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1 THE CERULLI REPORT Boutique Advisory Firms and RIAs Balancing Scale and Independence for Top-Tier Advisors Overview While complete independence piques the interest of many advisors, this interest often declines when advisors explore the realities of running their own practice. This report explores the rise of advisory firms, such as HighTower, Dynasty Financial Partners, and SeaCrest Wealth Management that provide platforms and services comparable to wirehouses, but to a more limited advisorbase and with greater advisor autonomy. The report examines the appeal of these firms to advisors as well as distribution opportunities for product providers. Data used in this report is from four proprietary surveys: Financial Advisors and RIAs, National Sales Managers and Wholesalers, RIA Service Agents, and Asset Managers. Benefits Build actionable business plans for addressing these firms Identify opportunities for product providers Examine the competitiveness of these firms and ownership structure Explore firm segments Questions Answered This report answers these and other critical questions: 1. What characteristics define the boutique segment? 2. What types of support are most valued by advisors? 3. How do ownership arrangements affect advisor recruitment? 4. Which advisors are the best prospects for boutique firms? 5. What are investors preferences for advisor affiliation? 6. How are asset managers approaching these firms? 7. What kinds of platforms do these firms offer advisors? 8. What is driving advisors towards these firms? 9. What clients do these firms service? TO PURCHASE CALL info@cerulli.com VISIT HAVE US CONTACT YOU: Subscription Information $13,000 Hardcopy Softcopy in color Unlimited online firm-wide access Exhibits in Excel format Key Findings in PDF Analyst support LOOK INSIDE 9 pages of report content attached 114 pages, 63 exhibits

2 Table of Contents Table of Contents Index of Exhibits...6 REPORT SCOPE...8 Beneficiaries of this Report...8 Report Roadmap...8 METHODOLOGY...9 KEY FINDINGS...11 Introduction: The Evolving Advisory Landscape...16 Independent Panacea...18 Defining Boutiques...21 SECTION I Chapter 1: Instability Creates Opportunity...23 Advisor Market Sizing...25 Fiduciary Focus...25 Role of Proprietary Products...26 Growth for Advisor-Centric Firms...27 Chapter 2: The Investor Perspective...28 Investor Sizing...29 Boutique Core Markets...30 Trust Issues...33 Chapter 3: Distribution Channel Opportunity...39 Wirehouses...44 Morgan Stanley...47 Bank of America/Merrill Lynch...49 UBS...50 Wells Fargo Advisors...52 Overall Wirehouse Atmosphere...54 Regionals...55 Independent Broker/Dealers...57 RIA and Dually Registered (Hybrid)...62 The Practice...66 The Business...66 The Institution...67 Prognosis...68 C A 4 Boutique Advisory Firms and RIAs

3 Table of Contents SECTION II Chapter 4: Boutique Building Blocks...70 Culture First...71 Collaboration over Confrontation...73 A Degree of Independence...74 Establishing Differentiation...76 Office Establishment Basics...77 Technology and Platform Solutions...77 Product Breadth/Due Diligence...78 Compliance and Regulation...78 Lack of Brand and Trust...79 Short-Term Focus/Succession Planning...79 Chapter 5: Boutique Segments...81 "Classic" RIA Breakaways...82 Recruiters...84 Acquirers...87 Focus Financial Partners...91 United Capital Financial Advisors...93 Boutique Platforms...94 Case Study HighTower...96 Supporting Roles...98 Broadening Their Market...99 Prognosis...99 Chapter 6: Expanding Boutiques Move Types Check Chasing Sign Flips Soft-Landing/Tuck-In/Sub-Acquisition Breakaways Roll Ups/Acquisitions Prognosis Boutique Advisory Firms and RIAs 5 C A

4 Index of Exhibits Index of Exhibits SECTION I Introduction: The Evolving Advisory Landscape 1. Investors Perception of Primary Provider Responsibility by Channel, Advisor Skill Sets, Key Channel Comparisons, Boutique Defining Elements, Chapter 1: Instability Creates Opportunity 5. Marketshare of Employee and Independent Advisors, E Advisor Flow Trends, Chapter 2: The Investor Perspective 7. Cerulli Wealth Tiers, 2011E Services Used with Financial Advisors by Investable Asset Range, Primary Provider Channel by Investable Asset Tier and Age Range, Number of Providers Used by Investable Asset Range, Greatest Personal Concern Affecting Household by Investable Assets, Households Trust of Financial Firms by Investable Asset Range, Most Difficult Part of Working with Financial Advisors by Investable Asset Range, Investors Preferred Advisor by Age Range, Plan to Switch Providers by Primary Provider Channel, Households That Have Changed Primary Providers in Past 12 Months, Reason for Opening New Investment Account as a Result of New Contact in Past 12 Months, Chapter 3: Distribution Channel Opportunity 18. Retail Distribution Channel Overview, YE Retail Investor Assets by Distribution Channel, Asset Marketshare by Channel, E Top-15 Broker/Dealers by Assets under Management, Wirehouse Broker/Dealers by Advisor Headcount and AUM, Wirehouse Advisor Productivity Index by Firm, Wirehouse Year-End Statistical Snapshots, Notable Morgan Stanley Departures to Dynasty and HighTower, Notable Merrill Lynch Departures to Select Boutiques, Notable UBS Departures to Select Boutiques, Notable Wells Fargo Advisors Departures to Benjamin F. Edwards & Co., Multi-Channel Networks, Top-15 Regional Broker/Dealers by Advisor Headcount, C A 6 Boutique Advisory Firms and RIAs

5 Index of Exhibits 31. Top-15 Independent Broker/Dealers by Assets, Single Channel Networks, IBD Marketshare Consolidation, Future Direction of Dually Registered Business Mix, Retail-Focused RIA Firms, Assets, and Advisors by Affiliation Model, Top-25 Retail-Focused RIA Firms by AUM, Retail-Focused RIA Firm and Asset Marketshare Change by AUM Segment, Intermediary Matrix, SECTION II Chapter 4: Boutique Building Blocks 39. Primary Reason Advisor Last Switched B/Ds, Sources of Differentiation for Provider Firms, RIA Succession Planning, Selected Firms Advisor Satisfaction, Challenges Facing Smaller Wealth Management Providers, Chapter 5: Boutique Segments 44. Boutique Firm Segments, Advisors Preferred Channel, Marketshare of $100m+ RIAs, Advisors Preferred Destination within RIA Channel, Distribution of Assets among RIAs, Projected Buyer of Practice, RIA Mergers and Acquisitions: AUM and Number of Transactions, Q Anticipated Multiple of GDC on Sale of Practice, Notable Boutique Acquirers, The Colony Group Mintz Levin Merger, Case Study: HighTower 54. Notable HighTower Advisor Recruits, HighTower Transition Process Steps HighTower Advisor Affiliation Models...99 Chapter 6: Expanding Boutiques 57. Relative Strengths and Weaknesses of Traditional Advisory Distribution Channels, Breakdown of Clients Moving with Advisor by Channel, Advisor Move Types, The Elzweig Recruiting Deal Outlook, Existing Retention Deal Expiration Dates, HighTower as PR Machine, Projected Experienced Advisor Moves, Boutique Advisory Firms and RIAs 7 C A

6 SAMPLE SECTION from THE CERULLI REPORT: BOUTIqUE AdvISORy FIRMS ANd RIAS 2013: BALANCINg SCALE ANd INdEPENdENCE FOR TOP-TIER AdvISORS

7 Introduction form updates that would help their practices, but have little impact on the rest of the firm. Cerulli believes that high-production teams will increasingly seek out firms that focus on their specific needs rather than affiliate with providers that seek to serve a wide range of advisors across multiple segments. Defining Boutiques The most important concept in considering the potential of boutique advisory firms is that there is no single line in the sand that delineates a boutique; numerous firms operate across a continuum, with each adopting its own preferred combination of factors that contribute to its degree of boutiqueness. As will be discussed throughout this report, there is an ongoing blurring of the lines between channels as firms across the industry largely try to move away from a legacy of stock brokerage and towards a more broad focus on wealth management. From a general perspective, the defining features of a boutique are that the firm is of limited scale, focuses on above average advisors, and operates in what Cerulli considers an advisor-centric model, meaning that advisor-client relationships are central to the firm s value proposition and revenues. EXHIBIT 4 Boutique Defining Elements, 2012 Advisor-client relationships are central to boutiques value. Source: Cerulli Associates Element Guidelines Explanations Advisor-centric Limited scale Majority of revenues from retail advisor advice relationships Generally less than 200 advisors in group Limited focus on complementary proprietary product offerings May exist as autonomous unit within larger firm (such as an OSJ within a large IBD) "Above average" advisors Focused on advisors with AUM above national average of $36 million Usually team-based wealth managers to serve higher net worth market segment. Of course, the term boutique implies not only that a firm is of limited scale, but also that it offers a degree of sophistication and specialization. All these elements are central parts of the appeal of the boutique segment. Highly productive financial advisors have been a valued part of wirehouses and other large employer B/Ds for many years. These firms have made tremendous efforts to retain and recruit these advisors, but despite these efforts, many top advisors still felt that they were either not receiving the ideal mix of support to help grow their businesses, or simply wanted to improve their long-term financial position by retaining more of the revenues they generated and creating standalone salable businesses. Across the industry, even those firms that have structured their overall value proposition around maintaining a monolithic stature within wealth management have taken steps to offer their advisors models Boutique Advisory Firms and RIAs 21 C A

8 Chapter 4 Boutique Building Blocks attract top-performing advisory practices. Advisors want to be able to control those aspects about which they are most passionate, but also recognize the benefits of professional management. Establishing Differentiation When working as employee advisors at wirehouses, many advisors believe they are intimately involved in every aspect of their practice s operation. However, they are frequently shocked at the level of complexities and details that are actually performed by their home office or shared support staff when they consider a move to independence. Suddenly, ensuring clients best interests could be replaced at the top of an advisor s priority list with a concern that the office s computers are working properly or that each individual advisor s compliance files are current. Aiding advisors in addressing these needs and concerns is central to the value of boutiques. Advisors are interested in allying with others for their benefit, but do not want to compromise their core beliefs in how a practice should be run to do so. The variety of affiliation options available in the boutique segment reflects the breadth of choices available. The challenges faced by potential breakaway practices literally start from the ground up. EXHIBIT 43 Challenges Facing Smaller Wealth Management Providers, 2013 Boutique providers must choose their level of service in each category. Source: Cerulli Associates Issue Description Boutique Solutions Office establishment basics Creating formalized business plan Establishing physical locations and adding staff Transition assistance professionals Access to capital when necessary Technology platform solutions Too many variables to judge them all accurately Desire for flexibility Pricing power held by providers Strong advisor input in selection process Preferred recommendations but allow other options Group pricing power Product breadth/due diligence Ensuring best products are available on platform Ensuring consistent assessment methodology Access to investment banking and loans Adding centralized review teams Sharing of best practices and methods Shopping local providers for competitive pricing Compliance and regulation Costs of administering compliance programs Advisor-created liabilities Centralized oversight balanced with advisor discretion Selectivity in recruiting Lack of brand and trust Investors unfamiliar with firm Lack of trust in smaller firms Creating cache brands through marketing assistance Affiliating with well-known service providers Short-term focus/succession planning Advisor success not aligned with firm goals Immediate rewards favored over long-term growth Advisors unsure of how they will retire Allure of wirehouse recruiting packages Better alignment of firm and advisor goals Equity interests promote more collaboration Some models allow for liquidity and ownership Provide succession buyout funding C A 76 Boutique Advisory Firms and RIAs

9 Company Index AdvisorAssist A.G. Edwards Altegris Baird... 52, 56 Bank of America... 45, 49, 50 Bear Stearns... 23, 33 Benjamin F. Edwards & Co... 52, 53 Bierne Wealth Management Buckingham Asset Management Cambridge Investment Research Cetera Financial Charles Schwab... 33, 63, 83, 94, 98, 107 Citigroup Commonwealth Financial Network... 75, 94 Convergent Crystal Capital Dynasty... 48, 52, 94, 95 Fidelity... 20, 33, 63, 83, 94, 98, 107 First Financial Equity Focus Financial Partners... 49, 90, 91 Fortigent GenSpring Guggenheim HighTower Advisors... 35, 48, 50, 51, 52, 82, 90, 94, 96, 97, 98, 99, 100, 109 Hirtle Callaghan J.P. Morgan Lehman Brothers... 23, 33 LPL Financial LVW Advisors Madison Dearborn Medical Capital Merrill Lynch... 23, 45, 49, 50, 51, 56, 91, 95 MF Global Mintz Levin... 91, 92, 93 Morgan Stanley... 47, 48, 49, 50, 51, 87 National Financial Oxford Financial Group PaineWebber Pershing... 20, 63, 98 Polaris Venture Partners Provident Raymond James... 52, 62, 83, 100 RBC... 56, 98 Smith Barney... 48, 94 Snowden Capital Advisors Stifel Nicolaus Summit Partners LP TD Ameritrade... 63, 83 The Advisor Group The Colony Group... 91, 92, 93 UBS... 50, 51, 52, 86, 91, 100 United Capital Financial Advisors... 90, 93 U.S. Capital Advisors... 52, 86, 87 Boutique Advisory Firms and RIAs 113 C A

10 Company Index U.S. Trust Vanguard Wachovia... 24, 45, 53 Waldron Wealth Management Wells Fargo... 45, 51, 52, 53, 60, 100 C A 114 Boutique Advisory Firms and RIAs