WealthTouch S2 WORKBOOK Decisions and Notes for Modules 1 – 5 BSMARTer Business Simulation Management and Relationship Training MODULE 1 Organizational Structure and Compensation Service Team Structure Draw a picture of your service team structure. Our client centric model is set up specifically to support the complex needs of our client base senior executives, law firm partners, business owners, real estate developers and their families. Please see the next page for a more detailed description of the structure and it’s benefits for our clients, our employees and WealthTouch as a firm. Client Senior Advisor Investment Mgmt Tax Dept Advisor Client Service Team Service Team Structure Provide an explanation of your service team structure. Our client centric model (versus the productivity centric model) is set up specifically to support the complex needs of our client base - senior executives, law firm partners, business owners, real estate developers and their families. Through an ensemble model, the client coverage model is structured so that there are 2 advisors assigned to each client relationship and each are further supported by the breadth of service, investment management and tax expertise at the firm. The Senior Advisor is ultimately responsible for the client relationship, all associated key decisions and typically leads on the complex financial planning topics (estate planning, investment management, tax planning). The Advisor will be involved in all client conversations and meetings and will lead on implementation of the key decisions, coordinating with the Client Service Team as well as the client on an ongoing basis. All day to day service and operational items will be owned by the Client Service Team. They are responsible for all transaction, reporting, processing requests from the Senior Advisor and Advisor and from the client. If additional subject matter expertise is needed with a highly complex client situation, a portfolio manager from the Investment Management team or a Tax Department employee will be involved. The benefits of this model provide our clients a clear understanding of accountability, coverage, and transparency into WealthTouch’s client centric philosophy and how dedicated we are to serving our client needs. • The client benefits in that they are provided a WealthTouch team representative of the firm and that they are not reliant on a single point of contact – an ensemble model. • The employees benefit as their respective responsibilities are defined and accountability is outlined. • The employees also benefit from a more defined wealth management career path. • The employees and the firm benefit from Senior Advisor/Advisor teams which will be assembled based upon client needs, complexity and work loads. Advisors will be matched with a maximum of two Senior Advisors in order to foster collaboration with multiple Senior Advisors, and expose them to additional skills sets and styles. • The firm benefits with the clarity which will better help them attract the right high quality candidates in the future. • The firm also benefits with a reduced risk that an advisor will depart and take his/her book with them because the client is a client of the firm and multiple advisors are involved. Compensation Benchmarking Determine base compensation for three employees in your briefing book. Complete the task using the next pages. Senior Advisor The analysis shows that our highest paid Senior Advisor Wendy Fitzhugh is well below not just the third quartile, but the benchmark median for a Senior Advisor. Position Salary Bonus Total Your Lowest-Paid Employee $92,105 $12,895 $105,000 Your Highest-Paid Employee $109,649 $15,351 $125,000 Mid-range $99,394 $13,918 $113,333 Benchmark Median $110,000 $18,000 $134,000 Benchmark Third Quartile $133,143 $36,850 $197,500 Maris Astudillo Wendy Fitzhugh Advisor The analysis shows that with the exception of Caroll Wilcon the WealthTouch Advisors are in the benchmark third quartile range. Caroll Wilcon is compensated well above that range. Position Salary Bonus Total Your Lowest-Paid Employee $70,175 $9,825 $80,000 Your Highest-Paid Employee $122,807 $17,193 $140,000 Mid-range $95,394 $13,355 $108,750 Benchmark Median $65,000 $9,720 $81,332 Benchmark Third Quartile $84,000 $15,000 $100,813 Ligia Moller Caroll Wilcon Portfolio Manager Analysis was focused on Senior Advisors and Advisors, but PMs were included to review differences between Wealth and Investment Management compensation. Position Salary Bonus Total Your Lowest-Paid Employee $143,421 $20,986 $170,888 Tanisha Quintal Your Highest-Paid Employee $178,915 $25,048 $203,963 Benton Dingee Mid-range $162,796 $22,792 $185,588 Benchmark Median $81,802 $9,562 $84,000 Benchmark Third Quartile $100,000 $12,850 $137,633 Benchmark data source: 2013 InvestmentNews/Moss Adams Comp Study Compensation Benchmarking What changes, if any, will you make to compensation? We propose several changes to our compensation plan, as well as possible personnel changes, to better align the structure with compensation philosophy to demonstrate our commitment to and value of our employees. It is designed to be consistent and provide a frame of reference for all compensation discussions. • Implement salary ranges for Senior Advisors and Advisors • Introduce salaries into the compensation equation for owners • Implement a variable compensation component to drive new business Implement salary ranges for Senior Advisors and Advisors Our analysis was done using industry benchmarking data (see previous page) and we concluded that the target ranges for our Senior Advisors and Advisors should be between the median and third-quartile benchmark. This resulted in our identifying additional changes and opportunities: • Base increase, recognize a key contributing employee – Wendy Fitzhugh/Senior Advisor will receive an increased base salary to $125,000. Wendy was compensated under the benchmark median. This raise, standard bonus in addition to a New Asset Incentive (introduced later in this section) will put Wendy within the established WealthTouch range for Senior Advisor. • Career path opportunities identified– To be considered in conjunction with Performance Evaluations (detailed in a later section), several personnel have been identified for potential promotion (Carol Wilcon from Advisor to Senior Advisor) or ownership (Wendy Fitzhugh from Senior Advisor to Principal). If implemented, we recognize that these changes would have the dual effect of boosting employee morale with well-deserved promotions from within and demonstrate consistency of the overall compensation framework. • Communicate – Having done the analysis, we in WealthTouch management will articulate the compensation framework, set expectations on ongoing work and formally recognize our key employee. We will address the difference, not discrepancy, in how Investment Management and Wealth Management employees are compensated. While overall compensation for Investment Management associates tends to be higher vs. Wealth Management associates (consistent with industry benchmarking data), the New Asset Incentive will likely benefit Wealth Management associates more directly, allow them to achieve higher pay as they generate new business. Compensation Benchmarking What changes, if any, will you make to compensation? Introduce salaries into the compensation equation for owners – we will institute salaries into the compensation of the owners that are active in running the business (all principal/owners, with the exception of our private equity partner, Cohesive Capital Partners). The purpose of this strategy is to delineate the compensation of those individuals in their role as employee vs. their ownership stakes. In doing so, we will properly compensate (relative to the market) for the different roles each individual is performing (CEO, CIO, Head of Wealth Management, etc) within the organization. In terms of execution, we intend to deduct the owners salaries after Cohesive Capital has been paid it’s 30% of the Operating Profits, per their original agreement with Wealth Touch. With this structure, Cohesive will remain whole, and there is better definition of compensation (as employees) amongst the owner/employees. Ultimately, this will result in a more seamless transition as owner/employees retire from their active employee roles and are replaced by the next generation of leadership. (Please see the Partner Compensation section for details on each partner and their salaries.) Implement a variable compensation component to drive new business – At WealthTouch, we’ve approached our overall compensation plan with the understanding that compensation plan design is essentially a connection between performance expectations/priorities, actual compensation (how much to pay, how to pay it, the performance level required to earn it), and managing for performance results. Simple plan designs that are credible, easy to understand, and can be administered consistently and effectively are often the most effective in helping employees focus on the desired priorities, connect them to the success of the firm, and reward desired results. With that in mind, we will create a new incentive called the “New Asset Incentive” funded by a pool (up to $250,000) as an expense before Operating Profit, to be used to fund the variable compensation for those responsible for driving new business from new clients, or greater share of wallet from existing clients. This plan will focus on Senior Advisors and Advisors predominantly – those with the most direct client- (and prospective client) facing roles. While this could reduce the overall compensation of the owners in the short term, Cohesive Capital Partners included, we feel this will drive the new business development culture and results we strive to achieve. We have reviewed this plan with Cohesive Capital Partners, and they are fully supportive of this approach given its efforts to improve top line revenue and Operating Margin. In the long run, Cohesive Capital Partners, as well as WealthTouch’s owners, will benefit as the firm succeeds in delivering new business. (Please see the Incentive Compensation section for the structure for more details on the New Asset Incentive.) MODULE 2 Staff Selection and Performance Management Performance Evaluation Design a performance evaluation form. Focus Area Performance Review Areas Existing Client Development New asset growth of existing client base. New Client Development Prospect pipeline development and new client recruitment. Organizational Growth, Leadership & Development Activities in support of Client and WealthTouch revenue goals, WealthTouch strategic plan and WealthTouch Talent Development. Client Focus Quantitative factors: client retention rates, client satisfaction scores Qualitative feedback: Activities and sample client interactions showing development of strong client relationships, advocacy for client. Individual Focus Productivity and prioritization skills, communication and interpersonal skills , teamwork, ability to build strategic partnerships, develop COIs, participation in industry organizations. Comments, Notes, Supporting Information Rating Performance Evaluation Describe how the form will be used. Similar to a compensation framework, a performance evaluation framework is a critical component to the success at WealthTouch - to set individual employee priorities in line with WealthTouch goals, to set expectations and to communicate successes as well as improvement opportunities. This performance evaluation framework and specifically using this form to support quality manager/employee conversations will help employees understand how they make a difference, help them develop and help keep them on track toward desired results. And, WealthTouch management will utilize the performance reviews for any compensation change discussion. For WealthTouch, the performance review worksheet has major focus areas that have been identified as key success factors for the firm: drive growth of existing client relationships, managing these existing client relationships, planning /delivering financial advice, recruiting/developing new client relationships, client satisfaction (NPS). Subject to job role: supervising the work of associate and/or support staff, industry organizational involvement, teamwork. Listed within each focus area are specific component skills and behaviors that help drive bottomline results. In order to help build and maintain a relevant and current development plan, employees and their managers will complete the assessment every 6-12 months using the following ratings: 4 - Outstanding 3 - Exceeds Expectations 2 - Proficient 1 - Needs improvement 0 - Manager has not observed n/a — Not applicable Both the employee being reviewed and the reviewing manager will complete the worksheet. The reviewing manager is responsible for gathering feedback from other employees i.e. for an Advisor, manager will gather feedback from the ensemble team including both Senior Advisors as well as the Client Service Team. MODULE 3 The Culture of Your Firm Organizational Culture Describe the culture of your firm. What changes would you make? How? At its core, WealthTouch values its employees. Employees have been and will continue to be what make our firm successful. We support diversity, equal opportunity and ensuring everyone’s voice in the organization is heard and that thoughts and ideas can be shared in a constructive and collaborative environment. This creates a solid foundation and a tremendous synergy across the firm – that is the WealthTouch culture. This cultural foundation was built by Paula/CEO and Art/COO, the firm founders and effectively the parents of this firm. To support the longevity of WealthTouch, a collective decision was made by the owners including Cohesive Capital to change how leadership and decisions have historically been viewed and made – via Paula or Art. The change will be two-fold. First, for the respective business management areas, a back-up for Paula and Art and a decision tree hierarchy will be rolled out effective immediately. Second, committees will be formed, made up of WealthTouch owners, to manage these business areas for the long term. In doing so, the next generation of owners have been empowered and the founders can focus on next steps whether that be rainmaking or retirement. Additional changes rolling out at WealthTouch also have an impact on the culture specifically related to a constructive and collaborative environment as well as a focus on WealthTouch growth. • Transparency of salary ranges and compensation differences across job types – providing structure and framework for specific job functions. • The implementation of performance reviews – providing clarity on priorities and career path opportunities. • The implementation of a client-centric ensemble service structure – maximizing use of resources throughout the firm and developing best practices and talent. • The addition of a New Asset Incentive – aligning incentives with growth goals. In summary, we want all of our employees to feel like they are part of something special when they come to work at WealthTouch. Everyone is treated with respect and their opinions are valued, no matter what role they have at the firm. We encourage both personal and professional development and at the same time want this to be a fun workplace. MODULE 4 Incentive Compensation Incentive Compensation Design Advisor Bonus Plan In addition to a bonus which rewards employees for performance across a variety of job factors (as described in the Performance Evaluation section), we have created a “New Asset Incentive” which rewards employees for their focus and success with new asset growth, further supporting a culture of business development. This expands the reward for growth beyond partners who through their ownership interest are inherently rewarded. And while partners have historically been the rain makers, this New Asset Incentive may help build the next generation of business development talent. Details of the New Asset Incentive structure are below: New Asset Incentive – New Clients* New Asset Incentive – Existing Clients** • 20% of the fees in the first year • 10% of the fees in the second year • 5% of the fees in the third year • 5% of the fees in the first year • 3% of the fees in the second year • 1% of the fees in the third year *New assets over $3m from a new client qualify for the bonus. Assets must remain under management by the firm for the full three years. **New assets over $1m from an existing client qualify for the bonus. Assets must remain under management by the firm for the full three years. Additionally, employees deemed responsible for bringing in new assets may at their discretion allocate a percentage of the bonus to others in the firm to reward them for their support and efforts. This feature was strategically put into place to encourage the collaborative team environment which is so important to our culture. MODULE 5 Partner Compensation Partner Compensation Set the base compensation for your partners. Currently, at WealthTouch, partners don’t receive a salary. All compensation is a distribution of profits after the preferred dividend to Cohesive Capital. We are transitioning to a compensation structure which includes a base salary component for partners in order to create a distinction between compensation/salary for work and compensation/dividends for ownership and investment in the firm. This new compensation structure will enable us to facilitate future organizational changes as individuals want to either wind down their work commitment or to become an owner (i.e. Paula wants to retire, Wendy to become a partner). Below are the salaries we have determined (all within industry benchmarked standards) for each of the “active” principals in the organization: Paula Simon, CEO & Head of Tax: $250k Art Garfunk, President: $250k Carry Phillips, Managing Director of Alternative Investments: $125k Wendle Wilson, Managing Director of Wealth Management: $125k Chuck Phillips, CIO: $125k In addition to their salaries, the owners can participate in the New Asset Incentive as well as receive compensation for the ownership interest – both elements are tied to growth and encourage a business development organization within management. Partner Incentive Compensation Create, discuss and define incentive compensation for partners. The fundamental goal of WealthTouch’s compensation philosophy is to attract, retain and motivate employees. WealthTouch’s compensation philosophy is designed to track the development of skills, and reward employee proficiency and productivity, rather than longevity. Historically, one aspect of overall compensation that has been lacking at WealthTouch is an attractive variable incentive component for wealth management associates, including partners. Although this has not been an obstacle for generating new business in the past, it can be leveraged to further drive new business in the future. In order to maintain consistency in compensation plan design, the same variable compensation plan created for Senior Advisors and Advisors will be implemented for partners. For new business closed, variable compensation will be as follows: New Asset Incentive – New Clients* New Asset Incentive – Existing Clients** • 20% of the fees in the first year • 10% of the fees in the second year • 5% of the fees in the third year • 5% of the fees in the first year • 3% of the fees in the second year • 1% of the fees in the third year *New assets over $3m from a new client qualify for the bonus. Assets must remain under management by the firm for the full three years. **New assets over $1m from an existing client qualify for the bonus. Assets must remain under management by the firm for the full three years. This variable component is designed specifically as an incentive-based bonus plan that will bolster the business development spirit of the entire organization and drive new business to the firm. This program – funded by the partners themselves – will more than pay for itself as the behaviors we intend to drive are executed upon successfully, resulting in increased top line revenue and profits. Another “halo effect” organizationally from incentive compensation programs like this is the infectious sense of duty of identifying and harnessing new opportunities for the future of the firm. As Partners set the example, associates will adapt to and embrace the sales-driven theme set in motion by the principals – a critical step in establishing a true business development culture throughout the organization. Other Initiatives Describe any other initiatives you will undertake as a firm. These may be outside of the scope of compensation and people but may be important parts of your case.