Merrill Lynch Banking & Financial Services Conference November 12, 2008 David Steyn Executive Vice President Global Head of Client Service and Marketing and the AB logo are trademarks and service marks owned by L.P.
Cautions regarding Forward-Looking Statements Certain statements provided by management in this presentation are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. The most significant of these factors include, but are not limited to, the following: the performance of financial markets, the investment performance of sponsored investment products and separately managed accounts, general economic conditions, future acquisitions, competitive conditions, and government regulations, including changes in tax regulations and rates and the manner in which the earnings of publicly traded partnerships are taxed. We caution readers to carefully consider such factors. Further, such forward-looking statements speak only as of the date on which such statements are made; we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. For further information regarding these forward-looking statements and the factors that could cause actual results to differ, see Risk Factors in Part I, Item 1A of our Form 10-K for the year ended December 31, 2007 and Part II, Item 1A of our Form 10-Q for the quarter ended September 30, 2008. Any or all of the forward-looking statements that we make in this presentation, Form 10- K, Form 10-Q, other documents we file with or furnish to the SEC, or any other public statements we issue, may turn out to be wrong. It is important to remember that other factors besides those listed in Risk Factors and those listed above could also adversely affect our revenues, financial condition, results of operations, and business prospects. 1
This is a good time for rigour, to look at what you want to come out with at the other end of the tunnel. This is not a time to skimp on resources but to focus them on your best businesses: stop the weakest, invest in the strongest. Jack Welch Financial Times July 26, 2008 Our Best Businesses are (or will be) ones where: We improve investor outcomes by our actions and those of our partners We do so profitably and sustainably 2
Our Business Low Sustainable Profitability High Alignment High Manage to Improve Profitability Divest Invest Manage to Improve Alignment Low 3
That Was Then Institutions Private Clients Retail 4
This Is Now Shared Offices SPMs Institutions Regional Sales Managers Latin America Endowment & Foundations Private Clients Retail BDM s & Investment Directors Sub-Advisory Defined Contribution Client Communications Training Planning & Analysis Pooled Vehicles 5
That Was Then: Our Story in 2007 AUM by Client Domicile AUM by Service Revenue by Service US 53% Non-US 47% US 41% Non-US 59% US 32% Non-US 68% 6
This Is Now Demographics Globalization Longevity One World Portfolio Regulation & Accounting Financial & Technological Innovation UK Pensions Act 2004 FRS 17 US Pension Protection Act 2006 FAS 158 Volatility Alpha-Beta: Isolate, Integrate and Immunise 7
The Changing Face of Our Business Unique Risk Beta Sensitivity Best Advice Alpha Sensitivity Intermediated Savers DC Participants High Net Worth Individuals/Families Not Rich Rich DB Plans Pooled Risk 8
The Changing Face of Our Business Unique Risk Intermediated Savers High Net Worth Individuals/Families Not Rich Rich DB Plans DC + DB Plans Pooled Risk 9
The Changing Face of Our Business Source Alpha Platforms Assembled Advice Platforms 130/30 Wealth Strategies Single Country Global Global + Emerging Currency Overlay Retirement Strategies Global Retirement Strategies Customized Retirement Strategies LDI Anchored to Market Outcomes Anchored to Client Outcomes 10
The Changing Face of Our Business US DC AUM Projections $ Trillions $3.3 4.4 $(2.6 3.8) New Plans New Participants New Contributions 0.2 0.1 0.2 3.0 4.0 IRA Rollovers 2.3 3.3 $3.0 $7.5 8.5 $4.1 Withdrawals 0.3 0.5 2006 Inflows Outflows Asset Appreciation (at 6.1% CAGR) 2015 Source: McKinsey Analysis 11
The Changing Face of Our Business Past Future Simple Technology Hard to use Expensive Complex Technology Easy to use Inexpensive 12
The Changing Face of Our Business Past Future Plan Design No guidance, expansive choice Automation, focused choice Accumulation Company stock, stable value Low-cost custom target-date funds Decumulation IRA rollover and withdrawals In-plan guaranteed income Plan Metrics Participation and deferral rates Retirement income adequacy Providers Record keeper controlled Best-in-class open architecture 13
The Changing Face of Our Business: Back To The Future Plug and Play Multi- Manager Structure Cost-Efficient Institutional Vehicles Low Cost 1 Secure Lifetime Income 4 Integration of Design Within Target-Date Structure Clearing House for Insurers and Recordkeepers Well-Researched and Documented Design Customizable to Plan- Specific Needs 2 3 Simple Participation Consulting and Project Management Full Suite of Communications Content Source: 14
Why Is Partnering So Important? Record Keepers Asset Managers Insurers Investment Only Customized Retirement Strategies Secure Retirement Strategies 15
Why Is Partnering So Important? Investment Only Investment Manager Investment Manager Investment Manager AB Record Keeper Plan Sponsor 16
Why Is Partnering So Important? Customized Retirement Strategies Investment Manager Investment Manager Investment Manager AB Record Keeper Plan Sponsor 17
Why Is Partnering So Important? Secure Retirement Strategies Investment Manager Investment Manager Investment Manager Insurer Insurer AB Record Keeper Plan Sponsor Insurer 18
Employer-Based Defined Contribution Plans Total Assets: $4.1 Trillion 457 401 403(b) SEP, SIMPLE, Solo(k) Federal Employees Thrift Plan $300 $725 $230 $170 $2,860 Source: SPARK Marketplace Update, 2008 19
Employer-Based Defined Contribution Plans $3.7 Total Assets: $4.1 ^ Trillion 457 $300 $230 $170 401 403(b) $725 SEP, SIMPLE, Solo(k) Federal Employees Thrift Plan $2,860 Source: SPARK Marketplace Update, 2008 20
Employer-Based Defined Contribution Plans $3.7 Total Assets: $4.1 ^ Trillion 457 $300 $230 $170 401 403(b) SEP, SIMPLE, Solo(k) Federal Employees Thrift Plan $2,155 ABDC Sales $725 $1,430 $1,430 $ 1,600 Existing Sales Force (Supported by ABDC) Source: SPARK Marketplace Update, 2008 21
US DC Strategy Plan Size: $0-50M $50-300M $300M+ AUM: $1.1 Tril. $0.9 Tril. $1.7 Tril. $3.7 Tril. Bernstein Advisors Institutional Advisors ABI Advisors ABDC Advisors 22
US Private Client Strategy 2003 Five Year Growth Plan: Expand local market presence to cover majority of US wealthy households Grow Advisor staff from 175 to 350 Explore international markets December 31, 2003 June 30, 2008 CAGR (%) AUM $51 Billion $100 Billion 16.1% Client Relationships 21,000+ 33,900+ 11.3% Advisors 166 330 16.5% Offices 11 19 US Coverage of Wealthy Households 35% 60% US Square Footage 176K 369K 17.9% Existing Offices 176K 287K 11.5% 23
US Private Client Strategy One dot = 250 households with > $2MM in investable assets Source: Claritas 2008 24
Expansion Options: Evaluation Factors High Leverage of Firm Resources Resident Advisor New Markets Affiliated Offices Existing Offices Effective New Advisor Development Environment 25
US Private Client Strategy Margin 26
US Private Client Strategy $ In Millions 2007 Average AUM Per Advisor* $445 $4.0 2007 Revenue Per Advisor* $105 $104 $90 $0.8 $0.8 $0.7 Bernstein Merrill Lynch Smith Barney Morgan Stanley Bernstein Merrill Lynch Smith Barney Morgan Stanley *Excludes Advisors hired during the calendar year Source: Bernstein 27
Merrill Lynch Banking & Financial Services Conference November 12, 2008 David Steyn Executive Vice President Global Head of Client Service and Marketing and the AB logo are trademarks and service marks owned by L.P.