distribution channelsMeet employee needs – if they are happy our customers will be happyDeliver service that leads to referrals and deeper relationshipsBespoke / custom business strategy to reflect what your customers and prospects are willing to credibly accept from youMeet what customers truly need / want, and what they value and are willing to pay for Create an efficient, compliant platform

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One Way to Reframe a Wealth Management Business

Have a PlanFocus on creating valueIt’s all about your peopleExpect surprises

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Have A Plan

Set the financial goal to have a 50 / 50 chance of successBroad areas to explore – product, geography, client type, peopleBottom-up strategyLeave no stone unturnedRank the opportunitiesTop management decisions only for issues that are strategic

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Focus on Creating Value

Short and long-term profit in balance80% of time on financial performanceIncrease revenue, decrease costs, create annuitiesHave a lot of initiativesPortfolio approach to the business – growth, core, divestFocus on key drivers e.g., referrals, technical skills

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It’s All About Your PeopleSet the visionSet expectations / standardsAccountability and incentives

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Build on strengths – current or new

Let them do it – get out of the wayBuild diversity – skills, temperaments, ethno-cultural characteristics

Expect Surprises

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Some clients will leave

Some staff will leave

Prospective employees that you previously never would have thought you would ever have access toNever settle – winners even in bad industries, bad businesses and during bad times

What Are Likely To Be Your Organization’s Top Three Sources of Organic Growth

Over the Next Three Years?

Existing customer penetration (cross-/upselling) with new products/services 57%

New customer acquisition with existing products/services 52%

Existing customer penetration (cross-/upselling) with existing products/services 50%

New customer acquisition with new products/services 35%

Geographic expansion into new markets 33%

Changes in channel and distribution strategy 25%

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* Economist Intelligence Unit/PWC – 4/06

What Are Likely To Be Your Organization’s Top Three Sources of Organic Growth

Over the Next Three Years?

New customer acquisition with price/margin change on existing products/services 17%

Existing customer penetration price/margin change on existing products/services 10%

Improved performance by intermediaries 9%

Encouraging exit of unprofitable customers 5%

Other, please specify 0%

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* Economist Intelligence Unit/PWC – 4/06

Relentless Focus

Focus on highest margin, highest growth sustainable, opportunities (e.g., asset management)Cut out the fat, unproductive, unvalued activitiesBuild talentSeek synergy Meet customer needs in the form that they truly wantBuild distribution through all channels accessibleSimplify operations Monitor audits, regulatory and compliance, comments, customer complaints, referrals

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Revenue EnhancementFee schedule – eliminate discounts and exceptionsCross-selling effortsReferralsCustomer complaint resolutionSeek quick wins for customers – lead with transactionsMeet true investment needs, refresh product line-up Leverage available resourcesPeople and development e.g., sales skills Unexecuted financial plans

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33* Source: McKinsey

Cost Reduction

Unproductive activitiesCost must have a payoffBurnt out sales peoplePayback must be within a reasonable time frameIncrease variable, reduce fixed costsCentralize supportVendor costs / rebates / marketing supportSimplify – process improvementCut non-performing, low growth potential products

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“Where’s Waldo?” Seemingly intractable problems / challenges

with large potential payoffs:

How will we decide if a client belongs in trust or brokerage?How will we reconcile differences in compensation across silos?How will we drive distribution through the Bank?How will we avoid poor, inconsistent investment results for our clients?How can we build sales skills? cont’d

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How can we meet service expectations?How can we truly become trusted financial advisors to our clients?How can we seamlessly integrate the back office and the front office?How can we simplify the back office?

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What to do RIGHT NOW

Morale: happy employees = happy customersCustomer proactivity – hold hands, ask for referralsStick to your business strategy and execute itManage your own emotionsAssess risksLook for opportunities arising from changes in regulation, industry structure, customer needsIn every environment there are winners

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Future DirectionsPricing – customer-centricDeeper understanding of clients real needs

Distribution

One core system in the back (and front) officeAcquisitionsIf you don’t get referrals are you really delivering great service? Simplified products for mass marketDo less, exceptionally wellHow to create a temporary pool of specific expertise

Within Wealth ManagementAcross Bank – one Bank

External

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Lessons LearnedDon’t overestimate your available management talent; not a lot of experienced managers or turnaround pros or entrepreneursDon’t underestimate internal resistance

There is a long history of how things are generally done in this businessDon’t overestimate your clients’ sensitivity to change Build on your strengths – ignore what others are doing (or say they are doing) / industry forecastsIt is so very easy to do things that make little economic sense

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