Brinker Capital My Personal Benchmark

Broker Dealer Home Office Overview

Brinker Capital, a Registered Investment Advisor. For broker dealer home office use only. For financial professional use only. Introduction

● There are two major investment risks investors frequently fail to focus on: ● variance drain ● behavioral bias

● If an advisor can help manage portfolio volatility they can help control investor behavior.

● Brinker Capital Personal Benchmark seeks to manage portfolio volatility. When volatility is managed, irrational behavior is less likely.

● The ultimate outcome over time is an increase in investor purchasing power.

For broker dealer home office use only. 1 Variance Drain: Less Diversified Portfolios Have a Larger Variance which Results in Lower Compounded Returns

240 240 ● Variance drain operates under Cumulative Return Chart 07/2002 to 06/2012 the theory that between two 220 220 portfolios with the same beginning value and the same 200 200 average return, the portfolio less diversified will have a larger 180 180 variance and a lower compound return than the well-diversified 160 160

portfolio with a smaller variance 140 140 and a higher compound return. 120 120 ● The well diversified portfolio usually generates more ending 100 100 wealth than the less diversified 80 80 portfolio. '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 Inflation (CPI-U All Items SA) Equal Weighted Multi-Asset Class Portfolio ● Given extreme volatility, variance S&P 500 Total Return drain can dramatically affect Source: Brinker Capital, Inc. and FactSet ending dollar values.

For broker dealer home office use only. 2 Risk Management is the Cornerstone of Good Investing

● Variance drain shows advisors how emphasizing management of portfolio risk instead of attempting to pick investment winners can lead to enhanced portfolio return.

● Reducing portfolio variance of returns and keeping the size of fluctuations in portfolios values low are more effective ways of enhancing wealth.

● We believe the best way for an advisor to increase investor returns is to concentrate more on managing risk and less on trying to increase return via stock picking or market timing.

For broker dealer home office use only. 3 Behavior Bias: Feeling Pain of Loss 2x Greater Than Pleasure of Gain

● Loss Aversion suggests people are more motivated to avoid losing something than Pleasure they are to acquire something new.

● Behavioral tendencies can cause investors to do the wrong thing at the wrong time. Small Pleasure ● Loss Aversion is the reason we keep the Loss Gain gym membership even though we don’t use it, it’s the reason people hoard material Big Pain possessions and stay in bad investments. The idea is that losing something costs you more happiness than gaining something gives you.

Pain

Source: Tversky, Amos; Kahneman, Daniel (1981). "The Framing of decisions and the psychology of choice".

For broker dealer home office use only. 4 Agenda: The Pathway to Increasing Investor Purchasing Power

1 Multi-Asset Class Approach

2 Mental Accounting (aka, Bucket Approach)

3 Personal Benchmark Approach: Discover, Design & Deliver

For broker dealer home office use only. 5 Portfolio Framework: Based on our Six Asset Class Methodology 1

An Investment Philosophy Focused on Purchasing Power

● Brinker has developed and consistently executed an investment philosophy which utilizes six liquid asset classes which we feel creates more purchasing power for investors with $100,000 to more than $100 million

We allocate capital across six asset classes and use highly focused stock selection

For broker dealer home office use only. 6 Personal Benchmark Thesis: 2 Mental Accounting is the Model for Structuring the Portfolios

Using the principle of “mental accounting” to structure investor portfolios on the basis of these four investment categories:

Investment Purpose Category Accumulation Appreciation, accepting greater volatility

Tactical Manage volatility and focus on opportunity for appreciation Income Generate cash flow while limiting volatility

Safety Preserve principal and reduce overall portfolio volatility.

Taken together, these four investment categories comprise the investor’s portfolio strategy. Typically, the weighting to these categories will determine the investor’s dominant objective, or experience the investor wants.

For broker dealer home office use only. 7 Rooted in Tenets of Behavioral Finance 2

Behavioral finance tells us how people relate to and interact with their investments. Personal Benchmark solves for these common irrational investor decisions: ● Well-known theorized psychological heuristics – “Rules of Thumb” (i.e., anchoring, familiarity, availability) ● Emotional decision making about money and investments – which ultimately erodes purchasing power and undermines long- term goals ● Framing effect – people react differently to a particular choice depending on whether it is presented as a loss or as a gain

Personal Benchmark uses the principles of behavioral finance within all aspects of the portfolio: Portfolio Construction • Proposal System • Quarterly Report • Mobile Application • Outcome Oriented • Website Portfolio Construction • Wide Breadth of Front-end Offerings Available Back-end Sales Process Reporting

Brinker has designed a system which uses the principles of behavioral finance to structure investor portfolio strategies with the goal to create purchasing power while managing volatility.

And…is scalable for Financial Advisors!

For broker dealer home office use only. 8 We Seek to Provide Investors the Comfort and Confidence to Invest 2

Performance of the markets vs. an average mutual fund investor

Investors who avoid relying on Investor their emotions Behavior are much more Gap likely to succeed in the long run.

Source: DALBAR Quantitative Analysis of Investor Behavior 2012 (QAIB). www.dalbarinc.com Average equity fund investor and average bond fund investor performances were used from the DALBAR study, QAIB 2012. Average stock investor, average bond investor and average asset allocation investor performance results are based on a DALBAR study, “Quantitative Analysis of Investor Behavior (QAIB), 2012.” DALBAR is an independent, Boston-based financial research firm. Using monthly fund data supplied by the Investment Company Institute, QAIB calculates investor returns as the change in assets after excluding sales, redemptions and exchanges. This method of calculation captures realized and unrealized capital gains, dividends, interest, trading costs, sales charges, fees, expenses and any other costs. After calculating investor returns in dollar terms, two percentages are calculated for the period examined: Total investor return rate and annualized investor return rate. Total return rate is determined by calculating the investor return dollars as a percentage of the net of the sales, redemptions, and exchanges for the period. Equity Performance is represented by the Standard & Poor's 500 Composite Index, an unmanaged index of 500 common stocks generally representative of the U.S. stock market. Fixed income performance is represented by the Barclays Capital Aggregate Index. The Barclays Capital Aggregate Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar denominated. This index covers the U.S. investment grade fixed rate bond market, with index components for a combination of the Barclays Capital government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities. Past performance is no guarantee of future results. Performance of an index is not illustrative of any particular investment. It is not possible to invest directly in an index. *Hypothetical balanced Investment based on the performance of an investment weighted 50% to the S&P 500 index and 50% to the Barclays Capital Aggregate Bond Index. It is not possible to invest directly in an index.

For broker dealer home office use only. 9 Thought-Leadership Partner 2

Brinker Capital, Inc. in partnership with Dr. Daniel Crosby, a psychologist and behavioral finance expert, will work to help educate advisors and their clients on how to eliminate common pitfalls that many investors make when emotions get involved in the investment decision-making process. Investors who avoid relying on their emotions are much more likely to succeed in the long run.

Marketing Support: Whitepaper series Blogs Bylined articles Video series Webinars Research symposium Speaking events Client seminars

Biography Dr. Daniel Crosby is a behavioral finance specialist contracted with Brinker Capital, Inc. Dr. Crosby's thought leadership has appeared in Registered Rep, Risk Management Magazine and the Huffington Post. His first book, "You're Not That Great", applies behavioral finance principles such as loss aversion and availability heuristic to the pursuit of a meaningful life. Dr. Crosby is working closely with Brinker Capital on their Personal Benchmark portfolios which are constructed utilizing a multi-asset class structure and can help manage volatility, control investor behavior and increase purchasing power over time. When Dr. Crosby is not working at the intersection of minds and markets, he enjoys following St. Louis Cardinals baseball, attempting to play the guitar and watching independent movies.

For broker dealer home office use only. 10 Personal Benchmark: Developed with YOU in mind 3

- uncover and develop a plan centered around what matters most to you

- investment approach designed around your goals

- execute portfolios that fit your needs and monitor success against a personalized benchmark

For broker dealer home office use only. 1111 Discover: Uncovering What Matters Most 3

The Discovery Process

Consider your dreams and clarify your Knowing the purpose of your money Step 1 simplifies the investing process. personal wealth goals

Commit to measuring against your Step 2 personal goals and not an index

Set a course that will help manage Step 3 volatility

Stay disciplined to manage Step 4 emotions

For broker dealer home office use only. 1212 Design: Goals-Based Approach to Investing 3

The Personal Benchmark employs an investment philosophy focused on creating purchasing power and managing volatility. You decide and rank which objectives are most important to you. The goals-based investment mix is developed using the Brinker Capital Investment Strategy Matrix.

Designing your Discuss with your financial advisor the following objectives that are The right mix is developed from the Personal Benchmark most important to you: Brinker Capital Investment Strategy Matrix

A stable account meant to provide safety for your assets along with liquidity to meet short-term needs.

A current income account meant to provide income to help meet current cash flow needs.

A tactical asset account that provides diversification from the markets and seeks to find alternative investment opportunities to help beat inflation.

A future income account meant to help you maintain your purchasing power today but also accumulate assets so they’re available for you down the road.

For broker dealer home office use only. 13 Deliver: Personal Benchmark Portfolio Strategies 3

Brinker Capital Investment Strategy Matrix

Safety Income Tactical Accumulation Mix Preservation and Income (Qual. & NQ) 35% Defensive 40% DI 25% Crystal 20/80 Conservative (Qual. & NQ) 45% Defensive 25% Crystal 30% Moderate 30/70 Conservative Income (Qual. & NQ) 25% Defensive 30% DI 20% Crystal 25% Moderate 30/70 Stable Growth (Qual. & NQ) 25% Defensive 20% Crystal 55% Moderate 40/60 Stable Growth and Income (Qual. & NQ) 10% Defensive 30% DI 10% Crystal 50% Moderate 40/60 Balanced Growth (Qual. & NQ) 30% Defensive 20% Crystal 50% Aggressive 50/50 Balanced Growth and Income (Qual. & NQ) 20% Defensive 30% BI 15% Crystal 35% Aggressive 50/50 Growth (Qual. & NQ) 15% Defensive 20% Crystal 65% Aggressive 60/40 Growth and Income (Qual. & NQ) 10% Defensive 20% BI 15% Crystal 55% Aggressive 60/40 Accumulation (Qual. & NQ) 10% Defensive 10% Crystal 80% Aggressive 70/30

(Income-focused Preservation Conservative Stable Growth Balanced Growth Growth strategies) & Income Income & Income & Income & Income

Conservative Stable Growth Balanced Growth Growth Accumulation

Source: Brinker Capital, Inc. For illustrative purposes only.

For broker dealer home office use only. 14 Deliver: Measure performance against your personal benchmark 3

Each quarter, review the following:

● How well you maintained purchasing power

● How well you managed volatility

● How were you protected against behavioral bias (making bad decisions)

Source: Brinker Capital, Inc. For illustrative purposes only.

Review your personal benchmark goals that were attained and then set new goals and objectives for next quarter.

For broker dealer home office use only. 15 Fee Schedule 3

AUM Brinker Custody/Clearing Total Fee Capital Fee Fee $250,000 to $500,000 50 bps 20 bps 70 bps $500,000 to $750,000 50 bps 15 bps 65 bps $750,000 to $1,000,000 50 bps 10 bps 60 bps $1,000,000 to $1,500,000 50 bps 5 bps 55 bps $1,500,000 and above 50 bps 5 bps 55 bps

Source: Brinker Capital, Inc.

For broker dealer home office use only. 16 Main Idea & Next Steps

Main Idea:

● We believe Personal Benchmark are scalable portfolios constructed by a best in class investment manager that utilize a multi-asset class bucket structure to help manage volatility, control investor behavior and increase purchasing power over time.

Next Steps:

● Partner with Brinker Capital National Account Team to schedule a training date for your firm

● Identify additional opportunities to work together: sales campaigns, webinars, speaking opportunities, newsletter article placement

For broker dealer home office use only. 17 Brinker Capital Overview

Brinker Capital, a Registered Investment Advisor. For broker dealer home office use only. For financial professional use only. Brinker Capital: Unwavering Focus on Investment Excellence

Brinker Capital’s purpose is to protect and Assets Under Management: $13 Billion grow real purchasing power for the clients we serve. By Client Group Institutional 9% Full Service Retirement 68% For more than 25 years, our sophisticated 7% investment process has enabled financial advisors to provide a wide array of RIA investment products and services that help 15% meet the needs of individual investors, institutions and family offices.

As of 12/31/12. Amount in US dollars. Percentage may not equal 100 due to rounding. Source: Brinker Capital

For broker dealer home office use only. 19 Brinker Capital: A History of Innovation

Website Personal as mobile Portfolios, a app Unified Managed Account Launched Launched Online investment Institutional Adopted Global Absolute management and Private Investment Performance Return Managed Accounts proposal system Client Group Standards (GIPS). Mixer App

1992 1995 2000 2004 2006 2009 2010 2011 2012

Launched Crystal Diversified Asset Income Allocation Program Restructured Dollar Value Averaging Destinations Program Launched Crystal Strategies

Introduced Personalized Distribution Strategy

For broker dealer home office use only. 20 Brinker Capital: Strength and Stability

Privately held organization focusing on clients’ needs ● As a private company, we are free of the pressure of quarterly earnings. Our clients know Financial Strength that we will focus entirely on meeting their needs. ● Strong financial balance sheet. ● No derivative or off balance sheet obligations.

A partner you can depend on ● Nearly half of our employees have been at the company 10+ years or longer. Organizational Stability ● The average tenure of our portfolio management team is 18 years in the industry and 9 years with Brinker Capital. ● As a privately-held company, significant capital is reinvested back into the firm on an ongoing basis in the form of technology and staffing in order to manage future growth.

Diverse yet complimentary business lines Business Stability ● Independent Registered Investment Advisor and will act as an Investment Manager under ERISA 3(38). ● Revenue derived from multiple product and client types. ● $13B in assets under management (as of 12/31/12).

For broker dealer home office use only. 21 Brinker Capital: Investment Products and Services

Brinker Capital’s purpose is to provide real purchasing power for the clients we serve

Individual Investors Institutions Family Offices

For more than 25 years, our sophisticated investment process has enabled financial advisors to provide a wide array of investment products and services.

We allocate capital across six asset classes and use highly focused stock selection

Investment Platforms Investment Services ● Mutual Funds ● Dollar Value Averaging ● Exchange Traded Funds ● Personal Distribution Strategy ● Separately Managed Accounts ● Asset Class Strategies ● Unified Managed Accounts ● Family Office Solutions ● Individual Securities ● ERISA 3(38) Fiduciary

Solutions

For broker dealer home office use only. 22