SESSION TWO WORKBOOKDecisions and Notes for Modules 1 – 5Impressionist Wealth& Investments

BSMARTer Business Simulation Management and Relationship Training

Executive Summary

The business has achieved significant success as a wealth manager over its 19 year history. The firm is considered the premier wealth advisory firm in the southwest and is focused on expanding its footprint nationally and achieving recognition for being one of the premier investment advisors in the country.

In 2009, the firm made a strategic decision to offer its investment management services to other advisory firms. Each portfolio now has a three year track history and has experienced significant growth, making this business unit a valuable entity. For the purposes of this exercise we’re focusing on the Wealth Management side of the business.

However, with this success, IW&I faces several challenges that it needs to address. Although its revenue and valuation have increased, the firm is trying to solve for issues related to the size of its staff, identify clear roles and responsibilities of each employee and partner and ensure that compensation is aligned with similar sized firms as determined by benchmarking surveys. The firm is also trying to modify its compensation structure so that base salaries are tied to roles and responsibilities and bonuses and variable compensation are tied to performance above and beyond what is required within these respective roles. Additionally, we want to ensure that variable pay is tied to firm goals and production and that these goals are transparent to all.

In making these changes, we believe that the partners and employees can address the primary challenges that are facing the firm. We believe the new compensation plan will continue to foster the firm culture and value system that is in place today.

Organizational Structure and Compensation

MODULE 1

Service Team Structure

1

Example diagram of service team structure.

Lead Advisor

Client Service Administrator

Associate Advisor

Service Team Structure

2

Wealth Management Service Team Structure.

Team 1 Lead Advisor

Associate Advisor CSA

Team 2 Lead Advisor

Associate Advisor CSA

Team 3 Lead Advisor

Associate Advisor CSA

• There will be 8 teams• The Lead Advisors, CSA’s and AA’s will each have a

manager responsible for performance evaluations, career development and training.

CSA Manager

AA Manager

Managing Partner

Service Team Structure

3

Investment Management Service Team Structure.

Portfolio Manager

(CIO)

Portfolio Manager

Portfolio Manager

Research Analyst

ResearchAnalyst

Research Analyst

Fund Acountants Traders

Service Team Structure

4

• We have created a team structure. We currently have 8 teams. Each team has capacity for 120 client relationships. Currently we have excess capacity as each team manages approximately 100 relationships. In addition to the client facing team structure, we feel we are large enough with 8 teams to benefit from matrix management across each of the three roles identified.

• One goal we have with the Team Structure is to create leverage. The role of the Associate Advisor is to handle many of the client interactions in order to free up the Lead Advisor’s time to work with (and prospect for) larger clients. The same principle applies to CSA’s. We’d like our CSAs to handle nearly all of the administrative duties in order to allow our Associate Advisors and Lead Advisors to focus on client facing activities. We continuously look for opportunities to insert lower cost of labor to handle our less critical tasks.

• Although the matrix management does add some level of bureaucracy and costs, we believe the benefits in sharing best practices and creating a consistent client service model across each of our 8 teams outweigh the costs. We also believe it allows us to better define (and control) job descriptions and more actively manage our people

• Additionally, this structure enables CSA’s as well as Associate Advisors the opportunity to work with different Lead Advisors and Junior Partners helping with cross training, knowledge sharing and career development. We believe this feature will be critical in addressing some of the poor morale amongst the junior staff.

• Again, each team is responsible for up to 120 client relationships. We’re currently under capacity, with each team covering approximately 100 relationships. We recognize this excess capacity will cost us a couple of percentage points in operating margin, but we’ve made a conscious decision not to lay off additional staff. We feel it would be more costly in the long run to have to “re-hire” many of these same people down the road.

• Lead Advisors – Responsible primarily for business development. Run the annual client review and have final decision making for client portfolios. They also help with the development of Associate Advisors and CSAs.

• Associate Advisors – Assist lead advisor, answers client inquiries on portfolio and day to day wealth management issues

• Client Service Administrators – Handle regular maintenance and servicing

• We let 1 Associate Advisor and 1 CSA go due to poor performance evaluations and client feedback. Revenue saved here will be deployed to address some below market salary issues that the firm faces.

* See initiatives regarding bloated staffing issues

Provide an explanation of your service team structure.

Compensation Benchmarking

5

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

$74,561 $10,439 $85,000

Your Highest-Paid Employee

$236,842 $33,158 $270,000

Mid-range $105,263 $14,737 $120,000

Benchmark Median

$175,000 $46,000 $240,000**

Benchmark Third Quartile

$250,000 $77,000 $380,000**

**Total includes Salary, Bonus and Perks

Wealth Management Junior Partners

Compensation Benchmarking

6

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

$241,228 $33,772 $275,000

Your Highest-Paid Employee

$289,474 $40,526 $330,000

Mid-range $254,386 $35,614 $290,000

Benchmark Median

Benchmark Third Quartile

Wealth Management Lead Advisors

Compensation Benchmarking

7

• Address dramatic salary disparities for Lead advisor and Junior Partner salaries based on:

• Benchmarking study and market rates for specific roles

• Tenure with the firm

• Experience and designations

• Number of clients and size of assets the advisor is covering

• Job descriptions and specific roles and responsibilities

• Clarity on Bonus weightings and factors

• Make salary a smaller percentage of total compensation and increase bonus opportunity as a percentage of total compensation for Junior Partners and Lead Advisors. To be consistent with our compensation philosophy, we will pay salaries at mid range of the market rate. Employees can make it to the top quartile based on their bonus pay out.

• Create salary and bonus structure for Senior Partners based on actual roles and responsibilities. We must have a clear delineation between salary and bonus. For each role within the firm we will set a median target salary based on industry benchmarks. Within each role there will be salary ranges, however we will not rely on salary to create compensation differentiation. For differentiation, we will rely on bonuses. Depending on the role, bonuses will range from 10% of base salary up to 100%.

• We will address Junior Partner role and title and determine which of them should be Lead Advisors based on their role. We believe it’s important to make sure we have consistent and well understood job titles. By doing this, we think it will help address some of the current dissatisfaction amongst employees around perceived unfairness in compensation.

• We currently have a number of Lead Advisors with 85% of their income coming from salary and a salary level in the top 10% (based on benchmarking data). This is inconsistent with our compensation philosophy and needs to be addressed. More of their total compensation will be shifted towards a bonus structure. Due to the sensitivity around this subject (we want to be careful not to lose a Lead Advisor) , this will likely be phased in over a two year period.

• Not immediately, but over the next two years we would like to become more transparent with our employees regarding compensation. We first feel we need to address some of the discrepancies and further clean up job descriptions and titles.

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

Staff Selection and Performance Management

MODULE 2

Performance Evaluation

8

Design a performance evaluation form for Lead Advisors

• Performance evaluation with the four factors listed will be reviewed and discussed with manager quarterly. Each factor will receive a score from 0 – 5. These scores will them be multiplied by their weightings to determine bonus allocation. Scoring will be completed by managers using quantitative and qualitative information.

Job Factor Explanation

1. Business development (50%)New clients, new revenue, COI contacts and development,

2. Client satisfaction (25%)Client retention and client satisfaction survey/NPS scores

3. Team management/development (15%)

How well are you helping develop AA’s and CSA’s.

4. Firm contribution (10%)Team player, corporate responsibility, community involvement

Describe how the form will be used.

• Performance evaluation above is for Lead Advisors. Partners, AA’s and CSA’s will have slightly different factors and weightings.

• For quantitative measures (for example business development), Lead Advisors will also have access to a dash board that will provide them with real time data as to where they stand.

• After consulting with industry HR expert Lisa Tannenbaum, we’ve also made a decision to eliminate our 360 reviews.

Notes

Performance Evaluation

9

Design a performance evaluation form. Follow the worksheet. (20 minutes) (this is for a Associate Advisors)

* Same as above (See Lead Advisor roles)

Job Factor Explanation

1. Business development (25%)New clients, new revenue, COI contacts and development,

2. Client satisfaction (50%)Client retention and client satisfaction survey/NPS scores

3. Team management/development (15%)

How well are you helping develop Lead Advisors and CSA’s.

4. Firm contribution (10%)Team player, corporate responsibility, community involvement

Describe how the forum will be used.

• Performance evaluation above is for Associate Advisors. Please note, we are re-naming Service Advisor to Associate Advisor.

Notes

The Culture of Your Firm

MODULE 3

Organizational Culture

10

Today the staff and the partners are disconnected. Compensation disparities although not openly disclosed are impacting employee morale. Some lead advisors make dramatically more than some of the junior partners and the value of being a partner is openly questioned. In general the staff is a laid back compared to the hard charging nature of the Senior Partners. The staff do not aspire to have lifestyles similar to the Senior Partners (perceived as workaholics) and the partners don’t understand the lack of ambition demonstrated by certain members of the staff.

Future state:Culturally we’d like to become more transparent. This includes transparency around the vision of our firm, the goals of the business, the performance of the business, employee expectations, rewards of partnership, career opportunities and levels of compensation for various roles and responsibilities.Impressionist Inc will be a place that accepts those interested in work/life balance and those that are highly ambitious and driven. We understand this will require and lead to various levels of compensation and we accept that. We will financially reward those individuals who make the greatest contribution to the firm. While we will welcome those seeking a work/life balance, Associates will be expected to do excellent work and contribute to the firm’s mission, vision, financial well-being. Team members that don’t buy into the culture and vision (or contribute to our financial well-being) will be managed out quickly. We’re going to work with our Fidelity Relationship Manager and Practice Management consultant to understand how to more effectively work with employees that are Gen X, Y and Millennials.We will also revisit two areas: 1) Our hiring process – can we do a better job up-front of identifying the right fits for our firm? 2) Employee on-boarding – what is the best way to train and indoctrinate new employees to the Impressionist Culture. What does it mean to some day be a Partner?**For purposes of this exercise, we have focused on the Wealth Management portion of our business. We realize we have not yet addressed potential cultural issues created between our two business lines: Wealth Management and Investment Management.

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

Incentive Compensation

MODULE 4

Incentive Compensation

11

• We will not be offering the 50% upfront bonus for internal advisors for referrals to the Investment Management side of the business as it creates a “dramatic” conflict if interest. In certain cases, where the growth opportunity and economics warrant it, we will consider offering the 50% upfront bonus to external Advisors and certain COIs.

• Part of our effectiveness on the Wealth Management side is our objectivity. Although at the firm level we still have a conflict of interest when our WM side utilizes our investment products for client portfolios, we feel that it is a conflict of interest we can currently manage and it has no impact on a Lead Advisor’s salary or bonus. From a salary and bonus perspective, we feel it’s important for our Lead Advisors to maintain their objectivity.

• Advisor Bonuses will be implemented consistently with other positions within the firm. We will establish the factors, weighting of each factor and then evaluate each Advisor on a 0 – 5 scale.

• Bonuses will constitute a great percentage of the overall compensation of an Advisors. While bonuses may constitute 0 – 10% of total compensation for an administrative role, they will make up anywhere from 25% to 100% of the total compensation for Advisors. Philosophically our most well compensated people will have the greatest percentage of their total compensation at risk.

• Bonuses will be funded by the profits of the firm. We believe using this pooled approach reinforces our culture of teamwork and of clients belonging to the firm.

• Advisor salaries will be targeted for median level of industry benchmarks, with ranges depending on contribution to the firm. Bonuses will allow our Advisors to achieve top quartile compensation levels.

Design Advisor Bonus Plan

Partner Compensation

MODULE 5

Partner Compensation

12

• Consistent will all roles within the firm, partners will receive a salary based on median industry benchmarks for that role. Currently Partners play the role of CEO, COO,CIO,CFO and Lead Advisors. We will set salaries based on Industry benchmarks. Similar to our other roles, it is our intention to have salaries close to the median, with some adjustments made based on experience and overall contribution to the firm.

Set the base compensation for your partners.

Partner Incentive Compensation

13

• Partners will also be eligible for bonuses based on the established factors and weightings for their role. Depending on the role, Senior Management or the Board of Directors will assign a 0 – 5 rating on each of the performance factors. Similar to Lead Advisors, bonuses will make up anywhere from 40% to 100% of a Partner’s salary. Again, bonuses will be utilized to create differentiation in compensation. Bonuses will be funded on a pooled basis out of firm profits.

• In addition to salary and bonus, partners will also receive a pay-out based on their equity ownership in the firm. This will be paid out of firm profits according to ownership percentages.

• As highly compensated employees, they will have the greatest amount of their compensation as risk – relative to other roles within the firm.

Create, discuss and define incentive compensation for partners.

Other Initiatives

14

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. Explore separating the two business lines.

Meet with Ensemble Group to determine pros and cons of two separate business lines.

2. Firm valuationIndependent valuation on WM and IM business every two years. Help with articulating value of partnership.

3. Opportunistically expand Wealth Management foot print

Continue to evaluate second tier cities, focusing on the Southwest to expand

4.

5.

6.