CIFs, Model Portfolios and 404a-5 William David Hand,

CIFs, Model Portfolios and 404a-5 William David Hand,

CIFs, Model Portfolios and 404a-5 William David Hand, CEO Hand Benefits &Trust a BPAS Company MSPA, MAAA, EA BPAS Partner Conference June 9 -11, 2014 Collective Trust Funds vs Mutual Funds Collective Trust Funds Mutual Funds No redemption or CDSC fees Redemption and/or CDSC fees may apply No initial deposit minimums Initial deposit minimums may apply

Available to IRC 401(a) qualified retirement plans Exposure to retail flows Typically no distribution of dividends Long-time industry standard Trust, audit, and custody included Trust, audit, and custody included Participant materials available Daily valued with daily liquidity

Daily valued with daily liquidity NSCC tradable Participant materials available Transparent, institutional fee structure NSCC tradable More flexible record keeper pass-through arrangements Less flexibility in pass-through costs 403(b)9 Church Plans/457 Plans

Less flexible fee structure 1 Magnitude or Parameters of CTFs Estimates (Department of Labor): approximately $2.1 trillion in CTF CTF assets roughly evenly split between DC and DB Approximately 2,400 U.S. CTFs in the public (including multiple share classes) Eliminating multiple share classes: approximately 1,300 products (or strategies) Another 1,000 U.S. CTFs that are non-public AUM and number of CTFs are estimates- and will likely remain estimatesbecause CTFs are unregistered, without regular and public reporting to regulators and exchanges and public database participation is voluntary 2 General Information On which trading platforms are the funds available? STN MidAtlantic Capital Charles Schwab Trust Company Matrix MG Trust Company Reliance Trust Company Wilmington Trust Company

BPAS Wells Fargo Bank (Wachovia Bank) TD Ameritrade Frontier Trust Company SEI Private Trust Company Great West (GWFS / GWRS) BMO Harris What are the typical services fees offered: 0, 25, 35 (25/10), 50 (25/25), 65 (50/15) Most can be paid to one or split between two service providers brokers and/or TPAs 3 Merrill Lynch availability Nationwide availability Fidelity availability Principal availability Record Keeping and Compliance Problems with Models Becoming a Designated Investment Alternative (DIA) model, can only have investments on the Plan menu

Becoming a Qualified Default Investment Alternative(QDIA) , DOL and Best Practices on disclosures for comparative chart with fee and performance data Administration problems with Models on R/K Systems 4 Customized Target Date & Life Style Funds Plan Sponsor favors Transparency, Cost, Holdings, Custom Glide Paths, use of Alternative Assets Plan Advisor RIAs favor customized solutions across broad asset classes, World Market diversification and Custom Glide Paths 5 CTF Advantages over Models The collective trust structure provides advisors with an investment vehicle, which has been utilized in retirement plans since the 1920s. CTFs offer distinct advantages over other custom asset allocation solutions including:

Scale: CTF advisors may effectively leverage their scale with significant savings in the investment management fees. Investment Options: The underlying investment options in CTFs may include low cost institutional mutual funds and CTFs with minimum investment thresholds and alternative investments. ETFs and other securities may be used within the collective funds which would not be appropriate as individual investment options within a plan. Distribution: CTF advisors have investment products, which are traded via the NSCC and may be made available on multiple retirement trading platforms. Performance: CTF advisors have an investment product with a simple NAV to NAV performance calculation. Once the funds go live a performance history is reported via Morningstar and fact sheets. Audit: Plan clients will take comfort in the independent and internal audits of the trustee and the CTFs. Regulations: Plan clients will take comfort in the well established regulatory framework for CTFs. Experience: CTFs have been included in retirement plans, including participant directed plans, for many years. Participant Advice: CTFs also lend themselves easily to advice solutions. 6 What Leads Advisors to Collective Trust Funds? Scale Alternate Assets

Multiple Plans Mutual Fund CUSIP Multiple Platforms (Fidelity, Schwab, STN & Matrix) Advisor Brand Lower Cost Assets not on menu Sector Funds Commodities Tactical Hedge Underlying Investments Other CTFs ETF Inst. Index Fund Impact Cost Collective Trusts New Business

Model Compliance Audit Back Tested Returns DIA/QDIA Increased Revenue Investment Advisor Fees High Revenue Sharing Low Cost CTF Plan Level Fees 7 Advisor to Trust Solicitor Fee/Trust Service Fee/Trust Eligible Investment Advice Advisor Brand

Case Study I Model Portfolios Passive Funds Objective: Move from Recordkeeping Models to CTF Solution Observations: Underlying cost of Investment Funds RIA/RK Model HB&T CTF Solution Net Savings Small 23bps 11bps 12bps 8 Large 23bps 6bps 17bps New Business Models Advisor to Trust Sub- Advisor To CTF (Fee 20-60bps)

Trust Company Advisor CTF R1 20bps R2 40bps R3 60bps Multiple Share Classes Advisor has Multiple Fee Arrangements Per Share Class Trading Platform Record Keeper 9 Advisor Becomes a Solicitor Advisor / Solicitor Trust Company XYZ Investment Firm CTF Sub- Advisor XYZ Investment Firms

R1, R2, R3 Advisor / Solicitor Receives Solicitor Fees by Share Class R1 - 5bps R2 10bps R3 15bps Platforms Record Keeper Multiple Service Fees Sub- Advisor XYZ Investment Management Trust Company XYZ CTF R1, R2, R3 Platforms R1 R2 R3 IM 20

35 45 TPA 0 25bps 35bps RIA 0 15bps 25bps Total 20bps 75bps 105bps Record Keeper THANK YOU! Your Logo

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