U.S. Subadvisory Markets 2017 NEW. Building and Maintaining Distribution Partnerships.

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1 U.S. Subadvisory Markets 2017 NEW Building and Maintaining Distribution Partnerships Overview & Methodology This new report explores the U.S. subadvisory landscape, and the key trends and market forces shaping the industry. It examines how subadvisors are finding mandates and the resources that are required. From the sponsor side, it analyzes current opportunities, challenges faced, and how firms search for and terminate subadvisor relationships. The report reviews how sponsor and subadvisor firms are strategically partnering to navigate obstacles and accumulate assets, and offers perspectives from each on the due diligence process, maintaining relationships, and strategies that are in demand. In addition, it dissects fees, profitability, and organizational structure across both sides of a subadvisory relationship. The report s analysis primarily focuses on long-term mutual funds (MFs), retail variable annuity products (both subadvisory and variable insurance trusts (VITs)), and exchange-traded funds (ETFs). With more than 80 research participants, data comes from research interviews and two proprietary surveys. Participants include subadvisory sponsors, VIT managers, MF subadvisors, ETF subadvisors, and variable annuity subadvisors. Benefits: y Understand how specific trends and factors will impact the U.S. subadvisory industry over the next three years and beyond y Review how subadvisors are approaching the market to win mandates and maintain relationships y Examine the process of developing and strengthening subadvisory relationships from the perspective of both subadvisors and sponsors Subscription details $19,000 Purchase Includes y Digital copy and hardcopy in color y Unlimited online firm-wide access y Exhibits in Excel y Key findings y Analyst support y Interactive Report Dashboards NEW y Executive Summary Video NEW For more information, contact us: ``info@cerulli.com Annual 161 PAGES 112 EXHIBITS Questions Answered: y How do sponsors plan to use unaffiliated subadvisors in the future, and what are their reasons for using them? y Which segment of the U.S. subadvisory market is feeling fee pressure the most? y Which due diligence factors do sponsors think are the most important, from both a firm and investment perspective? y How do subadvisors staff and organize their subadvisory function, and how do sponsors staff and organize their due diligence function? Cerulli interactive Report Dashboards NEW Experience Cerulli s digital analytics platform and explore interactive data from this report We are pleased to include these interactive report dashboards with your subscription: 1. AUM Projections: Explore unaffiliated subadvised asset AUM projections through 2021E. 2. Net Flows Projections: Review projected unaffiliated subadvised net flows by vehicle type. 3. Asset Projections Comparison: Compare unaffiliated subadvised asset projections. 4. Subadvisor Sponsor Relationships: Examine the importance of select relationship attributes/activities from both the subadvisor and sponsor perspective. 5. Subadvisor Insurer Growth: Understand the asset classes with the greatest variable annuity subaccount growth potential over the next three years. Cerulli Associates info@cerulli.com

2 What are Interactive Report Dashboards? As part of your Cerulli report subscription, we are pleased to provide you with Interactive Report Dashboards that allow you to interact with report data in unique ways: ACCESS Access consolidated data from multiple report exhibits in a single comparative view. FILTER DATA Apply filters to Cerulli report analyses including assets under management, net new flows, product type, channel, year, marketplace, and currency. EXPORT Easily build and export custom charts. Export options include; Excel, PDF, or image file. My Account: Joe Q. Sample How to Access Interactive Report Dashboards This service is complimentary and is accessible through our website. Use your unqiue Cerulli website login credentials, and you will find a View Interactive Report Dashboards link to this platform under My Reports. Interact View Dashboard You can also jump to related Interactive Report Dashboards in the report PDF by clicking on the Interact button shown on the left for reference. USER LOGIN To obtain online access, please visit or contact our account management team at: ``info@cerulli.com ` ` CERULLI ASSOCIATES info@cerulli.com

3 Chapter 2 Winning and Maintaining Business: Subadvisor Selection and Ongoing Due Diligence Exhibit 2.03 Methods Used by Sponsors to Initiate Subadvisory Opportunities, 2017 Source: Cerulli Associates Analyst Note: Investment consultants contact potential subadvisors was provided as an option, but was not selected by any respondents. 90% 80% 83% 70% 60% 50% 40% 42% 30% 25% 20% 17% 10% 0% Contact potential subadvisors directly Through third-party databases (e.g., evestment, Investor Force) Word of mouth (e.g., networking, via media) Issue RFP 44 The Cerulli Report U.S. Subadvisory Markets 2017

4 Table of Contents: Expanded Key Questions Answered How do subadvisory sponsors anticipate industry trends will impact their business? How are asset managers finding opportunities and building relationships with sponsors? In which vehicles do subadvisors feel fee pressure the most? How will subadvisory sponsors future use of unaffiliated single subadvisors change? How do subadvisors feel about matters pertaining to their subadvisory business? What is the current breakdown of mutual fund assets by advisory structure type? Which asset classes have the most unaffiliated VIT assets and flows within retail variable annuities?...20 Concepts and Terms Exhibit A. Subadvisory Term Definitions, Exhibit B. Types of Subadvisors, Exhibit C. Types of Sponsors, Exhibit D. Definitions and Implications of Variable Insurance Assets and Structure, Chapter 1: Overview and Outlook for the U.S. Subadvisory Market Review of the U.S. Subadvisory Market Exhibit Unaffiliated Subadvised Assets by Vehicle, Where Will the Subadvisory Market Go?...28 Exhibit Subadvisory Sponsors: Impact of Select Industry Trends on Subadvisory Business Over the Next Three Years, Exhibit Trends and Factors Impacting the U.S. Subadvisory Markets Over the Next Three Years, Positive Trends and Factors Impacting the Subadvisory Market...30 Exhibit Subadvisors: Level of Subadvisory Opportunity Over the Next Three Years by Vehicle, Exhibit Subadvisors vs. Insurers: Asset Classes with Greatest VA Subaccount Growth Potential Over the Next Three Years, Neutral Trends and Factors Impacting the Subadvisory Market...34 Negative Trends and Factors Impacting the Subadvisory Market...35 Exhibit Subadvisors Rate Select Challenges in Growing Their Variable Annuity Subadvisory and Variable Insurance Trust Business Over the Next Three Years, Exhibit Subadvisors Rate Select Challenges to Growing Their Mutual Fund and ETF Subadvisory Business Over the Next Three Years, Future U.S. Subadvisory Market Outlook...38 Exhibit Projected Unaffiliated Subadvised Assets by Vehicle, 2017E 2021E...39 Table of Contents The Cerulli Report U.S. Subadvisory Markets

5 Table of Contents Chapter 2: Winning and Maintaining Business: Subadvisor Selection and Ongoing Due Diligence Prospecting: Connecting with Subadvisory Sponsors...41 Exhibit How Subadvisors Find Subadvisory Opportunities, Exhibit Subadvisors: Length of the Typical Subadvisory Sales Cycle, Exhibit Methods Used by Sponsors to Initiate Subadvisory Opportunities, Due Diligence Factors and Processes...45 Exhibit Subadvisory Sponsors: Rank of Potential Subadvisory Candidates by Preference, Exhibit Subadvisory Sponsors: Resources Used to Execute Subadvisor Searches, Exhibit Unaffiliated Subadvisors vs. Sponsors: Importance of Investment-Related Attributes in the Subadvisory Due Diligence Process, Exhibit Unaffiliated Subadvisors vs. Sponsors: Importance of Firm-Specific Factors in the Subadvisory Due Diligence Process, Maintaining Relationships...50 Exhibit Unaffiliated Subadvisors vs. Sponsors: Importance of Select Attributes/Activities to a Subadvisory Relationship, Exhibit Factors Affecting Subadvisory Sponsors Decision to Terminate Subadvisory Arrangements Over the Past Three Years, Chapter 3: Subadvisory Fees and Profitability Exhibit Common Subadvisory Fee Structures, Exhibit Subadvisors: Most Common Fee Arrangements with Unaffiliated Sponsor Firms, Exhibit Subadvisors: Impact That Select Factors Currently Have on Subadvisory Business Profitability, Exhibit Subadvisors: Fee Pressure by Select Vehicle, Exhibit Subadvisors: Minimum Level of Assets Required for Mutual Fund Subadvisory Mandates to Be Considered Profitable, Exhibit Median Mutual Fund Net Expense Ratio and Advisor Fee, Exhibit Median Advisor Fee by Asset Class, Exhibit Responsibilities of Subadvisory Sponsors, Exhibit Single-Subadvisor vs. Multi-Subadvisor Arrangements: Median Subadvisor Fees, Exhibit Subadvised Mutual Funds: Median Subadvisor Fees by Asset Class, Chapter 4: Sponsor Best Practices and Perspectives Exhibit Likelihood of Strategies Used by Subadvisory Sponsors to Develop New Products, Exhibit Subadvisory Sponsors: Anticipated Use of Unaffiliated Single Subadvisors Over the Next Three Years, Exhibit Subadvisory Sponsors: Drivers of Use of Unaffiliated Subadvisors, Exhibit Subadvisory Sponsors Demand for Unaffiliated Subadvisors by Region, The Cerulli Report U.S. Subadvisory Markets 2017

6 Table of Contents Exhibit Subadvisory Sponsors: Importance of Activities Performed by Subadvisors Over the Next 12 Months, Exhibit Greatest Challenges Facing Subadvisory Sponsors Over the Next Three Years, Exhibit Subadvisory Sponsors: Level of Constraint Placed on Resources by Activity, Exhibit Subadvisors vs. Insurers: Most Promising Strategies for Broadening the Number of Advisors Who Sell Variable Annuities, Exhibit Average Number of Investment Options with and without Primary Living Benefit Options, Exhibit Insurer Perspective: Party That Manages Fund-of-Funds Options That Qualify for Primary Living Benefits, Exhibit Insurer Perspective: Investment Styles with Greatest Growth Potential During Next Three Years, Exhibit Insurer Perspective: Most Important Features in an Investment-Only Variable Annuity, Exhibit Functions in Which Sponsors Have Dedicated Subadvisory Personnel, Exhibit Subadvisory Sponsors: Functions Responsible for Hiring, Overseeing, and Firing Subadvisors, Exhibit Subadvisory Sponsors Organization of Due Diligence Analysts, Chapter 5: Subadvisor Best Practices and Perspectives Exhibit Subadvisors: Subadvisory Services Provided by Vehicle/Structure, Exhibit Subadvisors: Level of Agreement on Matters Pertaining to Their Subadvisory Business, Exhibit Subadvisors: Ability to Win New Business and Garner Assets by Arrangement Type, Exhibit Subadvisors: Importance of Firm-Specific Factors in the Subadvisory Due Diligence Process, Exhibit Subadvisors: Importance of Investment-Related Attributes in the Subadvisory Due Diligence Process, Exhibit Subadvisors: Level of Constraint Select Activities Place on Firm s Time and Resources Spent Winning Subadvisory Business, Exhibit Subadvisors: Level of Importance of Select Attributes in Maintaining Subadvisory Business, Exhibit Subadvisors: Factors That Lead to Termination from Subadvisory Arrangements, Exhibit Subadvisors Planned Efforts to Reach Out to Variable Annuity Providers to Communicate Investment Story and Build Sales, Exhibit Subadvisors: Primary Factor That Provides the Best Chance for Placement in an Insurance Company Fund of Funds, Exhibit Subadvisors: Potential for Sales Growth within Variable Annuity Subaccount Platforms by Asset Class, Exhibit Subadvisors: Potential for Sales Growth within Variable Annuity Subaccount Platforms by Investment Style/Product, Exhibit Area of the Organization into Which the Subadvisory Salesforce Reports, Exhibit Subadvisors: Personnel Dedicated to Supporting the Subadvisory Business by Area of the Organization, Exhibit Other Distribution Channels Covered by Subadvisory Wholesalers, Exhibit Subadvisory Salesforce Organization, Exhibit Subadvisors Hiring Outlook, The Cerulli Report U.S. Subadvisory Markets

7 Table of Contents Chapter 6: Mutual Fund and ETF Subadvisory Market Sizing Subadvised Mutual Funds Exhibit Breakdown of Long-Term U.S. Mutual Fund Assets and Growth Rates by Advisory Structure, Exhibit Breakdown of Long-Term U.S. Mutual Fund Net Flows and Organic Growth Rate by Advisory Structure, Exhibit Unaffiliated Single-Subadvisor vs. Multi-Subadvisor Arrangements: Number of Long-Term U.S. Mutual Funds, Exhibit Subadvised Long-Term U.S. Mutual Funds: Index vs. Non-Index Fund Assets, Exhibit Subadvised Long-Term U.S. Mutual Funds: Index vs. Non-Index Fund Net Flows, Exhibit Long-Term U.S. Mutual Funds: Unaffiliated Single-Subadvisor Assets and Net Flows by Asset Class, Exhibit Long-Term U.S. Mutual Funds: Unaffiliated Multi-Subadvisor Assets and Net Flows by Asset Class, Exhibit Top-10 Subadvised Long-Term U.S. Mutual Fund Morningstar Categories by Assets, Exhibit Top-10 Subadvised Long-Term U.S. Mutual Fund Morningstar Categories by Net Flows, Exhibit Unaffiliated Single-Subadvisor Arrangements: Top-10 Long-Term U.S. Mutual Fund Subadvisory Sponsors by Assets and Net Flows, Exhibit Unaffiliated Multi-Subadvisor Arrangements: Top-10 Long-Term U.S. Mutual Fund Subadvisory Sponsors by Assets and Net Flows, Exhibit Top-10 Long-Term U.S. Mutual Fund Unaffiliated Single Subadvisors by Assets and Net Flows, Exhibit Top-10 Unaffiliated Single-Subadvisor Long-Term U.S. Mutual Funds by Assets, Exhibit Top-10 Unaffiliated Multi-Subadvisor Long-Term U.S. Mutual Funds by Assets, Subadvised Alternative Mutual Funds Exhibit Subadvised Long-Term U.S. Alternative Mutual Funds as a Percentage of Total Long-Term U.S. Alternative Mutual Funds, Exhibit Unaffiliated Single-Subadvisor vs. Multi-Subadvisor Arrangements: Long-Term U.S. Alternative Mutual Fund Assets, Exhibit Unaffiliated Single-Subadvisor vs. Multi-Subadvisor Arrangements: Long-Term U.S. Alternative Mutual Fund Net Flows, Exhibit Top-10 Long-Term U.S. Alternative Mutual Fund Subadvisory Sponsors by Assets and Flows, Exhibit Top-10 Unaffiliated Single Subadvisors of Long-Term U.S. Alternative Mutual Funds, Subadvised ETFs Exhibit Breakdown of Long-Term U.S. ETF Assets and Growth Rates by Advisory Structure, Exhibit Breakdown of Long-Term U.S. ETF Flows by Advisory Structure, Exhibit Subadvised U.S. ETFs: Index vs. Non-Index Fund Assets, Exhibit Subadvised U.S. ETFs: Index vs. Non-Index Fund Flows, Exhibit Top-10 Sponsors of Subadvised U.S. ETFs by Assets and Flows, Exhibit Top-5 Unaffiliated Single Subadvisors of U.S. ETFs by Assets and Flows, The Cerulli Report U.S. Subadvisory Markets 2017

8 Table of Contents Chapter 7: Retail Variable Annuity Subadvisory and VIT Market Sizing Exhibit Retail Variable Annuity Assets and Growth Rates, Exhibit Breakdown of Retail Variable Annuity Subaccount Assets by Structure, Exhibit Breakdown of Retail Variable Annuity Subaccount Net Flows by Structure, Exhibit Retail Variable Annuity Subaccount Assets: Index vs. Non-Index, Exhibit Retail Variable Annuity Subaccount Net Flows: Index vs. Non-Index, Exhibit Unaffiliated Variable Annuity Subadvisory and VIT Assets as a Percentage of Total Variable Annuity Assets by Asset Class, Exhibit Unaffiliated Retail Variable Annuity Subadvisory Assets and Net Flows by Asset Class, Exhibit Unaffiliated VIT Subaccount Assets and Flows by Asset Class, Exhibit Top-10 Insurers Using Unaffiliated Subadvisors by Assets and Net Flows, Exhibit Top-10 Insurers Using Unaffiliated VITs by Assets and Net Flows, Exhibit Number of New and Eliminated/Closed Unaffiliated Subadvised Funds within Retail Variable Annuities, Exhibit Top-10 Unaffiliated Variable Annuity Single Subadvisors by Assets, Exhibit Top-10 Unaffiliated VIT Asset Managers by Assets, Exhibit Part 1. Top-15 Unaffiliated Subadvised Funds by Assets Databank, Exhibit Part 2. Top-15 Unaffiliated Subadvised Funds by Net Flows Databank, Exhibit Part 1. Top-15 Unaffiliated VITs by Assets Databank, Exhibit Part 2. Top-15 Unaffiliated VITs by Net Flows Databank, Appendix Appendix 1. Subadvisors: Expected Change in Assets and Number of Sponsor Relationships Over the Next Three Years, Appendix 2. Percentage of Subadvisors VA Subadvisory and VIT Assets that Results From Inclusion in Asset Allocation Models or Funds of Funds, Appendix 3. Subadvisors: Number of RFP Completions from January-September, Appendix 4. Subadvisors: Number of RFP Finals Presentations from January September, Appendix 5. Subadvisors: Number of RFP Wins from January-September, Appendix 6. Factors Considered in Excessive Fee Suits, Appendix 7. Subadvised Long-Term U.S. Mutual Fund Assets as a Percentage of Total Long-Term U.S. Mutual Fund Assets, Appendix 8. Subadvised vs. Non-Subadvised: Percentage of Total Long-Term Mutual Fund Assets, Appendix 9. Top-10 Long-Term U.S. Mutual Fund Subadvisory Sponsors by Assets and Flows, Appendix 10. Top-10 Unaffiliated Single-Subadvisor Long-Term U.S. Alternative Mutual Funds by Assets, Appendix 11. Top-10 Multi-Subadvisor Long-Term U.S. Alternative Mutual Funds by Assets, Index of Companies The Cerulli Report U.S. Subadvisory Markets

9 Index of Companies Index of Companies AdvisorShares Allianz AHL Partners AMG Managers American Beacon... 27, 114 American Funds , 141, 144 Ameriprise Analytic Investors Arden Asset Management AXA Equitable... 55, 66, 137 Balter Capital Management Barrow Hanley Mewhinney & Strauss BlackRock... 31, 36, 85, 97, , 140, 143 Blackstone , 122, 128 Bridgeway Catalyst Funds... 32, 122 Dimensional Fund Advisors... 32, 127, 129 DoubleLine... 28, 32, 123, 124, 128 Edward Jones... 13, 30, 85, 88, 115 evestment Fidelity... 27, 36, 103, 114, , 127, 139 First Quadrant First Trust Geode... 27, 36, 103, 116, 117, 127 Guardian Hartford... 26, 55, 66, 72, 117, 143 Hotchkis & Wiley Capital Management Invesco Jackson National , 138, 140 John Hancock... 32, 34, 122, 123, 127, 128 Lazard Asset Management Lincoln Financial... 85, 97, 138, 141 Lincoln National LoCorr Funds The Cerulli Report U.S. Subadvisory Markets 2017

10 Index of Companies Mellon Capital Management... 36, 103, , 140, 143 MetLife Millburn Ridgefield... 32, 122, 123 Milliman Morningstar... 31, 32, 41, 56, 62 Nationwide Natixis Northern Cross Nuveen , 129 Olive Street Advisors... 30, 115 Pacific Life Penserra Capital Management Pictet... 72, 112 PIMCO Principal Prudential , 138, 140 Robeco Research Affiliates Russell , 121, 140 Sanders Capital Schroders... 26, 72 SEI , 115, 118 Standard & Poors (S&P) Investment Advisory Standard Life... 34, 72, 122, 123 State Street... 28, 32, 85, 124, 125, 128 T. Rowe Price , 143 Thompson, Siegel & Walmsley Transamerica... 26, 138, 140 UBS Vanguard... 31, 85, 103, , 117, 118, 131, 144 Vantagepoint Funds Voya , 128 Wellington... 52, 103, 113, 114, 116, 117, 123 Western Asset Management Wilshire... 41, 120 WisdomTree... 28, 103, 124, The Cerulli Report U.S. Subadvisory Markets

Cerulli Interactive Report Dashboards U.S. ANNUITY MARKETS Guaranteed Retirement Income in a Fiduciary World SUBSCRIPTION DETAILS $19,000

Cerulli Interactive Report Dashboards U.S. ANNUITY MARKETS Guaranteed Retirement Income in a Fiduciary World SUBSCRIPTION DETAILS $19,000 U.S. ANNUITY MARKETS 2017 Guaranteed Retirement Income in a Fiduciary World Overview & Methodology In its eleventh iteration, this annual report examines the retail annuity industry, emphasizing distribution,