Principled Portfolio Solutions SM Foundations for Practice Growth and Client Success Managed by: Available through: FDx Advisors, Inc., A FolioDynamix Company Proprietary and Confidential
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 Proprietary and Confidential. Not for use beyond intended audience. For institutional use only. Page 2
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 Proprietary and Confidential. Not for use beyond intended audience. For institutional use only. Page 3
Client Experience is Key 1 � 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 Proprietary and Confidential. Not for use beyond intended audience. For institutional use only. Page 4
Asset Gains – Existing Clients 1 CLIENT LOYALTY - NEW ASSETS GIVEN Investment Performance vs Overall Experience 91.7% Exceeded Performance vs Expectations 30.7% 25.0% Matched 24.1% 13.0% Below Overall Experience 28.3% Investment Performance 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% % of Clients Giving Additional Assets in Previous 12 Months 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 Proprietary and Confidential. Not for use beyond intended audience. For institutional use only. Page 5
Asset Losses – Existing Clients 1 CLIENT LOYALTY - ASSETS TAKEN AWAY Investment Performance vs Overall Experience Overall Experience Investment Performance 3.7% Exceeded Performance vs Expectations 56.4% 46.5% Matched 55.0% 68.3% Below 43.9% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% % of Clients Taking Away Assets in Previous 12 Months 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 Proprietary and Confidential. Not for use beyond intended audience. For institutional use only. Page 6
Where Do You Get the Time? � Loyal clients report 10 times as many contacts over a 12-month period than moderately satisfied clients PERCENT LIKELY TO LEAVE THEIR ADVISOR Moderately Satisfied 23.2% Satisfied 12.4% Loyal 0.0% 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 Proprietary and Confidential. Not for use beyond intended audience. For institutional use only. Page 7
Meeting the Challenge � To structure your practice to focus on the client experience, you need: Client Process • an effective investment process Practice and Success • an efficient operational process Operational Investment Process Process to provide a foundation for • a “five star” client process Principled Portfolio Solutions Provide a Foundation Proprietary and Confidential. Not for use beyond intended audience. For institutional use only. Page 8
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 Proprietary and Confidential. Not for use beyond intended audience. For institutional use only. Page 9
The Core Investment Principles � Diversification � Goal-Based Asset Allocation � Multi-Manager Portfolio Construction � Ongoing Manager Monitoring and Risk Management � Disciplined Rebalancing � Tax Aware Implementation Proprietary and Confidential. Not for use beyond intended audience. For institutional use only. Page 10
Why use a Disciplined Investment Program? � Behavioral bias can cause investors to hurt themselves Annualized Returns 1989-2008 10 9 8.4 Net Flows Into Mutual Funds 8 100 91 90 7 80 6 70 5 60 Billions 50 4 2.9 40 3 30 1.9 2 20 6 10 1 0 0 After Best Quarter After Worst Quarter 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. Proprietary and Confidential. Not for use beyond intended audience. For institutional use only. Page 11
A Question � Which do you prefer? a) 70% chance of receiving $3,000 b) Receiving $2,000 Proprietary & Confidential. Not to be distributed beyond the intended audience. Proprietary and Confidential. Not for use beyond intended audience. For institutional use only. Page 12
Another Question � Which do you prefer? a) 70% chance of losing $3,000 b) Losing $2,000 Proprietary & Confidential. Not to be distributed beyond the intended audience. Proprietary and Confidential. Not for use beyond intended audience. For institutional use only. Page 13
Putting Investment Principles into Action A Complete and Disciplined Investment Process Asset Allocation Policy Client Tax Considerations Manager Selection Portfolio Active Risk Policy Proprietary and Confidential. Not for use beyond intended audience. For institutional use only. Page 14
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 Proprietary and Confidential. Not for use beyond intended audience. For institutional use only. Page 15
Marketing Collateral and Research Support � PPS Brochure � PPS Fact Sheets updated quarterly for each custodian � FDx Advisor Notes � Research Questions Proprietary and Confidential. Not for use beyond intended audience. For institutional use only. Page 16
Core Asset Allocations Moderate Moderate Aggressive Aggressive Conservative Conservative Balanced Balanced Growth Growth Growth Growth Growth Growth Asset Class Asset Class Cash Cash 5 5 2 2 2 2 2 2 2 2 Fixed Income Fixed Income 65 65 48 48 33 33 18 18 ‐ ‐ Domestic Equities Domestic Equities 3 2 3 2 18 18 40 40 50 50 60 60 12 12 25 25 18 18 30 30 38 38 International International Equity /Fixed Equity /Fixed 30E/70F 30E/70F 50E/50F 50E/50F 65E/35F 65E/35F 80E/20F 80E/20F 98E/2F 98E/2F Proprietary and Confidential. Not for use beyond intended audience. For institutional use only. Page 17
PPS Detail – Expense Ratios Weighted Average Expense Ratios of Underlying Funds PPS 50K Minimum Portfolios (Basis Points) 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 � 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. Proprietary and Confidential. Not for use beyond intended audience. For institutional use only. Page 18
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