Introducing a new hybrid wealth management firm for transitioning advisors

Securities offered through SagePoint Financial, Inc.-Member FINRA/SIPC. Fixed and traditional insurance services offered through Independent Capital Management. Mortgage services offered through ICM Lending. Entities listed are not affiliated with SagePoint Financial, Inc.

Advisors interested in transitioning their practice are faced with many options. As with any strategic decision, the choice is fundamentally one of philosophy. What kind of practice is the right one? What business model can provide the breadth, flexibility and expertise required to deliver on a unique value proposition? Can the new firm deliver on current needs as well as future needs?

This proposal is designed to lay the ground work for an expansion of the current offering. Creating and implementing a new business model could attract a new segment of advisors and deliver value to their more affluent clientele. The following factors and trends will be covered in an attempt to justify the opportunity:

• The hybrid model of advisory and brokerage

• Growth trends and drivers of the current model and a hybrid

• Expansion of the brand with a hybrid business model

• Recruiting advantages of a hybrid business model

• Leveraging existing infrastructure and an established brand

As the financial services industry continues to evolve, advisors expect more choice and flexibility in their practices. The best choice for a specific advisor will depend on the needs of current and target clients, as well as the advisor’s professional objectives. Therefore, it would seem to be in a firm’s best interest to be able to adapt and create value where there currently is none. Attracting top-tier advisors and their clientele provides for a “long-tail” approach where there is a focus on a robust offering to a smaller amount of clients.

S E E K I N G TA L E N T: T R A N S I T I O N A L A D V I S O R S

Navigate your dreams

M A R K E T R E S E A R C H : H Y B R I DInvestigating the hybrid channel raises important questions about business objectives, service models and economics. Gaining a solid understanding of the fundamental business and regulatory structure of a hybrid model is a critical first step.

Because hybrid advisors conduct both brokerage and advisory business, firms within the hybrid channel operate under two regulatory structures: the U.S. Securities and Exchange Commission (SEC) or the applicable state

securities regulatory authorities, and the Financial Industry Regulatory Authority (FINRA). The hybrid channel opens new possibilities for designing the client offering which presents the following common considerations: !

• Consideration #1: Business objectives and value proposition

• Compatibility of business plans and the opportunity in a local marketplace

• Consideration #2: Investment philosophy

• Broker-dealer, RIA, and internal resources

• Consideration #3: Service & Support Infrastructure

• Client management, investment management, operations, and business development

• Consideration #4: Regulatory and compliance environment

• Broker-dealer provides oversight for all lines of business

• Consideration #5: Economics of cost and revenue structure

• Payout calculation to understand the net value or cost

This series of reports is based on the leadership position of Charles Schwab & Co., Inc. (“Schwab”) in the registered investment advisor (RIA) marketplace (more than 6,000 advisors and over 20 years as of this printing).

M A R K E T R E S E A R C H : T R E N D S

This series of reports is based on the leadership position of Charles Schwab & Co., Inc. (“Schwab”) in the registered investment advisor (RIA) marketplace (more than 6,000 advisors and over 20 years as of this printing).

The hybrid model continues to attract advisors in transition. In particular, growth in the dually registered hybrid model is adding momentum to the overall trend toward independence. In fact, it is one of the fastest-growing segments of the advisory business.

These trends are expected to continue for the next several years. Between 2009 and 2014, market share in terms of advisor headcount is expected to increase at firms with dually registered advisors and RIA-only firms at the expense of other channels. (See Exhibit)

According to Cerulli Associates, headcount market share at firms with dually registered advisors is expected to increase 3.5 percent, from 4.2 percent in 2009 to 7.7 percent in 2014. During the same period, headcount market share at RIA-only firms is expected to climb 4.2 percent, from 5.9 percent to 10.1 percent. In contrast, other channels are expected to see flat to negative growth in share.

Projected Net Gain or Loss in Headcount Marketshare (5 year period ending 2014)

M A R K E T R E S E A R C H : E C O N O M I C S

This series of reports is based on the leadership position of Charles Schwab & Co., Inc. (“Schwab”) in the registered investment advisor (RIA) marketplace (more than 6,000 advisors and over 20 years as of this printing).

To help evaluate the financial implications transitioning, consider that traditional wirehouse advisors earn 25 to 45

percent of the fees paid by clients. Banks, meanwhile, often pay advisors a salary plus 20 percent to 30 percent of the base salary as a bonus.

Independent broker-dealers promote payouts as high as 98 percent for top producers, but in practice, a distribution of 70 percent to 90 percent before accounting for overhead expenses is more common. Hybrid models are unique in that the advisor sets the fee and that can result in a 27-31% increase in net income by managing expenses internally rather than paying for services that may not be needed. In addition, these transactional models require advisors to continually produce and increase the volume of their sales every year to be successful.

Transactional versus Recurring Revenue Models

Y E A R 1 - 3 Y E A R 4 - 5 Y E A R 6 - 1 0 Y E A R 1 0 +

T O TA L A U M $ 2 0 , 0 0 0 , 0 0 0 $ 4 0 , 0 0 0 , 0 0 0 $ 5 0 , 0 0 0 , 0 0 0 $ 5 0 , 0 0 0 , 0 0 0

M U T U A L F U N D @ 5 % $ 1 , 0 0 0 , 0 0 0 $ 1 , 0 0 0 , 0 0 0 $ 1 , 0 0 0 , 0 0 0 $ 0

W R A P A C C O U N T @ 1 % $ 2 0 0 , 0 0 0 $ 8 0 0 , 0 0 0 $ 1 , 0 0 0 , 0 0 0 $ 1 , 0 0 0 , 0 0 0

VA L U AT I O N

T R A N S A C T I O N F I R M ( 1 X ) $ 1 , 0 0 0 , 0 0 0 $ 1 , 0 0 0 , 0 0 0 $ 1 , 0 0 0 , 0 0 0 $ 0

F E E - O N LY F I R M ( 6 X ) $ 1 , 2 0 0 , 0 0 0 $ 4 , 8 0 0 , 0 0 0 $ 6 , 0 0 0 , 0 0 0 $ 6 , 0 0 0 , 0 0 0

M A R K E T R E S E A R C H : PAT T E R N S

Customer Relationship Management

Economics Competition Culture

High cost of customer acquisition, economies of scale are key.

Battle for scope, rapid consolidation, big players dominate.

Highly service oriented, customer comes first mentality

# of

sale

s

# of products

The “Long Tail”

Robust offering to a smaller amount of clients.

Small amount of products, high volume.

M A R K E T R E S E A R C H : S Y N E R G I E S

I C M B R A N D

GROWTHSYNERGIES

G D C

B R O K E R D E A L E R

A S S E T S U N D E R

M A N A G E M E N T

O S J

U P P E R T O A F F L U E N T

C L I E N T

R I A

R E C R U I T I N G

C O R E C A R R I E R S

I N S U R A N C E C O M M I S S I O N S

M E E T R O B E R T S M I T H

B U S I N E S S M O D E L

What are the most important costs inherent in our business model? Which Key Resources are most expensive? Which Key Activities are most expensive?

Through which Channels do our Customer Segments want to be reached? How are we reaching them now?How are our Channels integrated? Which ones work best?Which ones are most cost-efficient? How are we integrating them with customer routines?

For what value are our customers really willing to pay?For what do they currently pay? How are they currently paying? How would they prefer to pay? How much does each Revenue Stream contribute to overall revenues?

For whom are we creating value?Who are our most important customers?

What type of relationship does each of our CustomerSegments expect us to establish and maintain with them?Which ones have we established? How are they integrated with the rest of our business model?How costly are they?

What value do we deliver to the customer?Which one of our customer’s problems are we helping to solve? What bundles of products and services are we offering to each Customer Segment?Which customer needs are we satisfying?

What Key Activities do our Value Propositions require?Our Distribution Channels? Customer Relationships?Revenue streams?

Who are our Key Partners? Who are our key suppliers?Which Key Resources are we acquiring from partners?Which Key Activities do partners perform?

What Key Resources do our Value Propositions require?Our Distribution Channels? Customer Relationships?Revenue Streams?

Day Month Year

No.

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A business model describes the rationale of how a firm creates, delivers, and captures value.

TA R G E T M A R K E T S

!A D V I S O R S

• Licensed and Retail Facing

• Registered Reps

• Investment Advisors

• Insurance Agents

• 3-10 years experience

• AUM = $5-25M+

• GDC = $100,000 +

!C L I E N T S

• Upper Class to Affluent

• Families and Estates

• Business Owners and Execs

• Professionals

• 45 - 75 years old

• $1M+ net worth

• $100,000 investable assets

What are the most important costs inherent in our business model? Which Key Resources are most expensive? Which Key Activities are most expensive?

Through which Channels do our Customer Segments want to be reached? How are we reaching them now?How are our Channels integrated? Which ones work best?Which ones are most cost-efficient? How are we integrating them with customer routines?

For what value are our customers really willing to pay?For what do they currently pay? How are they currently paying? How would they prefer to pay? How much does each Revenue Stream contribute to overall revenues?

For whom are we creating value?Who are our most important customers?

What type of relationship does each of our CustomerSegments expect us to establish and maintain with them?Which ones have we established? How are they integrated with the rest of our business model?How costly are they?

What value do we deliver to the customer?Which one of our customer’s problems are we helping to solve? What bundles of products and services are we offering to each Customer Segment?Which customer needs are we satisfying?

What Key Activities do our Value Propositions require?Our Distribution Channels? Customer Relationships?Revenue streams?

Who are our Key Partners? Who are our key suppliers?Which Key Resources are we acquiring from partners?Which Key Activities do partners perform?

What Key Resources do our Value Propositions require?Our Distribution Channels? Customer Relationships?Revenue Streams?

Day Month Year

No.

This work is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by-sa/3.0/

or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA.

R E C R U I T I N G TA R G E T S : F I R M S

C O M P E T I T I V E L A N D S C A P EComparison Upfront < $100,000 >$100,000

Independent BD

Commonwealth 10-40% 50% 85-95%

LPL Financial 5-40% N/a 75-98%*

Raymond James 10-30% 50% 85-95%

Wells Fargo Financial Advisors 25-75% 80% 90%

Ameriprise 10-30% N/A 75-98%*

SagePoint 10-20% N/A 70-93%

RIA

Focus Financial 15-75% 80% 90%

SII Investments 5-25% N/A 75-98%*

Cetera 5-50% N/A 75-98%*

Securities America 5-25% N/A 75-98%*

AXA Advisors 5-20% N/A 75-98%*

Cambridge 5-50% N/A 75-98%*

Wirehouses

Wells Fargo Financial Advisors 110-150% N/A 28-54%

UBS 120-145% N/A 20-54%

Morgan Stanley 100-140% N/A 20-50%

Merrill Lynch 100-160% N/A 25-54%

Waddell & Reed 40-80% 25% 28-50%

Captives

Northwestern Mutual 0% 35-85% 35-85%

Mass Mutual 0% 40-82% 40-82%

Independent Capital Management 0% 40-65% 40-65%* Payouts based by product As of 5/2014

• Independent BD

• National RIA

• Wirehouse

• Captive Insurance

• Upfront deals

• Payout grids

• < $100,000

• > $100,000

VA L U E P R O P O S I T I O N

!A D V I S O R S

• Independent hybrid platform

• Upfront deal structures

• Book of existing orphans

• Customized payouts

• Overhead and benefit options

• Technology & CRM platform

• Succession programs

• Internal real estate and legal resources

!C L I E N T S

• Robust investment advisory options

• Financial planning suite

• Advanced planning solutions

• Independent fee-only firm

• Relationship focused, local advisors

• Real estate lending and brokerage

• Tax & legal liaison

• Scheduled quarterly meetings

What are the most important costs inherent in our business model? Which Key Resources are most expensive? Which Key Activities are most expensive?

Through which Channels do our Customer Segments want to be reached? How are we reaching them now?How are our Channels integrated? Which ones work best?Which ones are most cost-efficient? How are we integrating them with customer routines?

For what value are our customers really willing to pay?For what do they currently pay? How are they currently paying? How would they prefer to pay? How much does each Revenue Stream contribute to overall revenues?

For whom are we creating value?Who are our most important customers?

What type of relationship does each of our CustomerSegments expect us to establish and maintain with them?Which ones have we established? How are they integrated with the rest of our business model?How costly are they?

What value do we deliver to the customer?Which one of our customer’s problems are we helping to solve? What bundles of products and services are we offering to each Customer Segment?Which customer needs are we satisfying?

What Key Activities do our Value Propositions require?Our Distribution Channels? Customer Relationships?Revenue streams?

Who are our Key Partners? Who are our key suppliers?Which Key Resources are we acquiring from partners?Which Key Activities do partners perform?

What Key Resources do our Value Propositions require?Our Distribution Channels? Customer Relationships?Revenue Streams?

Day Month Year

No.

This work is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by-sa/3.0/

or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA.

C U S T O M I Z E D PAY O U T C A L C U L AT O R

1 - Production

2 - Demographics

3 - Benefits Desired

• Transferable AUM • Rolling GDC

• Age, Sex, Health • Location • FICO • Disclosure Events

• Health Insurance • Office & Utilities • Admin Support • Technology • Marketing Budget • Retirement Plan

Payout ____ %

Lever Strategy

H O M E O F F I C E - C A R L S B A D , C A

L E A D E R S H I P

• SagePoint / OSJ experience

• Compliance oversight

• RIA model practice

I N F R A S T R U C T U R E

• Existing office space

• Technology assets

• Admin and support staff

S A L E S F O R C E

• Existing advisors

• Outside independent reps

• New recruit pipeline

L E A D E R S H I P T E A M

M I C H A E L C . G A L L O P M A N A G I N G PA R T N E R

Michael is the Co-Founder and Managing Partner of ICM Private Client Group, a wealth and investment management firm. Michael is responsible for the day-to-day management of the firm as the OSJ branch manager, overseeing the Sales, Marketing, and Compliance departments. He is also a member of the ICM PCG Investment Committee.

B R YA N S . S O N D E R B Y M A N A G I N G PA R T N E R

Bryan is the Co-Founder and Managing Partner of ICM Private Client Group, a wealth and investment management firm. Bryan is responsible for the strategic direction of the firm overseeing the Marketing, Business Development, and Operations. He is a on the Board of Independent Capital Management, Inc. and serves on other boards in his community.