EXCELSIOR TEAM WORKBOOK Decisions and Notes for Modules 1 – 5 BSMART Business Simulation...

EXCELSIOR TEAM WORKBOOKDecisions and Notes for Modules 1 – 5

BSMART Business Simulation Management and Relationship Training

Vision, Mission & StrategyThe Foundation of a Business

MODULE ONE

We Believe

• Employee engagement and satisfaction is the key to extraordinary client service.

• There has been an historical misalignment of interests and incentives between the creators of significant wealth and the advisor in the traditional investment advisory and wealth management business models.

• No single firm or advisor can effectively or efficiently serve all of the complex needs that very wealthy families have by the very complicated nature of their affairs.

• Wealthy families have earned the right for their trusted advisors to invest time and human capital into their family office to ensure that all of their idiosyncrasies are focused on in every substantial partnership that they have.

Your Vision

1. We are a group of no more than twenty families*, all of which have created substantial wealth through owning and operating a company or the sale of an operating company, that share in the collective intelligence of one another and the economic scale for investment that we have created from working together.

2. We provide exclusive, cost-effective, and priority access to industry experts who focus exclusively on family office services.

3. Our asset management firm provides our families institutional quality investment management as well as a fully outsourced CIO that will address all of their unique needs and interests.

4. All of our employees AND clients have the OPPORTUNITY to participate in the scale and economic success of the Excelsior family office.

5. Excelsior Family Office will foster a fun and engaging environment for its employees.

* Excluding Presidio legacy clients

A vision statement describes what you want your firm to look like in the future, typically three to five years out, or longer, and is both an internal and an external message. If you keep it front and center, it can help you stay focused on your goals. It can also help inspire and motivate your staff, and instill confidence in clients that you know where you want to be in the future.As you craft a vision statement for your firm, ask:• What do we aspire to become in three to five years?• What does success look like for our firm over this period?• What does our end-state look like?

A vision statement describes the future state you are looking to create – your desired end-game for the firm in 2020.

Your Mission

We will change the way that wealthy entrepreneurs preserve and protect more than just their capital – their way of life. As business-owners we understand the complexities of managing a successful business, dealing with concentrated wealth and transitioning all aspects of life after the sale of a family run business. Whether before or after the sale of a business, we believe that families should have access to the world’s most competent and trustworthy service providers to deliver well beyond what clients think is possible across all aspects of asset and lifestyle management. The cornerstone of what Excelsior does is to simplify the complicated nature of managing wealth.

A mission statement describes why you are in business, and is primarily used internally. It plays an important role in helping you assess your activities and determining if they are in line with your core purpose. It can be used to “sanity check” what you may be considering doing – if activities stray from your core purpose, you may decide not to do them or to reevaluate your mission.As you craft a mission statement for your firm, ask:• What is our purpose for being here? Why do we do what we do?• What needs do clients have when they come to us?• What are the most significant strengths of our business?• Why do clients choose our firm over other firms? What are our

differentiators?

A mission statement describes why the organization exists – its core purpose.

Your Strategy

1. Focus and Exclusivity – Limit to 20 clients and goal of $10B in AUM2. Economic interests in the success of Excelsior for BOTH employees and clients

(unique ownership structure)3. Fixed costs covered by retainer fee (not bps based); upside performance-based

compensation4. We provide consultative estate planning and tax planning services supported by a

team of in-house experts.5. We provide due diligence on and access to non-investment service providers.

Questions that may help:

• What makes us better than the competition?

• Why do customers choose us?

• What makes us unique?

• What do we have that others do not?

• What do we do that cannot be replicated?

• Why are we successful?

• What created our success to date?

Our competitive advantage is…

SWOT Analysis

4

Strengths Weaknesses• Self-governing business model that will

attract target clients• In-house investment manager on a limited

contract (could walk away if not satisfied after 7 years)

• Principal’s family and profile aligned with target client

• Potential equity dilution from new clients and employees could impact owner compensation and therefore drive poor business decisions

• Equity “compensation” for clients and employees will foster lower turnover and higher loyalty

• New business model that could draw skepticism from the market until it has been proven out and the executive team has had an opportunity to show commitment

• In-house investment management company with deep resources to drive performance, cost economies and customization

• Collaboration with partnering service providers will improve the overall level of in-depth knowledge and sophistication around any particular subject with a client

SWOT Analysis

4

Opportunities Threats• Leverage the scale of a group of very large

families to gain access to institutional services and investments while continuing to provide the customization that this type of client commands

• Forced selectivity around limited number of clients with high AUM could cause friction between business development, equity owners (including other clients), client referrals, and the executive leadership team that would all have a say in the direction of the business and acceptance of new clients

• Promote the cost effectiveness and incremental resources available to clients relative to a single family office infrastructure

• Due to the high asset level of the target client, prospective clients could choose to open their own single family office as opposed to outsourcing to Excelsior

• Build on the investment track record that Presidio has already built over time

• Due to the high asset level of the target client, prospective clients could choose to open their own single family office as opposed to outsourcing to Excelsior

• Performance-based compensation and annual reviews will differentiate versus other RIA in the market

Initiatives and Notes

Initiatives for Improvement

Write down and agree on Strategy initiatives in your firm and elect a “champion” for each initiative.

Notes

Improvement Opportunity Who Will Complete

Business Integration—Tools, technology • Integrate the Presidio team and services

into your firm as one unified family office

Sergio Garcia

Define our profiled client Ronda Hagart

Compensation and ownership structure Chris Arola

Identify/create a fee schedule of how we will charge clients Chad Dawson

Outsourcing—decide exactly what we will outsource Mikey Prescott

Create a Client Advisory Board Nathan Donovan

GrowthBuilding the Firm

MODULE TWO

Referrals

Who are you referring?

Who is the professional and what is the occupation you are referring to?

Why did you refer this particular professional?

How did you describe the professional?

What reason did you use for making the referral?

How do you expect the other person to react to the referral?

CPA Firm Potential

Have you referred clients to them?

Have they referred you to an advisor?

Have you discussed your investments with them?

Have you talked to them about financial planning?

Why or why not?

Think of your own personal CPA:

CHARACTERISTICS OF THE IDEAL REFERRAL

CHARACTERISTICS OF THE NOT-SO-GREAT REFERRAL

Business YouWould LikeTo Win

Looking to outsource all/most FO functions

Not looking to outsource all/most FO functions

Looking to be in a long term partnership type of arrangement with economic incentives

Not looking to be in a long term partnership type of arrangement with economic incentives

Willing to open their network for potential referrals

Not willing to open their network for potential referrals

The right cultural fit Not the right cultural fit

Has $100m or more in investable assets and $500m in net worth.

Does not meet minimums

CHARACTERISTICS OF THE IDEAL COI

CHARACTERISTICS OFTHE NOT-SO-GREAT COI

COI RelationshipsYou Would Like To Have

Has client characteristics similar to our ideal client

Does not have client characteristics similar to our ideal client

Has expertise in the UHNW market

Does not have expertise in the UHNW market

Has limited but deep relationships Does not have limited but deep relationships

Has targeted clients Does not have targeted clients

Ideal Profile



Write down and agree on Growth initiatives in your firm and elect a “champion” for each initiative.

Notes


Excelsior will grow based on the success of creating a network therefore:

• Create an internal culture of every employee being in “sales”- every employee knows the Excelsior story and the elevator pitch

• Define business development roles within Excelsior

• Create a network• Define our ecosystem and

create a marketing strategy to develop it

• Create a referral strategy

All

Chris Arola

AllChad Dawson

Chad Dawson

Staffing and CompensationAttracting, Retaining and Organizing Talent

MODULE THREE

Organizational Chart

Excelsior Family Office

Draw your firm’s organizational chart. Label the positions.

Ronda Hagart-FrazierChair

Chris ArolaChief Executive Officer

Mikey PrescottGeneral Counsel

Sergio GarciaAccounting/Tax

Nathan DonovanInvestments

Julian ChavezCIO

Chad DawsonRelationship

Management

Accountants

Bookkeepers

6 – Staff Level Employees

Relationship Managers

Investment Analysts

Accountants and Bookkeepers will be laid off

Compensation Philosophy

Excelsior will provide an overall compensation package that attracts competent, highly qualified and experienced employees. Employees will be treated as an owner of the firm and incented to act like one. Compensation will be both current and long term and based on performance, merit and longer term compensation as an “owner”.

What is your compensation philosophy?



Write down and agree on Human Capital initiatives in your firm and elect a “champion” for each initiative.

Notes


Create the compensation plan Chris Arola

Restructure the Excelsior Chris Arola

Create an employee “cultural” standard Everyone

Handouts in the Appendix

• Advisor HR Solutions• Sample Compensation Profiles

Operations and Technology

MODULE FOUR

Role of Operations

Service and Deliverables

Component-level Role

•

•

•

•

•

Financial Planning Investment Management

• •

• •

• •

• •

• •

List and Documents Services

ProcessInvestments

Purpose• Act as outsourced CIO• Create an Investment Policy Statement• Advise on current and proposed changes regarding Asset Allocation (strategic and tactical),

Manager Selection and security selection.• Review unique venture and direct opportunities• Integrate alternative investments and business interests in Asset Allocation• Liquidity analysis and cash flow planning• Analysis and guidance of after tax and net of fee performance• Coordination with existing advisors and mangers• Fee negotiations with managers and product providers• Quarterly market commentary, regular tactical updates, periodic manager reports• Quarterly portfolio review and client meetings, periodic conference calls

Budget

Resources Evaluate how well resource components are satisfied.

Available Scalable

Attainable Sustainable

Available

SGA = $1MM Technology = $200K (Salaried, General & Administration) (Bloomberg, Due Diligence & Research (FactSet) )


Process Reporting

Purposed

• Investment Performance Summary• Quarterly Aggregated Asset Allocation and Performance Reporting• Tracking of cost basis, cash flow, alternatives and business interests• Balance Sheet• Income Statement (outsourced as needed with accounting partnership)

Budget $200,000.00 SGA = $150,000 Technology = $50,000


Available Scalable


Available


Process Administration

Purpose• Facilitation of money movement• Bill Payment – Receive, renew and issue payment (outsourced)• Processing of MRDs, CRUT/CLAT payments• Management of PE capital calls and distributions• Delivery of tax materials• Evaluation of custodial options• Document Storage

Budget $35,000 SGA = $25,000 Technology = $10,000 ( Most technology provided by custodian and outsourced IT)


Available Scalable


Available


Process Tax Planning

Purpose• Federal, State and Local income tax review• Review of Estate and Gift Tax Plan and Returns• Tax Preparation and Estimated Tax Projections (outsourced as needed with accounting

partnership

Budget

$150,000 We plan to lay off our accountants and bookkeepers. We will keep Sergio Garcia.


Available Scalable


Available


Process Estate Planning

Purpose• Identify and Document Family Goals• Analysis and review of current strategy• Period Review of Plan including impact of new laws or changes in family dynamics• Succession Planning

Budget

$150,000 (Mikey Prescott)


Available Scalable


Available


Process Property Management

Purpose• Manage utility services• Coordinate on Site Maintenance• Construction Project Management

Budget


Available Scalable



Process Insurance and Risk Management

Purpose• Life and Disability analysis/review, recommendation and facilitation• Property and Casualty analysis/review, recommendation and facilitation• Personal Staff Workers Compensation Placement and Program Management

(outsourced)• Coordination of Travel Insurance• Claim review and coordination• Medical Insurance and provider recommendations (outsourced)

Budget


Available Scalable



Process Philanthropy

Purpose• Identify and Document Family Goals• Entity Formation and implementation• Foundation and DAF management (Foundation administration is outsourced)• Periodic Review of Family Goal

Budget


Available Scalable



Process Debt Management

Purpose• Financing/refinancing• Promissory Notes• Interfamily Loans• Lease and Rental Agreements

Budget


Available Scalable



Process Family Education

Purpose• Family Education, counseling and coaching: investments, budgets, philanthropy, risk

management• Organize and lead family meetings

Budget


Available Scalable



Process Peer

Purpose• Provide clients with access to one another• Insights from peers who sold a closely held business or currently own a business

Budget


Available Scalable



Process Access to Industry Experts and Concierge Services

Purpose• Conduct due diligence on and provide access to professionals for services Excelsior does

not offer directly

Budget


Available Scalable




Write down and agree on Operations initiatives in your firm and elect a “champion” for each initiative.

Notes


Research and Implement a CRM system Chad Dawson

Research secure client communication systems & implement Chad Dawson

Research various technology tools for streamline workflows and implement Chad Dawson

Research investment tools to help investment team rebalance/monitor client portfolios

Nathan Donovan

Refine service staffing model and alignment Chris Arola/ Chad Dawson


• Six Tell-Tale Signs That Your Business Processes May Need Attention

Financial ManagementMaking the Numbers Work

MODULE FIVE

Financial Management

Use the Financial Worksheet* to calculate the following metrics:

2012 2013

Gross Profit Margin -740,000 -944,400

Earnings before Owners' Compensation % -29% -24%

Operating Profit Margin 1,440,400 1,201,628

Pre-Tax Income per Owner 240,066 200,271

Active Clients per Professional .75 .75

Active Clients per Staff (total headcount) .375 .375

Revenue per Professional 916,667 417,093

Revenue per Staff (total headcount) 208,333 208,512

AUM per Professional 83.333M 87M

AUM per Staff (total headcount) 41.67M 43.5M

Revenue per Active Client 555,555 556,000

AUM per Active Client 111.11M 116M

Direct Expense per Client 395,511 213,514

Overhead per Client 213,288 228,218

Operating Profit per Active Client -295,511 -352,767

*The Financial Worksheet is a separate Excel file.



Write down and agree on Financial initiatives in your firm and elect a “champion” for each initiative.

Notes


1. Immediately begin charging the Hagart Family for investment management – 80bps. This will bring eliminate the net operating loss of Excelsior by increasing revenues ~ $3.4 million

Chris Arola

2. Determine the cost of the three employees in Marin County. Is it necessary?

Chris Arola

3. Socialize our compensation plan with employees.

Chris Arola

4. Create a client fee schedule. Team

5. Develop a 5-year business plan for the financials.

Chris Arola


• Key Drivers of Firm Valuation

Initiatives & Accountability

Initiatives and Implementation

Use the Accountability Spreadsheet* to compile all of your initiatives.

*The Accountability Spreadsheet is a separate Excel file.

1. Review the initiatives you identified as a priority for your practice in each section. Capture those improvement opportunities in the Accountability Spreadsheet.

a) Vision, Mission & Strategyb) Growthc) Staffing and Compensationd) Operations and Technologye) Financial Management

2. Next, determine if there are any gaps. Are there improvement opportunities your practice would like to address that should be added? If so, then capture these improvement opportunities in the Accountability Spreadsheet.

3. Identify the action items you will need to complete in order to address your firm’s unique opportunities.

4. Mark each opportunity with a number in order of priority. What should you focus on first in order to drive growth and results for your practice? Mark which you will address first, second, third, etc.

5. Identify a target completion date for each opportunity. Mark who will complete the associated action items and the budget considerations for each opportunity.

Spreadsheets and Handouts

APPENDIX

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