SESSION TWO WORKBOOK Cook,Inc Decisions and Notes for Modules 1 – 5 Cook, Inc. BSMARTer Business Simulation Management and Relationship Training

SESSION TWO WORKBOOKCook,Inc Decisions and Notes for Modules 1 – 5Cook, Inc.

BSMARTer Business Simulation Management and Relationship Training

2

Introduction

It’s been a fantastic year for Cook, Inc., yet there is always room to improve to take the firm to the next level. We wanted to address some pain points identified and felt this was a good time to align our compensation plan and organizational structure to ensure we meet our goals. All details are outlined in the following pages, but we wanted to provide a high level summary of the key changes.

In terms of the organizational structure (next page) we are alleviating the pressure on Natalie and functionally organizing ourselves into lines of business. We successfully transitioned the majority of clients from Natalie to lead advisors and created a new associate advisor role which develops a career path for our talented younger advisors. In addition, we have aligned our client service associate team to report to our COO (hired last year), although they will always work with the same lead and junior advisor to ensure a deep understanding of our client’s unique needs. We feel we have developed a strong “bench” and career path for our employees to move along as they progress in their careers. Natalie maintains 10 clients, to keep in touch with their needs. However, given her responsibilities as CEO the client load is much lighter.

The partners were feeling strained having to write a check to the bank as we complete the transition to an independent firm. Therefore, for the duration of the buyback period (two more years) we will be distributing profits quarterly to the owners based on their pro-rata shares. This should help alleviate some financial burdens they are feeling. It is clear this distribution plan is only for the next two years, and we will evaluate the plan moving forward and greater business reinvestments after that time.

We also have instituted a culture of growth, and have pushed our partners and other firm members to increase their understanding of the brand. While this will take some time, it is no longer just Natalie who is the PR machine of the firm. Investments were made to do PR training with the partners, and also to leverage the resources of Fidelity to ensure our story is consistent, differentiated and repeatable.

Many other changes outlined in the following pages, we look forward to watching these decisions and their outcomes as the business continues to be a leader in the industry.

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Cook, Inc.’s New Organization

Structure

CEONatalie Cook

CIODylan Sanders

Lead AdvisorAlex Munday

Associate AdvisorJerrod Bustos

Lead AdvisorJohn Bosley

Associate AdvisorMadison Lee

COOKelly Garrett

Ike HorakClient Service

Associate

Maria HaggardClient Service

Associate

Jenn CyrAdministrative

Assistant

Organizational Structure and Compensation

MODULE 1

Service Team Structure

1

Draw a picture of your service team structure.

Lead Advisor John Bosley

Client(50 clients)

Clients (47 clients)

Clients (10 legacy)

CEO Natalie Cook

Lead AdvisorAlex Munday

Maria Haggard

Client Service Associate

Associate Advisor

Madison Lee

CIO – Dylan Sanders

Shared resource

brought in as needed

Associate AdvisorJerrod Bustos

Ike HorakClient Service Associate

Service Team Structure

1

Provide an explanation of your service team structure.We are moving to a team based approach for client service in an effort to take the pressure off of Natalie, improve client experience, provide career paths for employees, and to effectively align resources to meet our mission and vision statement.

Natalie has transitioned all but 10 of Cook’s Legacy clients to John and Alex who are now lead advisors. Those clients are also serviced by Jerrod and Ike (see more information below).

Madison (currently enrolled in CFP program) will be acting as associate advisor and will be working with John. Jerrod (currently enrolled in CFP program) has been promoted to associate advisor and is supporting Alex. Both will eventually be given smaller less complicated clients to start taking the lead on, and these clients will be the beginnings of their books of business when they transition to lead advisors.

Dylan will be pulled into client meetings as a shared resource in her capacity of CIO as needed.

Based on the new org structure realignment, we determined that two admins were not necessary. Maria was promoted to a client service associate after a review of her skills to backfill Jerrod’s promotion. Ike remains as the second client service associate. Maria supports John and Madison while Ike supports Alex and Jerrod.

Clients are now supported in their comprehensive wealth management plan by a team of specialists, who have the same sets of clients and deep expertise in their complex situations.

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

COO $175,000

40% of salary. Bonus pool is funded based on revenue goals. CEO determines allocation after funding amount is determined.

Eligible for Referral Bonus(Up to $10 million $2,500/over $5,000)

Maximum - $245,000

Minimum $175,000

Benchmark Median

$148, 320 $32,630 $216,000

Benchmark Third Quartile

$200,104 $52,500 $300,000

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


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Associate AdvisorRange:$65,000 - $85,000

Eligible for new business and retention bonus pool. New Business:Year 1 - 19% RevenueYear 2 – 9% of RevenueYear 3 – 4% of RevenueServicing:2% of Revenue ongoing

Maximum - Variable

Minimum - $65,000

Benchmark Median

$65,000 $9,720 $81,832


$84,000 $15,000 $100,813



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Client Service Associate

Range $50,000 - $65,000

20% of salary. Bonus pool is funded based on revenue goals. COO determines allocation after funding amount is determined.


Maximum - $78,000

Minimum - $50,000

Benchmark Median

$53,000 $5,000 $62,500


$61,000 $7,000 $72,600



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Administrative Assistant

Range $40,000 - $55,000

20% of salary. Bonus pool is funded based on revenue goals. COO determines allocation after funding amount is determined.


Maximum - $66,000

Minimum - $40,000

Benchmark Median

$37,000 $2,500 $40,000


$41,750 $4,000 $47,500



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Salary consists of 4 components:- Base salary- Incentive comp/referral bonus- Equity (for Partners)- Bonus Pool Sharing

- Pool is available to all employees who do not have primary or secondary client ownership- This includes all Ops and Admin employees, CIO (Dylan) and COO (Kelly)

- The bonus pool is funded based on revenues assuming that firm metrics are hit. The target funding is based on target bonus percentages for each employee * their base salary. If the firm exceeds the metrics, it is possible to fund the pool at >100% and if the firm does not hit the metrics, the pool will be funded at <100%

- The bonus pool is distributed based on individual performance relative to job-specific metrics (a standardized performance evaluation is being instituted)

- We are instituting an incentive comp structure that consists of two components: 1) sourcing/developing new client assets (this will include referrals from existing clients) and 2) servicing/retaining existing clients. We are doing this to address a few key issues that the firm is experiencing:

- By specifically creating a component relative to growth and business development, this will help us meet our goal of doubling assets within 7 years (requires a CAGR of 20%) and also to ensure that the partners will see desired ROI on the checks they are writing to Charleston Bank (to take the firm private) by helping to ensure increasing cash flows and firm value

- To address the issue of recent client attrition, we are adding a client servicing component to the incentive comp to ensure a focus on client retention. This will also help with growth as happy clients are more likely to refer to us

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

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

The incentive comp plan applies to all primary and secondary client facing advisorsThis includes the CEO (Natalie), Lead Advisors (Alex and John) and Associate Advisors (Madison and Jerrod)

- Sourced business:- Yr 1: 19% of revenue- Yr 2: 9% of revenue- Yr 3: 4% of revenue

- Serviced business (equals client retention)- 4% of revenue for Lead Advisors and Natalie- 2% of revenue for Associate Advisors

- Summary of incentive comp payout:- For new business:

- Yr 1: Total payout = 25% of revenue (19% + 4% LA servicing + 2% Jr Adv servicing)- Yr 2: Total payout = 15% of revenue (9% + 4% LA servicing + 2% Jr Adv servicing)- Yr 3: Total payout = 10% of revenue (4% + 4% LA servicing + 2% Jr Adv servicing)

Additionally, to ensure that everyone in the firm is focused on Sales, we are instituting a Referral Bonus for non-primary or non-secondary facing employees (this applies to all Ops, Admin, CIO and COO).

Referral bonus:For clients <$10MM = $2500For clients >$10MM = $5000

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What changes, if any, will you make to compensation?- As a few employees transition to this new comp plan, their total comp will be impacted. As a

result, we are offering, one-time end of year bonuses to the following employees to make them whole:

- Madison – the thought is that by the following year, she will be managing more clients and getting servicing revenue (and possibly some sourced client revenue)

- Jenn – Jenn will likely be managed out by the new policy of no part-time employees and as a result of the new comp plan.

- Lastly, we are instituting a new firm policy:- No part-time employees unless they are a tenured employee transitioning to retirement- Note: we realize that this policy may cause Jenn to quit and we are ok with this and will

re-hire to fill her position if this occurs

- Junior Advisor Comp- Base salary = $85K for everyone- Profit Sharing:

- 25% Bonus target :- Based on individual performance relative to job-specific metrics (a

standardized performance evaluation will be instituted)

- Operations staff:- Base salary = $60K for everyone

- Administrative staff:- Base salary = $50K for everyone

Staff Selection and Performance Management

MODULE 2

Performance Evaluation

7

Design a performance evaluation form. Follow the worksheet. (20 minutes) This was completed for our client service associates.

Job Factor Explanation

1. Proficient execution of job requirements

Must meet the job description responsibilities such as new account openings, maintenance, limited or no trade errors, cashiering, reporting, reduction of NIGO’s

2. TeamworkAccountability, new hire onboarding, training, client satisfaction scores

3. Effectively leveraging technologyCRM, financial planning software, custodial platform, portfolio management system

4. CommunicationEffectively communicates internally and externally, professional writing,

5. Professional DevelopmentContinues learning, obtains professional licenses

Notes

The above form is a generic description, we have developed performance and development plan documents. They are to be completed for a formal review on an annual basis (tied to merit and bonus payouts). Semi-annually they will be completed for a six-month review (not tied to merit increases) to ensure there is an ongoing dialogue. While managers are encouraged to meet with staff at any time, there must be scheduled monthly 1x1 meetings to review items. The development portion of the plan is developed by the employee. It must tie to their job functions, but creates a system where the manager is held responsible for assisting their direct report in achieving those goals.

The Culture of Your Firm

MODULE 3

Organizational Culture

8

Have been dependent on Natalie for success of the firmAll the our owners have to be leaders of the firm. All employees need to be held accountable for success of the firm. They need to do the Firm Story and marketing toolkitSend all advisors to Elevate your growth workshop. Create advisory board for the firmDo thorough training, weekly team meetings, and make sure compensation is line with benchmarks

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

Incentive Compensation

MODULE 4

Partner Compensation

9

The incentive comp plan applies to all primary and secondary client facing advisorsThis includes the CEO (Natalie), Lead Advisors (Alex and John) and Associate Advisors (Madison and Jerrod)


- Serviced business (equals client retention)- 4% of revenue for Lead Advisors and Natalie- 2% of revenue for Associate Advisors

- Summary of incentive comp payout:- For new business:

- Yr 1: Total payout = 25% of revenue (19% + 4% LA servicing + 2% Jr Adv servicing)- Yr 2: Total payout = 15% of revenue (9% + 4% LA servicing + 2% Jr Adv servicing)- Yr 3: Total payout = 10% of revenue (4% + 4% LA servicing + 2% Jr Adv servicing)

Additionally, to ensure that everyone in the firm is focused on Sales, we are instituting a Referral Bonus for non-primary or non-secondary facing employees (this applies to all Ops, Admin, CIO and COO).

Referral bonus:For clients <$10MM = $2500For clients >$10MM = $5000

Design Advisor Bonus Plan


9

- Lead Advisor Compensation (Alex and John)- Base salary = $160K for everyone- Incentive Comp (2 components):


- Serviced business (equals client retention)- 4% of revenue

- Associate Advisor Compensation (Madison and Jerrod):- Base salary = $85K for everyone- Incentive Comp (2 components):



***To help with firm buy-back from back, for the remaining loan period (2 years) we will distribute all profits on a pro-rata basis quarterly to match the timing of payments to the bank.***

Design Advisor Bonus Plan


MODULE 5


10

- CEO Comp (Natalie):- Base salary = $200K - Incentive Comp :

- Sourced business: - Yr 1: 19% of revenue- Yr 2: 9% of revenue- Yr 3: 4% of revenue


- Lead Advisor Compensation (Alex and John)- Base salary = $160K for everyone- Incentive Comp (2 components):



Set the base compensation for your partners.

Partner Incentive Compensation

11

CIO Comp (Dylan):Base salary = $200K Bonus Pool = 40% target Incentive comp = referral bonus:

For clients <$10MM = $2500For clients >$10MM = $5000

Equity = 30%

COO Comp (Kelly):Base salary = $175K Bonus Pool = 40% target Incentive comp = referral bonus:

For clients <$10MM = $2500For clients >$10MM = $5000

Equity = to be evaluated over time.

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. Branding/PR TrainingCommunication firm story to marketplace/all employees understand

2. Social Media Strategy Reinforce messaging in target market

3. Client SurveyAddress attrition, ongoing evaluation of client feedback

4. Performance Evaluations Align comp with performance

5. Book Segmentation/Transition Clients

Reduce reliance on Natalie

6. Pay off Bank in Two Years Improve employee satisfaction and moral

7. Institute new comp planAlign comp with benchmarks and make sure staff understands

Documents

SESSION TWO WORKBOOK Cook,Inc Decisions and Notes for Modules 1 – 5 Cook, Inc. BSMARTer Business Simulation Management and Relationship Training