Chip Roame, Tiburon’s Managing Principal, delivered the opening keynote presentation, and offered Tiburon’s assessment of important events and trends in the financial services industry:

• Roame characterized the significant events of the last year, including sub-prime write-offs, Bear Stearns, sovereign wealth funds, Wall Street layoffs, and the collapse of the private equity industry as “noise.”  The significant, lasting event of the prior year is the impact of declining real estate values on baby boomer liquefaction and retirement strategies. 
• The decline in housing prices presents a significant challenge to the way in which baby boomers have “saved” for retirement.  Baby boomers have saved for their retirements by assuming that they would liquefy the equity in their houses, and declining home values demonstrates that “this strategy is not working any more,” says Roame.
• Only 21% of baby boomers over age 55 have investable assets greater than $100,000.  Consumer household personal savings has been negative for the last three years (-$34.8Bn in 2005, -$96.4Bn in 2006, and -$82.3Bn in 2007), after having been in excess of $130Bn for the four years starting in 2001.  Only 2% of baby boomers will inherit greater than $100,000.
• The challenge facing baby boomers is compounded by increasing life expectancy.  The average American lives to 77.5 but, as Roame notes “this really doesn’t matter – what matters is when you retire.”  The life expectancy of someone reaching age 65 is now 87, and this is the metric against which the retirement industry must plan.
• For 90% of the households, health care and retirement savings are the twin challenges,” says Roame, adding “only 10% of households are focused on charitable giving.”
• “The next wave of investors is the retiring baby boomers, and many will not have investment experience,” says Roame, adding “they may be uninformed and will be influenced by brand names.”  The challenge for the independent industry is to achieve differentiation against the wirehouse and commercial banking segments.
• Roame predicted continued, significant sub-prime-related write-offs from the financial services industry, and cited flawed compensation systems as an underlying cause.  Roame said, “I am afraid the investment banking compensation system incents executives to take extreme risks (moral hazard).  Just think back to the bonuses in the good years; do they give those back?  Then why not take another big risk?”
• The total amount of investable assets held by consumer households is now $22.8 trillion, of which $13 trillion is held in retirement accounts.  Since this represents the market size of the financial services industry, Roame notes that no single player has significant market share.  Financial services is a fragmented industry, and even the largest players have market shares less than 2%.
• The mutual fund industry, with assets close to $11 trillion, dwarfs all other investment products.  “The mutual fund industry will be here for a long time,” says Roame, in response to those that forecast its demise.  Although some products, such as ETFs, are experiencing significant growth in percentage terms, they are a long way from catching the mutual fund industry in absolute terms.  The inflexion point for mutual fund growth was when they penetrated 401(k) accounts, and it will take a development of similar magnitude to accelerate the ETF markets.

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