Flexible Plan Investments, Ltd. Firm Highlights • Founded February 1, 1981 • Approximately $1 billion assets under management* • 50+ employees • 500+ B/D or RIA contracts • Have managed: • Over 20,000 clients • Over 1,000 retirement plans • Client Communications including: • OnTarget Monitoring • Quarterly Client Newsletter • Weekly Hotline • Daily web access * Approximate Value as of April 30, 2011 FPI and subsidiary.
Who We Are • Research-driven • PhD led research department with over 65 combined years of professional experience in market analysis • Compliance-focused • Over 100 years combined legal experience with 3 attorneys on staff • Separate Compliance Officer • Service-oriented • 14 external Regional Sales Managers • 6 person internal advisor support team • Client Services call center • Interactive website
The Elevator Pitch Flexible Plan Investments has managed mutual fund and variable annuity accounts for tens of thousands of clients and retirement plan participants for over 25 years. We work through financial advisors to increase their income and free time – allowing them to develop and help more clients, while we manage their investments – seekingto reduce risk and enhance returns systematically.
Why Risk Management? Chinese Proverb: Fish see the bait, but not the hook; men see the profit, but not the peril.
Bear Markets Hurt — The Facts • Bear Market defined: > 20% decline • Average frequency since 1929: A newbear market begins every 5.29 years • Average duration of a bear market: 18.1 months • Average bear market decline: 38.2% • Average time lost making up a bear market loss: 3.5 years SOURCE: FPI 2008.
S&P 500 Index Bear Market Study September 1929 through December 2007 Duration Time Needed Bear Market in Months % Decline to Breakeven Sept. ’29 - June ’32 33 86.7 25.2 July ’33-Mar ’35 20 33.9 2.3 Mar ’37-Mar ’38 12 54.5 8.8 Nov ’38-Apr ’42 41 45.8 6.4 May ’46-Mar ’48 22 28.1 4.1 Aug ’56-Oct ’57 14 21.6 2.1 Dec ’61-June ’62 6 28 1.8 Feb ’66-Oct ’66 8 22.2 1.4 Nov ’68-May ’70 18 36.1 3.3 Jan ’73-Oct ’74 21 48.2 7.6 Nov ’80-Aug ’82 21 27.1 2.1 Aug ’87-Dec ’87 4 33.5 1.9 July ’90-Oct ’90 3 19.9 0.6 Mar ’00-Oct ’02 31 49.1 ? SOURCE: FPI 2008.
Mathematics of Declines and Advances It takes the following If the decline is to break even -5% +5.3% -10% +11.1% -25% +33.3% -33.3% +50% -50% +100% -75% +300% -90% +900%
Which Investor Would You Rather Be? Portfolio APortfolio B Year 1 +20% +10% Year 2 +20% +10% Year 3 -20% +10% Year 4 +20% +10%
Based on a $100,000 investment... • Portfolio A would have generated $38,240, experiencing a compound return of 8.43%. • Portfolio B would have generated $46,410 pursuing more stable returns of 10%.
The Average Stock Market CycleBased on Average +20% Bull and Bear Markets in the Dow 1885-1993 Bull Market High Previous High Break Even Next Low Bear Market Low Actually Making Money Only 24% of Time Average Number of Months SOURCE: Wagner, The Journal of Investing, Summer 1997.
Our Investment Formula: System + Discipline = Success Computer Coded Trading Provides the Discipline…But What System?
Four Approaches to Risk Management Passive Asset Allocation Market Timing Dynamic Asset Allocation Strategic Diversification
Pros and Cons of Passive Asset Allocation Definition: A portfolio statically allocated to funds representing different asset classes. Advantage: Risk is lower than the average risk of each asset class used. Disadvantage: Percentage allocations reviewed only quarterly Reallocations merely tweak the percentages Not responsive to the market Mediocre performance by definition Requires investor to throw good money after bad. Must sell winners to buy losers
Pros and Cons of Market Timing Definition:Tactically allocate the entire portfolio to the asset class that has the highest probability to advance. Advantage:When it works, you buy low and sell high. Disadvantages:Top-down signals can get out of synch with market Under-diversified; buys only asset class Funds used to implement the strategy can be out of synch with the market Does better the more active it is, that and 100% in/out trading cause fund relations problems
Survey of 26 Market Timers 1985-1990 (After Minimum Fees) SOURCE: Wagner, Shellans and Paul, The Journal of Portfolio Management, Summer 1992.
Further Validation Building on the Wagner, Shellans and Paul 1992 Study, a new study of market timers found: “We provide new evidence regarding the ability of professional market timers…Contrary to most prior research, we find evidence of significant ability across all tests and portfolios.” The Performance of Professional Market Timers, Chance and Hemler, Journal of Financial Economics, 2001
Pros and Cons of Dynamic Asset Allocation Definition: Weekly reallocation of portfolio to the funds that are performing best drawn from a universe of funds covering all the asset classes. Advantage: Responsive and diversified Rarely out of synch with the market Has delivered value added returns. Profits from 2 market inefficiencies – a rising trend tends to persist – momentum buys – regression to the mean – turnaround buys Cash - a safe haven when nothing else is working Disadvantage: Trendless periods lead to small whipsaw losses
Why Utilize Only One Strategy in a Changing Market… When You Can Have StrategicSolutions for any Market? strategicsolutions
Strategic Solutions Overview • Strategic Solutions is a fee-based investment management program • Helps investment professionals build a portfolio that best suits their clients’ risk tolerance and return objectives • We select from institutional, no-load or NAV- traded load funds • Proprietary management strategies • Automated Trading Process • Systematic Portfolio Review • Suitability-based Strategies strategicsolutions
Strategy Summary • 19 Strategies Available • 5 Suitability-Based Strategies With Multiple Client Profiles • Lifetime Evolution • Next Generation Asset Allocation • Market Leaders (3 Versions) • Strategic Allocation • Dynamic Fund Profiles strategicsolutions
Strategic Solutions Strategies Specialty StrategiesStrategic Allocation (Unlimited or a Customized Portfolio of Strategies)Dynamic Fund Profiles (5 Profiles) (4 FPI sub-advised mutual funds using ETFs, open and closed-end funds and stock baskets)Select AlternativesBear NecessitiesBest TechFor A Better World Momentum Strategies Lifetime Evolution (12 Profiles) Next Generation Asset Allocation (5 Profiles) Market Leaders Strategic (5 Profiles) Global Select Global Maturities Managed Income (2 variations) Evolution II A Better Buy & Hold Tactical Strategies Market Leaders Dynamic (5 Profiles) Market Leaders Tactical (5 Profiles) Political Seasonality Systematic Advantage Classic Self-adjusting Trend Following strategicsolutions
Capital Market LineStrategic Solutions Efficient Frontier Research Report (1997-2008 June) Data Source: Dial Data and DTN. See Strategic Solutions Research Report and glossary for strategy details and Brochure Form ADV for “Risk Considerations.” ** Disclosure Page is an integral part of this presentation.
The Power of Combining Strategies at Strategic Solutions Average Data Source: Dial Data and DTN. See Strategic Solutions Research Report and glossary for strategy details and Brochure Form ADV for “Risk Considerations.” ** Disclosure Page is an integral part of this presentation.
Strategic Solutions Fees Total Assets FPI Fee Rate* Rep Fee Rate First $500,000 1.00% Up to 1.6% Next $500,000 0.75% Rep Choice Over $1,000,000 0.50% Rep Choice * In the event Client fails to provide Consent for Electronic Delivery of Documents Client will also be charged a paper delivery fee of $30 per quarter. • FPI fees are fixed; Reps choose their compensation • combination of FPI and Rep fee can total up to 2.6% • Reps may add 1.2% establishment fee (1% to Rep) • All fees are paid in arrears • Fees liquidated directly from the client’s Trust Company assets • Fund credits are available to reduce fees (up to 75 bps)
Flexible Plan Advantages • Active not passive investing • Multiple strategies available • More time for asset gathering and client service • 4 suitability-based strategies supported • Local sales support in the field • In-house sales and customer support • Predictable income stream for rep
Summary • Strategic Solutions provides investment professionals with fee-based asset management • Predictable Revenue • Increased Trail • Access to thousands of mutual funds • Various investment management strategies • Clients can select one or a combination of strategies whose investing style aligns with their personal goals and risk profile
Summary • Strategic Solutions helps to free up an ever-important commodity for reps: Time. • Allows investment professionals more time to focus on their clients • Advisers can outsource to Flexible Plan some of the maintenance of a client's portfolio • Strategic Solutions helps maintain clients' investment expectations with monitoring via OnTarget Investing
Doing Business is Easy • Fax us • A recent client statement & • A one-page client suitability questionnaire • We will send you • A personalized client proposal
Research Reports Disclosures The Research Report results are HYPOTHETICAL. See Glossary for explanation of testing methodologies. The performance results depicted have been produced by application of selected mathematical calculation criteria to historical price data. Annual returns are compounded weekly and are inclusive of the last full trading week of the year, but may not necessarily include the last trading day of the year. Research Report results are NOT represented as actual trading or client experience nor do they reflect the impact on decision making of economic or market factors experienced during actual management of funds . Performance between selected dates may be misleading as indicative of overall performance of a strategy since the dates, chosen by the operator of the program, are susceptible of having been selected to present optimum performance. Investment advisory fees vary between 1% and 2.6% yearly, dependent upon assets under management and are deducted quarterly. Expenses of the funds are included to the extent they are reflected in the NAV. Other fees may apply. The maximum Strategic Solutions establishment fee of 1.2% has been deducted from the initial balance. All expenses are required to be disclosed in each investment ’s prospectus, available from your financial representative and the product provider. Distributions have been reinvested. When provided, dividends are reinvested for indexes. In those cases where indexes do not provide dividend information, those returns would be understated. As individual tax rates vary, taxes have not been considered. Various minimum holding periods for each fund may be utilized to comply with trading restrictions. Advisor reserves the right to change these periods. No index is directly tradable. Actual investment performance of any trading strategy may frequently be materially different than the results shown. Some funds used in the model may not be available for future use. As supplemental information, a listing of all assumed trades and other data used to generate the referenced results is available upon request. PAST RESEARCH REPORT RESULTS DO NOT GUARANTEE FUTURE RESULTS. See FPI Research Report and Glossary for details.
Disclosure Page "Model Account Summary" Rate of Return Report "Model Account" results for the identified investment management strategy shown, are time weighted monthly geometrically linked returns and, to facilitate timely month-end reporting, are from single reviewed accounts as representative of returns which reflect actual fund families and reflect the actual dates of Flexible Plan's buy and sell signals. If an account terminates during a period, an alternative single account is substituted. Selection of accounts to serve as "model accounts" is based on the longevity of the account and least amount of additions and withdrawals. Accordingly, many of the single accounts serving as 'models' are titled in the name of Flexible's President and sole shareholder, a person related to Flexible. Enhancements have been made in several of our methodologies on numerous occasions, which is believed to have had a positive effect on returns. The extent is not precisely quantifiable, but as these are actual returns, the effect of these enhancements is reflected. Efforts to develop indicators are ongoing and may result in further changes. Dividends are reinvested. Mutual fund or annuity results will vary based upon their volatility as they relate to the S&P 500 Index or other indices that may be shown. Specific mutual funds, sub-accounts or indices may materially outperform or under perform these results. Various mutual funds or sub-accounts used in the model may no longer be available due to fund consolidations and exchange conditions imposed by the funds or annuity. Reference to popular market indexes are included to demonstrate the market environment during the period shown and are not intended as 'benchmarks.' Such indexes may not be comparable to the identified investment strategy due to the differences between the indexes' and the strategies' objectives, diversification, represented industries, number and type of component investments, their volatility and the weight ascribed to them. No index is a directly tradable investment. Strategic Solutions fees are deducted quarterly at the annual rate of 2.6%. Actual fees will vary between 1.0% and 2.6% annually. The maximum Strategic Solutions Establishment Fee of 1.2% has been deducted from the initial balance. All mutual fund fees and expenses are included to the extent they are reflected in net asset value; other non-advisory fees may apply. As individual tax rates vary, taxes have not been considered. Inherent in any investment is the potential for loss as well as the potential for gain. A list of are recommendations made within the immediatelypreceding year is available upon written request. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS
Why Utilize Only One Strategy in a Changing Market… When You Can Have Strategic Solutions for any Market? strategicsolutions