January 2016 LPL RESEARCH PRIVATE CLIENT THOUGHT LEADERSHIP MEMBER FINRA/SIPC FOR FINANCIAL PROFESSIONAL USE ONLY NOT FOR USE WITH THE GENERAL PUBLIC

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1 LPL RESEARCH PRIVATE CLIENT THOUGHT LEADERSHIP January 2016 MEMBER FINRA/SIPC

2 The term thought leadership has many different meanings and can serve a variety of purposes, depending on one s perspective. Some people follow thought leaders through TED talks, blogs, or other forms of media. Others may define thought leadership as groundbreaking conclusions grounded in extensive research, aimed at testing conventional wisdom. For some companies, thought leadership may be the branch of the organization dedicated to learning and innovation, aimed at pushing itself and its industry forward. And, just as you can likely find thought leadership content in a variety of areas, the rapid pace of change in our world can make it difficult to decipher what you need to focus on. LPL Research has branded its own form of thought leadership to encompass many of these concepts thought-provoking, innovative, industry-leading, and of course, research driven to produce an initiative for our audience, LPL Research advisors and their clients. LPL Research s Thought Leadership initiative was introduced to help advisors and their clients make sense of longer-term trends that may impact society, markets, and the economy, while also offering deep dives and alternative views on market trends. LPL RESEARCH PERSPECTIVE Within the financial services industry, some use thought leadership as branded content to propose new ideas, while other firms use it as a form of tactical commentary. LPL Research provides daily, weekly, and monthly commentaries that are tactical, focusing on the current state of the financial markets and economy and near-term investment implications. Our semiannual Outlook publication focuses on our 6- to 12-month view. LPL Research is constantly keeping a pulse on the global markets in an effort to keep pace of rapid change and to help our advisors feel informed ahead of transformation. As a differentiator and complement to our other series of publications, Thought Leadership publications generally take a longer-term or alternative view, while also helping to to show how near-term opportunites fit into intermediate- to long-term goals. Major areas of focus for Thought Leadership include: Longer-term themes Contrarian ideas and alternative views Expanding investment opportunities 02

3 WHAT IS THOUGHT LEADERSHIP (TL)? LPL Research s Thought Leadership initiative was introduced to help advisors and their clients make sense of longer-term trends that may impact society, markets, and the economy, while also offering deep dives and alternative views on market trends. Longer-Term Themes Debt High levels of government and/or private sector debt can stunt economic growth. Demographics Population dynamics, such as rate of increase and average age, have a significant impact on society and the economy. Themes that may impact society and markets in the intermediate- to long-term future. Globalization What trends are impacting world economies, and what are the investment implications? NO, this is not TL Technology Making sense of developing technological trends, and the implications for society and markets. What is it? Contrarian Ideas & Alternative Views Challenging conventional wisdom and presenting alternative views to common market wisdom. Challenging Conventional Wisdom Has the potential to uncover inconsistencies and mispricing in the market. But is it TL? Deep Dives Taking a deeper look at current market issues can help uncover connections and insights that may not be immediately apparent. Expanding Investment Opportunities New perspectives and insights that can benefit and support investment decision making and financial planning. New Perspectives Investigating alternatives to current market expectations can uncover potential opportunities, or just strengthen investment decision making. YES, this is TL Indicators Identifying indicators that may help determine where markets are headed. Will healthcare stocks outperform in the next 12 months? Which geographical regions may see the most pronounced demographic trends? How long will the growth spurt last? HEALTHCARE What do changing demographics mean for healthcare over the next decade? What industries within healthcare may witness the greatest growth in response to demographic trends? What new industries, businesses, and/or services may arise to help meet changing demographics? Will companies boost their technology investment spending over the coming two years? How many driverless cars/buses will be operational by the end of this year? What is the outlook for auto company stocks? TECHNOLOGY What industries may become obsolete due to forthcoming technology changes? Will my grandchildren ever own or drive a car? What industries & sectors will benefit or arise in response to driverless cars? What is the outlook for stocks and bonds for the coming year? What is the right mix of stocks and bonds? How is performance relative to the benchmark? 03 STOCKS & BONDS What do investor returns look like over the coming 5 10 years? Is asset allocation and traditional rebalancing still a valid concept? Are traditional benchmarks still valid and how should they change?

4 LONGER-TERM THEMES Thought Leadership publications can cover a wide variety of topics from a number of different angles, but many of the bimonthly publications will focus on major themes we believe may shape markets in the future, such as technology, debt, and global trends. Technology Ten years ago, the death of the personal computer (PC) would have been unimaginable. The rise of smartphones and tablets has led to declining PC sales and usage and given rise to an increasingly mobile computing world. Furthermore, the emergence of driverless cars and electronic currencies may change day-to-day life in coming years. The sharing economy has already changed how and where we travel, how we shop, and how our groceries are delivered. How these trends develop and what businesses may benefit will be of close interest in Thought Leadership. 1 The Adoption Rate of New Technologies Has Accelerated Over Time Max Adoption Rate, % (Left Axis) 90% Years to Max Adoption Rate (Right Axis) Stove 1903 Telephone 1908 Electricity 1915 Automobile 1925 Radio 1930 Washer 1931 Refrigerator 1951 TV 1955 Dryer 1957 Air Conditioning 1962 Dishwasher 1966 Color TV 1979 Microwave 1983 VCR 1985 PC 1993 Cell Phone 1993 Internet 2007 HDTV 2007 Smartphone 2011 Tablet Source: LPL Research, Asymco 1/5/16 Tablet projection of 8 years based upon current adoption penetration of 38% over 5 years

5 Technology has always been a force that has shaped society, markets, and the economy, but the pace of technological innovation is accelerating. New technologies are being adopted faster than ever before [Figure 1]. Thought Leadership is committed to keeping an eye on technological change and what it means for society. Our objective is to find the next technological trend that will result in the next Microsoft or Apple, which changed how we use technology and live our lives while rewarding investors in the process. Debt Debt can be a double-edged sword for individuals, corporations, and governments. Debt can help launch a successful business, allow an established business to expand leading to further growth, or help individuals make major purchases to increase their quality of life and ultimate success. Balance is the key, however, as high levels of debt can also be a liability when the next recession or financial turmoil strikes. Which countries, geopraphic regions, or economic sectors may be at risk, or even poised to benefit, is of interest to investors. And debt and demographics can intertwine. The millennial generation bears a greater student loan debt burden than ever witnessed by prior generations. Addtionally, countries dealing with older populations may have trouble reducing debt. What debt burdens mean for global economies will be a focus of the Thought Leadership initiative. Global Trends China s economy is a steady focus, but under the radar the country also faces a signficant pollution hurdle. How one of the world s largest economies tackles the challenge of water quality, among others, could create opportunities for companies/industries that rise to meet this need. On a related note, the cost of renewable energy has fallen and solar power is an increasing source of the world s energy. Rising energy efficiency has made green energy more realistic, but a long journey remains and winners and losers from this burgeoning trend will emerge. 05

6 CONTRARIAN IDEAS AND ALTERNATIVE VIEWS LPL Research Thought Leadership is also about challenging conventional wisdom and presenting alternative views to common market wisdom, such as analyzing the benefits of investing at all-time highs (see the Wealth Insights, Buying at Record Highs ). Established make-or-break trends, such as sales around the popular Black Friday weekend and holiday shopping season, may also be challenged (as in the Disruptive Insights, Does Black Friday Still Matter? ). In 2015, the drop in oil prices garnered much attention, but what are the ramfications of a potential fall to $20 or even $10 per barrel of oil? Multiple knock-on effects are likely. The sharp decline in global commodity prices is often viewed in a negative context, but some countries and industries are likely to emerge as beneficiaries. A strong U.S. dollar has global economic implications from potentially lower inflation to severe headwinds for exporters. What happens if the U.S. dollar reaches prior peaks of the early 2000s or the even higher level of the early 1980s? These are just some of the many examples of alternative views we seek to explore. EXPANDING INVESTMENT OPPORTUNITIES The longer-term and alternative views offered in Thought Leadership publications are a result of the collective view of LPL Research. It is more than just a publication, but a way of thinking that permeates a range of work from how we invest to how we communicate. Thought Leadership publications and videos present new perspectives and insights that can benefit and support investment decision making and financial planning. Themes that emerge from our Thought Leadership work are being incorporated into our investment strategy. Additionally, our initial work indicates that a combination of themes can lead to diversified investment portfolios that deviate from the traditional nine style box approach ingrained in the investment industry. 06

7 CONCLUSION The Thought Leadership group within LPL Research is focused on creating content that can help advisors and their clients better understand the trends that are shaping the future, and the implications for economies and markets. These bimonthly publications will complement LPL Research s existing suite of publications, giving advisors an additional tool that can be used to initiate and broaden conversations with prospects or existing clients, and show a depth of expertise that can help win the trust of new and existing clients in an increasingly competitive marketplace. The addition of Thought Leadership allows LPL Research to keep advisors and their clients informed over the full spectrum of investment time frames, providing insights that can help clients as they seek not only near-term resolutions, but also longer-term financial aspirations. PRACTICAL MATTERS How often is it published? Thought Leadership content is generally published twice per month. Can publications be shared with clients? The majority of publications are client approved, though a select few may be advisor use only based on content or message. Contrarian & Alternative Views Type of Insight Thought Leadership Full-Year & Midyear Outlooks Weekly Commentaries Daily Market Updates How is it different from existing publications? Complementary to existing publications (see graphic). Recap & Reporting Past Present Time Frame Future 07

8 IMPORTANT DISCLOSURES The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for your clients. Any economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful. There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes. The purchase of certain securities may be required to affect some of the strategies. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market. Because of their narrow focus, specialty sector investing, such as healthcare, financials, or energy, will be subject to greater volatility than investing more broadly across many sectors and companies. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not ensure against market risk. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond and bond mutual fund values and yields will decline as interest rates rise and bonds are subject to availability and change in price. This research material has been prepared by LPL Financial LLC. Not FDIC or NCUA/NCUSIF Insured No Bank or Credit Union Guarantee May Lose Value Not Guaranteed by Any Government Agency Not a Bank/Credit Union Deposit RES