About FDx Advisors FolioDynamix and FDx Advisors FDx Advisors - - PowerPoint PPT Presentation

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Principled Portfolio Solutions SM

Foundations for Practice Growth and Client Success

Available through: FDx Advisors, Inc., A FolioDynamix Company Managed by:

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About FDx Advisors

• FolioDynamix and FDx Advisors
• FDx Advisors is a wholly owned subsidiary of FolioDynamix
• Offices in New York, Philadelphia, Phoenix and Sacramento
• Leading provider of wealth management platforms and investment programs
• Accounts under administration: ~ 3.3 million
• Assets under administration: ~ $120 billion
• Assets in investment programs: ~ $8 billion
• FDx Advisors builds and manages investment programs using mutual funds,

exchange traded funds and third-party investment managers

• Principled Portfolio Solutions Investment Team
• Ron Madey, CFA, Chief Investment Officer, 24 years experience
• Ken Kideckel, CFA, Director, Portfolio Strategy, 16 years experience
• Ron Chavez, CFA, Director, Manager Research, 17 years experience
• Manager research team - 8 analysts, 10+ years average experience

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The Client Experience Challenge

• The environment
• Evolving client demographics
• A difficult economy
• Fierce competition
• Creating a quality client experience
• Delivering expertise across multiple specialties
• Financial planning
• Professional investment management
• Managing human behavior
• Becoming the Trusted Advisor

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Client Experience is Key1

• 87% of loyal clients intend to bring more assets to their primary

advisor versus just 23% of (merely) satisfied clients

• Loyal clients
• Provided four times as many referrals
• Took away assets from other advisors first
• Only 12% of sample defined themselves as loyal according to their actions

– referrals, assets, etc.

1 Survey results of a Janus Lab/Prince& Associates study of 919 affluent investors with AUM of at least $1 million. Private Wealth April-

May 2008

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Asset Gains – Existing Clients1

1 Survey results of a Janus Lab/Prince& Associates study of 919 affluent investors with AUM of at least $1 million. Private Wealth April-

May 2008

CLIENT LOYALTY - NEW ASSETS GIVEN Investment Performance vs Overall Experience

28.3% 24.1% 30.7% 13.0% 25.0% 91.7% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% Below Matched Exceeded

Performance vs Expectations % of Clients Giving Additional Assets in Previous 12 Months Overall Experience Investment Performance

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Asset Losses – Existing Clients1

1 Survey results of a Janus Lab/Prince& Associates study of 919 affluent invest with AUM of at least $1 million ors. Private Wealth April-

May 2008

CLIENT LOYALTY - ASSETS TAKEN AWAY Investment Performance vs Overall Experience

43.9% 55.0% 56.4% 68.3% 46.5% 3.7% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% Below Matched Exceeded

Performance vs Expectations % of Clients Taking Away Assets in Previous 12 Months Overall Experience Investment Performance

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Where Do You Get the Time?

• Loyal clients report 10 times as many contacts over a 12-month period

than moderately satisfied clients

1 Survey results of a Janus Lab/Prince& Associates study of 919 affluent investor with AUM of at least $1 million. Private Wealth April-

May 2008

PERCENT LIKELY TO LEAVE THEIR ADVISOR

0.0% 12.4% 23.2%

Loyal Satisfied Moderately Satisfied

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Meeting the Challenge

• To structure your practice to focus
• n the client experience, you need:
• an effective investment process

and

• an efficient operational process

to provide a foundation for

• a “five star” client process

Investment Process Operational Process Client Process

Practice Success

Principled Portfolio Solutions Provide a Foundation

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Principled Portfolio Solutions (PPS)

• FDx Advisors believes that investing based on time-tested principles is

a foundation for long-term investment success.

• PPS provides a set of professionally managed investment solutions

based on time-tested principles.

• The principles remain constant. The investment selections

change based on the client considerations: tax treatment, size, sophistication, goals and risk preference

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The Core Investment Principles

• Diversification
• Goal-Based Asset Allocation
• Multi-Manager Portfolio Construction
• Ongoing Manager Monitoring and Risk Management
• Disciplined Rebalancing
• Tax Aware Implementation

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Why use a Disciplined Investment Program?

• Behavioral bias can cause investors to hurt themselves

Net Flows Into Mutual Funds

91 6 10 20 30 40 50 60 70 80 90 100 After Best Quarter After Worst Quarter Billions

Annualized Returns 1989-2008

8.4 2.9 1.9 1 2 3 4 5 6 7 8 9 10 S&P 500 Inflation Average Stock Investor

1 Gavin Quill. November 2001. “Investors Behaving Badly” Journal of Financial Planning. 2001Data Period: 1990 – 1999. Flows calculated by Morningstar category 2 DALBAR. “Quantitative Analysis of Investors Behaving Badly 2009” Update. Data Period: 1989 – 2009.

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A Question

• Which do you prefer?

a) 70% chance of receiving $3,000 b) Receiving $2,000

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Another Question

• Which do you prefer?

a) 70% chance of losing $3,000 b) Losing $2,000

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Putting Investment Principles into Action

A Complete and Disciplined Investment Process

Active Risk Policy Asset Allocation Policy Manager Selection Tax Considerations

Portfolio Client

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Kovack PPS Programs

• Currently Available
• Core $30K and 50K minimum programs

10 allocations – 5 risk objectives by 2 tax types

• Custodians: Pershing & Fidelity IWS
• Planned additions for 2010
• Custodians: Fidelity NFS, Schwab, Ameritrade
• Explorer Allocations – extended fixed income and satellite asset classes
• Core & Explore program
• UMA hybrid
• FDxA Strategic Tilts and Tactical Macro Strategy

The principles remain constant The investment selections change based on the client considerations

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Marketing Collateral and Research Support

• PPS Brochure
• PPS Fact Sheets updated quarterly for each custodian
• FDx Advisor Notes
• Research Questions

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Core Asset Allocations

Conservative Balanced Moderate Growth Growth Aggressive Growth Asset Class Cash 5 2 2 2 2 Fixed Income 65 48 33 18 ‐ Domestic Equities 18 32 40 50 60 12 18 25 30 38 International Equity /Fixed 30E/70F 50E/50F 65E/35F 80E/20F 98E/2F Conservative Balanced Moderate Growth Growth Aggressive Growth Asset Class Cash 5 2 2 2 2 Fixed Income 65 48 33 18 ‐ Domestic Equities 18 32 40 50 60 12 18 25 30 38 International Equity /Fixed 30E/70F 50E/50F 65E/35F 80E/20F 98E/2F

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PPS Detail – Expense Ratios

• Differences in weighted average expense ratios by custodian due to differences in fund and share class offerings by
• custodian. As of 09/30/2009. Subject to change. Weighted average expense ratio uses the current PPS fund

allocations for each asset mix.

Portfolio A B C D E Equity/Fixed 30/70 50/50 65/35 80/20 98/2 Pershing Taxable 64.2 69.9 71.9 73.7 76.2 Tax Deferred 73.3 82.5 87.4 93.0 98.9 Fidelity IWS Taxable 65.5 68.8 70.8 72.3 74.4 Tax Deferred 61.6 65.9 68.8 71.2 74.4

Weighted Average Expense Ratios of Underlying Funds

PPS 50K Minimum Portfolios (Basis Points)

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Principled Portfolio Solutions Summary

Operational Simplicity Disciplined Portfolio Rebalancing Tax-Aware Implementation Marketing Collateral & Research Support

Portfolio Design by Client Size & Type

Goal-Based Asset Allocation Manager Monitoring & Risk Management Multi-Manager Portfolio Construction Diversification

The principles remain constant The investment selections change based on the client considerations An institutional quality investment process to help you grow and scale your practice

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Disclosures

All investments carry a degree of risk of loss of principal and there is no assurance that an investment will provide positive performance over any period of time. Investors should consider the investment objectives, risk, charges and expenses of an investment carefully before

• investing. A rise/fall in the interest rates can have a significant impact on bond prices and the NAV (net asset value) of a
• fund. Funds that invest in bonds can lose their value as interest rates rise and an investor can lose principal. High yield

bonds (lower rated or junk bonds) experience higher volatility and increased credit risk when compared to other fixed income investments. Small-Mid Cap stocks may be subject to a higher degree of risk than more established companies’ securities. The liquidity

• f the small-cap market may adversely affect the value of these investments so that shares, when redeemed, may be worth

more or less than their original cost. International stocks may be subject to a higher degree of risk than stocks of established domestic companies because of currency fluctuations, political instability and other uncertainties. Shares when redeemed may be worth more or less than their original cost. Please note that programs providing tax aware investment management should not replace your consultation with a professional advisor regarding your tax situation. Municipal bond income may be subject to state income tax if issued by a state other than your domicile state, and may be subject to the Alternative Minimum Tax. This information should not be construed as specific tax or investment advice. A prospective client should review their investment objectives, risk tolerance, tax situation, and liquidity needs before choosing an investment. The PPS program is managed by FDx Advisors, a registered investment advisory firm based in Sacramento, CA. The firm and its predecessor firms have been in business for over 20 years. The firm offers both traditional wrap programs as well as

• verlay management programs. Investment advice is offered by Kovack Advisors, Inc, a registered investment advisor.