Excelsior Family Office S2 WORKBOOKDecisions and Notes for Modules 1 – 5

BSMARTer Business Simulation Management and Relationship Training

Organizational Structure and Compensation

MODULE 1

Service Team Structure

Example diagram of service team structure.

Wealth Management Professional

Tax professional Investment professional Client service

Client service

*Lead Partner

*all firm partners are available to clients based on the clients needs and the partners expertise *a firm partner is assigned to each client relationship and is accountable to Excelsior along with the Wealth Management Professional for the development and satisfaction of the client.

Service Team Structure

3

• The Wealth Management Professional (WMP) will lead the relationship and be responsible for directing firm resources based on clients needs . The WMP will be ultimately accountable for the relationship and the primary point of contact for client activity except daily client service needs.

• The tax professional will primarily coordinate and consolidate tax related documents for the clients they are assigned. They will coordinate tax activity, such as tax loss harvesting, with the investment professional assigned to the client and provided expertise in any tax related discussion with the client.

• The investment professional will coordinate all investment activity for the client. They will be the chief portfolio manager for the client. The will create, with the WMP, the investment policy statement and construct the portfolio allocation based on the clients needs. They will manage and monitor the allocation and provide quarterly updates and reviews for the client.

• Two client service managers will be assigned to each client. One will be the primary lead CSM and will be responsible for coordinating all client service such as new accounts, bank wires, check disbursements, transfer assets and securities between accounts etc.

• * A senior firm partner (owner) will be assigned to each client. Senior partner involvement shows commitment to the client. Each senior partner has a unique skill set that may be valuable to the client relationship. As such all partners will be available to assist with client related issue. (e.g. Mikey Presscott- is Excelsior’s General Counsel could be very helpful to a client in the process of negotiating a sale of a business.) Access to senior leadership for timely decision making , and finally to ensure that no one advisor at Excelsior family office can walk out the door with a relationship.

Provide an explanation of your service team structure.

Compensation Benchmarking

4

Determine base compensation for three employees in your briefing book. Complete the task using the next two pages.

Position Salary Bonus Total

Your Lowest-Paid Employee

$55,000 $0.00 $55,000

Your Highest-Paid Employee

$595,000 $0.00 $595,000

Mid-range CEO-$190,250 CEO-$65,000 CEO-$370,642

Benchmark Median

CEO-$200,000 CEO-$55,000 CEO-$323,875

Benchmark Third Quartile

CEO-$260,750 CEO-$100,000 CEO-$531,283

See Appendix A for position compensation information Source: 2013 InvestmentNews/Moss Adams Comp Study

Compensation Benchmarking

5

• The biggest change is to reduce Ronda’s salary of $2M to an industry standard salary for a Board Chairman. In this case $350,000. (The management team will discuss with Rhonda the importance of making this change. As an owner of the firm she is entitle to a return from her investment but that it will be structured as a dividend payment)

• Reduce base compensation of partners (owners) to 75% of current compensation. The remaining (25%) comp will be re- structured as a bonus based on contribution to pre-established firm and individual goals.

What changes, if any, will you make to compensation?

Staff Selection and Performance Management

MODULE 2

Performance Evaluation

7

Design a performance evaluation form. Follow the worksheet. (20 minutes) Job Factor Explanation

1.Client Satisfaction: 25%

We want all employees to participate in delivering the client experience. Client surveys questions will be specific to the firm and employee.

2. Client Development and Retention: 25%

All owners, partners and employees will play a role in new client development. We believe client satisfaction will lead to retention of customers, customer referrals and ultimately new business.

3. Excelsior Culture and Engagement: 25%

We want all employees to understand each others needs, feel good about their co-workers, have an appropraite work life balance and make a positive contribute to creating a profesional and positve work environment

4. Fidelity Performance Evaluation: 25%

See attached work sheet from Fidelity Practice Management that will be incorporated into the review process

5. Employee Reviews

Each employee will have a formal Annual Evalution and Performance Review. Employees will have monthly one on ones with their manager to discuss progress and contribution to their goals.

Describe how the forum will be used.

The Culture of Your Firm

MODULE 3

Organizational Culture

8

Current culture: we are in the process of integrating two different cultures. Some employees are not engaged, feel left out and do not have an appropriate work life balance.Goal:We will create a culture of engaged, enthusiastic employees that understand their role and are empowered to act for the benefit of the client and firm and are recognized for their contribution.Excelsior will be based on meritocracy.We believe the engaged employees, that understand and appreciate each others contributions will enjoy coming to work ultimately deliver the best client experience.Changes:Friday lunches with the whole officeMentoring of all employees with the goal of improving moral, sense on belonging and to create leaders within the firm for succession. Creation of an engagement committee to sponsor our values, fun events and recognize employees contribution.We will create a culture of recognizing people doing good things and announce them firm wide in real time.Review our office space and create an open floor plan with no offices for all employees. This will allow Excelsior to live and work in “client time”. ( a few meetings rooms will be reserved for client appoints and big group meetings).Create a “Fun Committee” for team building activities for all office employees . Examples for quarterly activities: informal in office day log Holiday theme days and parties. (e.g. 4 th of July in the office barbecue, opening day, support your local team sporting events, team dinners, office birthday celebrations..etc.)Create a Excelsior charitable team –The purpose of the team is to think about local charities / causes we can support. Examples.. Support a needy family around the thanksgiving / x-mas. Raise $ for Jimmy fund/Cancer research etc.

Describe the culture of your firm. What changes would you make? How?

Incentive Compensation

MODULE 4

Incentive Compensation

9

What is the position what are you going to do about it and why?

Advsiors compensation will be redesigned to include a salary plus an eligible bonus pool. Total comp for Advisor will not change at the Excelsior level but it will be redistributed based on an Advisor’s contribution relative to their pre-established goals. The range will be as low as 50% of the pool for low performers and as high as 150% for high performers.

The bonus pool for advisors will be 10% EBIT.Earnings: $811,62810% of EBIT : .10 X $811,628Advisor Bonus Pool: $81,628

After implementing changes to Rhonda’s salary and beginning to charge Rhonda’s family for Investments management Excelsior revenue projection are as follows:

Revenue increases by $ 2,160,000 (Rhonda’s AUM @.50bps): $7,165,000Expense decline by $1,650,000 (Rhonda’s salary reduced to $350,000) $4,299,400

Gross Margin: $2,865,600Total Overhead: $2,053,972

Operating Profit: $811,628

Design Advisor Bonus Plan

Partner Compensation

MODULE 5

Partner Compensation

10

Excelsior currently has six employees categorized as Advisors. They are three investment personnel and three wealth management personnel. The current compensation range is $185,000 to $225,000.

Based on Fidelity’s “Sample Compensation Ranges for 10 Key RIA Jobs “ based on the Los Angeles , California area, partners/ advisors total compensation should average $175,000 to $230,000. Base compensation would average $135,000 to $175,000.

Excelsior base compensation for advisors/partners will be set a 70% of their current income with the remaining income made up of bonus and equity participation in the growth of Excelsior.

Set the base compensation for your partners.

Partner Incentive Compensation

11

At Excelsior Family Office we believe employee compensation should be based on, among other things, experience, tenure, contribution the success of Excelsior, Engagement with fellow employees and client satisfaction.Base compensation 70%Bonus pool up to 30% of baseParticipation in the growth of the firm phantom equity will be up to 10% of base.

At Excelsior we will reward employees for contributing to the success of the firm. Incentive compensation will be based on meritocracy and goal attainment. Goals will be establish a the beginning of each year an measure throughout the year based on distinct measurable attributes as well and subjective peer review.Examples of measureable goals will be client satisfaction, investment performance, asset and revenue growth.Examples of subjective goals will be peer evaluation and manager assessment.

Create, discuss and define incentive compensation for partners.

Other Initiatives

12

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.

Notes

Initiative Explanation

1. Reduce Ronda’s pay from a $2,000,000 salary to a salary appropriate for her role as Chairman of the Board of Excelsior.

Ronda is not an employee of Excelsior and as such she should not be employed and earn such a high salary. She is entitle to “compensation” as the owner of Excelsior but that compensation will be restructured as a dividend payment based on earnings.

2. Begin charging the Hagart family 50 bps for wealth management.

As a client of Excelsior the Hagart family should pay for service that the firm provides their family. This will also encourage all employees to treat Ronda and her family as clients.

3. Create an Phantom Equity based program for all employees

We want all employees to participate in the success of Excelsior and to incent them to act as owners of the firm.

4.Allocate 10% of EBIT to a bonus pool for advisor/partners.

We want all advisor/partners of the firm to drive growth, earnings and client satisfaction. We feel creating a bonus pool from earnings will create a positive incentive to work. (note page 14 for a re-worked Income Statement showing the calculations)

5. Allocate 30% of EBIT to an incentive pool for owners.

Same as above. Re-work owners compensation to create a level of compensation in line with industry benchmarks but we will change the compensation to reflect actual earning metrics of the firm. As above we want every owner to be vested in the success of Excelsior and reward them based on their contribution.