Separately Managed Accounts. Investment Advisory Solutions for Today s Complex Markets

Transcription

1 Separately Managed Accounts Investment Advisory Solutions for Today s Complex Markets

2 Contents Consulting Group Overview Resources The GIC and Global Investment Manager Analysis Separately Managed Accounts Next Steps

3 Consulting Group Overview

4 The Consulting Group Overview Consulting Group has a long history of providing investment consulting advice and services to individual and institutional clients. Leveraging resources from across the firm, we provide access to advice and investment manager analysis while bringing clients a personalized and local perspective. KEY BENEFITS Client Focus with over 40 years of experience in the industry advising clients on portfolio solutions Dedicated team of 45+ professionals focused exclusively on investment manager selection for the firm s investment advisory platform Process-driven approach that seeks quality managers and strategies designed to optimize portfolio return potential in various market environments Extensive third-party manager due diligence, including comprehensive quantitative and qualitative tools used for all manager assessments Industry leadership in product innovation tailored to clients needs Access to exclusive product offerings, only available to Morgan Stanley clients Insights from the firm s Global Investment Committee, to integrate asset allocation and thought leadership into advisory programs

5 Leveraging the Firm's Key Resources Our Platform Morgan Stanley is #1 among all firms in investment advisory assets under management 1 Our clients can benefit from the scope and scale of resources in evaluating and selecting investments that only an industry leader can provide: #1 IN INVESTMENT ADVISORY ASSETS UNDER MANAGEMENT ($Bn) Morgan Stanley Wealth Management Bank of America / Merrill Lynch Wells Fargo Advisors UBS Wealth Management 1,300+ Actively Analyzed Investment Products Assets Under Management $795 Billion 450+ Onsite Manager Visits / Year #1 Managed Accounts Program by Assets 45+ Analysts Focusing Solely on Investment Management Selection $2Tn In total client assets (MS) 1. Cerulli Associates. 4Q15 Summary, Managed Account Research.

6 A Comprehensive Process for Manager Analysis Extensive Universe Engage with a broad array of investment managers from both large and boutique firms. From a universe of over 14,000 options (separately managed accounts, mutual funds and ETFs), the universe is narrowed down to approximately 1,300 investment strategies from over 300 investment firms. Rigorous Analysis Our thorough process includes a detailed review of a firm and its investment capabilities and resources, investment process and philosophy, personnel and business structure. Alternative strategies include an operational risk review which evaluates a firm s business processes, infrastructure and controls. Strong Governance The Global Investment Manager Analysis (GIMA) team adheres to a formal governance process on all investment decisions for all products that are made available on the advisory platform. Decisions are highly governed by an experienced eight-member committee which meets at least twice weekly to review each investment decision. Library of Analysis The team maintains an extensive library of written manager analysis that is available to Financial Advisors and clients. Ongoing Monitoring Investment products undergo continual review. In addition, the team continues to have multiple points of contact with investment managers, at periodic intervals to reaffirm conviction in the manager. Patented Methodology The team developed and implemented the proprietary Adverse Active Alpha SM screening and scoring methodology into the overall manager selection process to improve our odds of adding alpha to client portfolios. This patented screening and scoring tool helps identify products with characteristics that may lead to future outperformance relative to indexes and peers. All information as of September 30, 2015 and subject to change.

7 Manager Analysis: Differentiating Characteristics Features that we look for in investment managers during our due diligence process INVESTMENT PROCESS AND CHARACTERISTICS Talented and Deep Investment Team Repeatable, Consistent and Disciplined Process Strong Security / Credit Selection Detailed Risk Controls Duration and Yield Curve Management Robust Relative & Risk Adjusted Performance Outperformance Driven by Security Selection Style and Performance Pattern Consistency BUSINESS PRACTICES Equitable Distribution of Employee Ownership Strong Business Leadership and Investment Culture Low Personnel Turnover Reasonable Succession Planning Diversified, Stable Asset Base Extensive Resources Investment Professional Incentives and Contracts Alignment of Interests with Clients OPERATIONS AND COMPLIANCE Documented Policies and Procedures Clear and Equitable Trade Rotation Representative Composite Performance Review of Composite Dispersion Reasonable Asset Levels Documented Code of Ethics Offsite Disaster Recovery Reasonable Mutual Fund Fees Clean Regulatory History

8 Traditional Manager Analysis: Three Levels of Conviction The team conducts rigorous qualitative and quantitative evaluations to develop opinion-based analysis that is substantiated by conviction level. Approved List Responsive to client needs and industry trends Information on a broad universe of investment managers and products Meets GIMA s qualitative and quantitative standards Focus List Higher level of conviction Explicit focus on identifying potential to add value over time Intensive due diligence process, generally including on-site visits, business reviews, etc. Detailed reporting, including portfolio and performance analysis Tactical Opportunities List Draws from both the Focus and Approved Lists Leverages manager analysis capabilities, as well as capital markets analysis by the Global Investment Committee (GIC) Based on potential short-term performance

9 Value-Added Thought Leadership Enables clients to make informed decisions GLOBAL INVESTMENT COMMITTEE REPORTS WHITE PAPERS ON CURRENT TOPICS EDUCATIONAL PIECES

10 Consulting Group Programs Separately Managed Accounts 1 1. For Fiduciary Services (FS) and Consulting and Evaluation Services (CES) accounts only

11 Consulting Group Programs A Disciplined Investment Process Your Financial Advisor works closely with you to understand your needs while maintaining the focus and discipline to help guide your portfolio through the most challenging market cycles. OUR FOUR-STEP PROCESS SET YOUR FINANCIAL OBJECTIVES DEFINE AN INVESTMENT STRATEGY EVALUATE AND SELECT INVESTMENTS ONGOING REVIEW PROCESS Your Financial Advisor meets with you to help you develop an investment policy based on your specific goals, time horizon and tolerance for risk and volatility. Based on your input, your Financial Advisor recommends and constructs an asset allocation model and diversified investment strategy. Your Financial Advisor helps you implement your asset allocation by selecting appropriate investments. Your Financial Advisor assesses your investment performance and determines if adjustments might be advisable. He or she will also adapt your strategy to changes in your personal and professional life.

12 Separately Managed Accounts Separately Managed Accounts Separately managed account programs give you access to portfolios that are professionally managed by some of the nation s most recognized investment management firms. Our FS and CES programs give you: BENEFITS Access to well known investment managers that are often available only to large institutions A smaller minimum investment than would be required if you were to hire a manager on your own Consulting Group continues to monitor managers for performance, style adherence and organizational depth and stability Your Financial Advisor closely works with you to create an asset allocation and select the manager(s) best qualified to implement your strategy All managers undergo comprehensive analysis and due diligence before inclusion in these programs

13 Separately Managed Accounts Separately Managed Accounts Investment Style Market Capitalization Geographic location Professionally managed accounts consisting of stocks, bonds or other assets Strategies are selected that closely match your specific financial goals and risk tolerance Fixed Income Equities Financial Advisor Client FLEXIBILITY Potential for restrictions on the management of your account as well as opportunistically manage the timing of future tax liabilities Duration You own the underlying positions Sector Credit

14 Next Steps

15 Our One Focus Is Our Clients Investing for long-term success in today s dynamic and complicated market environment has become increasingly complex. There are too many trends and variables to track, too much information to gather and process, and too many options to evaluate. When you invest through Consulting Group s advisory programs, you gain access to a range of services backed by the extensive manager analysis capabilities, intellectual capital and global reach of Morgan Stanley and its affiliates.

16 Disclosures

17 Managed Account Program Definitions Separate Account Programs: Programs by which asset managers manage investors assets in discretionary separate accounts. A bundled asset-based fee (often 2.5% to 3% before breakpoints and discounts from negotiation) covers money management, trading, and custody. Subadvisory programs are single-contract arrangements in which a sanctioned roster of 40 to 60 asset managers is listed on the platform and in which sponsors determine minimums and management fees. Programs categorized as open include both dual-contract and proprietary programs (both of which are systematically unaddressable by third-party asset managers). Dual-contract programs involve a virtually unlimited number of managers. Investors in the program typically have two contracts, one with the asset management firm and one with the program sponsor and investors in dual-contract relationships typically have the ability to negotiate these parameters. Proprietary programs are "closed architecture" offerings where an asset manager affiliated with the sponsor provides asset management for the client. Fiduciary Services (FS) Fiduciary Services (FS) is a Consulting Group single contract SMA program that provides clients with access to investment managers approved by the firm. Morgan Stanley contractually provides consulting, execution, manager monitoring and reporting services. Assets must be held at Morgan Stanley and all SMA strategies must be approved by the Global Investment Manager Analysis team. Consulting and Evaluation Services (CES) Consulting and Evaluation Services (CES) is a Consulting Group dual-contract separately managed account program. Clients sign a contract with a firm-approved third-party investment manager and with Morgan Stanley. Morgan Stanley contractually provides consulting, execution, manager monitoring and reporting services If required by clients, assets may be held outside of Morgan Stanley but all SMA strategies must be approved by the Global Investment Manager Analysis team. Please see the Morgan Stanley Smith Barney LLC program disclosure brochure (the "Morgan Stanley ADV") for more information on the Investment Advisory programs available. The Morgan Stanley ADV is available at

18 Important Disclosures Investing in the markets entails the risk of market volatility. The value of all types of investments may increase or decrease over varying time periods. To the extent the investments depicted herein represent international securities, you should be aware that there may be additional risks associated with international investing, including foreign economic, political, monetary and/or legal factors, changing currency exchange rates, foreign taxes, and differences in financial and accounting standards. International investing may not be for everyone. These risks may be magnified in emerging markets. Small- and mid-capitalization companies may lack the financial resources, product diversification and competitive strengths of larger companies. In addition, the securities of small- and mid-capitalization companies may not trade as readily as, and be subject to higher volatility than, those of larger, more established companies. Bonds are subject to interest rate risk. When interest rates rise, bond prices fall; generally the longer a bond s maturity, the more sensitive it is to this risk. Bonds may also be subject to call risk, which allows the issuer to retain the right to redeem the debt, fully or partially, before the scheduled maturity date. Proceeds from sales prior to maturity may be more or less than originally invested due to changes in market conditions or changes in the credit quality of the issuer. High Yield bonds are subject to additional risks such as increased risk of default and greater volatility because of the lower credit quality of the issues. Options and margin trading involve substantial risk and are not suitable for all investors. In Consulting Group s advisory programs, alternative investments are limited to US-registered mutual funds, separate account strategies and exchange-traded funds (ETFs) that seek to pursue alternative investment strategies or returns utilizing publicly traded securities. Investment products in this category may employ various investment strategies and techniques for both hedging and more speculative purposes such as short-selling, leverage, derivatives and options, which can increase volatility and the risk of investment loss. Alternative investments are not suitable for all investors. There may be tax implications with a rebalancing strategy. Morgan Stanley Smith Barney LLC and its Financial Advisors do not provide tax or legal advice. Individuals should consult their personal tax and legal advisors before making any tax or legal related decisions. Rebalancing does not protect against a loss in declining financial markets. There may be a potential tax implication with a rebalancing strategy. Diversification does not assure a profit or protect against loss in declining financial markets. Equity securities prices may fluctuate in response to specific situations for each company, industry, market conditions and general economic environment. Companies paying dividends can reduce or cut payouts at any time.

19 Important Disclosures (cont d) Cerulli Associates, 4Q 2015 Summary Report. Cerulli Associates data are based on data submitted by firms participating in Cerulli s survey. Morgan Stanley Wealth Management was ranked No. 1 in terms of assets under management out of the firms listed in the industry for the quarter with respect to Top Managed Account Program Sponsors Across All Industry Segments. This category includes separate account consultant programs, mutual fund advisory programs, ETF advisory programs, rep as portfolio manager programs, rep as advisor programs and unified managed account programs. Separate account consultant programs are programs in which asset managers manage investors assets in discretionary separate accounts. Mutual fund advisory programs and ETF advisory programs are discretionary and nondiscretionary programs designed to systematically allocate investors assets across a wide range of mutual funds or ETFs. Rep as portfolio manager programs are discretionary programs in which advice is an essential element; planning is undertaken or advice is treated as a separate service from brokerage. Rep as advisor programs are nondiscretionary programs where the advisor has not been given discretion by the client and must obtain approval each time a change is made to the account or its investments. Unified managed accounts are vehicle-neutral platforms that simplify the delivery of multiple investment vehicles, such as separate accounts, mutual funds, exchange-traded funds and individual securities through their integration within a single environment. Rankings are subject to change. Some historical figures may be revised due to newly identified programs, firm restatements, etc. The information herein has been obtained from sources that we believe to be reliable, but we do not guarantee its accuracy or completeness. All opinions included in this material constitute the Firm s judgment as of the date of this material and are subject to change without notice. This material is provided for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Morgan Stanley Smith Barney LLC offers investment program services through a variety of investment programs, which are opened pursuant to written client agreements. Each program offers investment managers, funds and features that are not available in other programs; conversely, some investment managers, funds or investment strategies may be available in more than one program. Morgan Stanley s investment advisory programs may require a minimum asset level and, depending on your specific investment objectives and financial position, may not be suitable for you. CRC (3/2016)