The Client Before EmployShare

• $450 AUM, 15 employees, and five “partners”
• Limited Liability Partnership
• Two partners were practice owners with the book of business
• Three partners did not own the book but had a stake in the equity via the partnership agreement
• “The Partnership” hired all employees
• Benefits, including retirement, had issues
• Partners shared GDC within partnership structure
• Partnership agreement described all five as “owners” of the book
• Each acted as “mini-owners” running their own employees, “fiefdoms”

Initial Analysis (Issues)

• Broker/Dealer violations
• SEC violations
• ERISA violations
• External regulatory exposure
• Internal organizational dysfunction
• Equity issues
• Revenue-sharing issues
• Taxation/IRS issues

The Results with EmployShare

Design

• Assembled interdisciplinary “team”
• Developed organizational model
  • Entity selection
  • Hierarchy
  • Compensation structures (owners and employers)
  • Designed benefits mix – conducted appropriate retirement plan “testing”
  • Accounting
  • Drafted the ownership agreements among the five partners
  • Set a start date to implement new business model

Build

• Performed on site orientation and training to launch “new” organization
• Transferred existing partnership assets to new entity
• Resolved residual practice acquisition amortization/expensing issues
• Drafted governing documents – pro rata basis – reverse waterfall analysis
• Developed exit strategies and drafted succession plan (legal entity/individual advisor issue)
• Facilitated voluntary compliance for ERISA violations

Operate

• Provided continuous human resource guidance and consulting, including payroll alignment between legal entity and owners
• Successfully resolved numerous HR issues such as employee discrimination and potential disability discrimination matter
• Worked in concert with counsel and CPA to facilitate voluntary compliance with past ERISA violations
• Developed and fine-tuned accounting systems to maintain transparency and compliance with regulators and broker/dealer

The client before EmployShare:

• $780M AUM, 98% fee-based, commonly referred to as a hybrid RIA
• Current legal entity is S-corporation with two owners
• 28 employees, including 5 producers; no independent contractors
• Two physical locations
• Very high-touch service model
  • All employees engaged in some form of relationship management with clients
  • Held numerous regularly scheduled all-client events
• Long-term relationships with local employment law attorney and accounting firm
  • Accounting firm doing payroll
  • Attorney providing employment law guidance

The reason they brought in EmployShare:

• Employees spent much of their time on non-productive functions and did not have enough time to focus on their clients’ business
• Administrative functions were separated among HR, accounting, outside benefits brokers, outside insurance broker…creating repetition of duties, confusion for employees and a lack of internal cohesion and connectedness within the organization
• Internal systems were fragmented, creating silos of information with no cross communication among functional leaders, creating increased financial risk to the owners
• Owners were not satisfied with the current HR manager; the position was not client-centric
  • Wanted to remove the HR manager role and not hire a replacement

The results with EmployShare:

• Cost-effectively removed HR manager without the need to replace the position
• Achieved streamlined and ‘connected’ system for all things employment-related
• EmployShare took over all administrative functions and responsibilities for:
  • Employment agreements, offer letters, job descriptions, and the master employee handbook
  • New hire screening and on-boarding
  • On-line time and attendance management
  • Payroll and payroll taxes and filings
  • Employment relations guidance and consulting in concert with their employment law attorney
  • Benefits management for:
    • Group medical
    • Dental
    • Vision
    • DI
    • Cafeteria plan
    • Pension plan
  • All commercial insurance included in the ‘connected system’ and managed by The Caputo Insurance Agency, Inc., broker of record

• All group benefit policies managed by The Caputo Insurance Agency, Inc., broker of record

• EmployShare assisted external legal counsel in drafting and facilitating an executive severance agreement which ultimately prevented future litigation

• Protected practice from the negative effects and legal costs associated with a petition of injunctive relief due to an employee’s previously undisclosed restrictive covenants to a prior Broker/Dealer

From the advisor’s perspective:

“I run a very profitable financial practice, high-touch service model, excellent velocity and 90%+ advisory-fee-based. I have been a client of EmployShare for 15 years, and I have learned a lot of valuable lessons. Here is one.

This incident concerned an employee that went from having a great attitude and performance record to the exact opposite. To this day, I do not know why she changed so drastically, but I have learned since that we do not know what our employees do when away from work.

Like most financial advisor practice owners, I tend to react rather quickly to these types of negative issues, so I terminated the employee and notified EmployShare the following day. This turned out to be a costly mistake on my part, terminating the employee without first seeking guidance from EmployShare.

The disgruntled employee went on mission to get back at me:

• Filed an unemployment claim against me. EmployShare beat it.
• Filed a workers’ comp claim against me. EmployShare beat it.
• Filed a lawsuit for wrongful termination against my broker/dealer and me.
  • The broker dealer liability was dismissed.
  • The case was in my attorney’s hands.
  • We settled for mid-six figures and never got to court, thank God.

My lessons learned from this incident:

• My staff knows everything in my practice: my GDC, my clients, and each other. I am a real employer target.
• Keep the EmployShare team informed and involved in all employee interactions that have the potential for risk.
• Had I consulted with EmployShare before terminating this employee, they would have staged the termination effectively and saved me hundreds of thousands of dollars.”

The client before EmployShare

• $246M AUM, 80% fee-based
• Direct employees of their broker dealer for the past 12 years
  • 4 employees and two owners (husband/wife)
  • No independent contractors
• One physical location
• Owner-driven book of business:
  • Owner is main contact, one producer has partial client base with equity and also helps support owner’s clients
• Has existing relationship with local human resource specialist and attorney
• Owner has never been an employer
• The current broker/dealer provides all benefits, retirement plan, and payroll/commission payments to owners, producers and employees
• Advisor owns the building housing the practice

The reason they brought in EmployShare

• The acquiring broker/dealer brought in EmployShare team for the following reasons:
  • Establish legal entity for employment and tax purposes
    • How the business will operate, who will make decisions, income and expense allocations, etc.
  • Establish sole proprietor legal identity for commission payments to producers to comply with FINRA/SEC rules and new broker/dealer policies related to the distribution of commission payments
  • Establish equity/interest agreement between owner and producer, including succession and buy-sell terms
  • Examine accounting system between owner and legal entity to accommodate for proper tracking of advisory and transactional GDC
  • Replicate/replace all employee benefits without lapse in any coverage
  • Provide unlimited guidance and consulting to owner and spouse to help them feel comfortable and secure, as they become a new employer

The results with EmployShare

• Developed and delivered industry-specific operating agreement for new legal entity
• Established Control Group for payroll:
  • Legal entity for employing staff and owners
  • Sole proprietor identity for employing licensed selling producer
• Implemented new benefits for medical, life, DI, dental, vision, cafeteria benefits and retirement plan; no lapse in coverage
• New employment documents:
  • Employment agreement with industry-specific job descriptions and compensation agreements
    • Included restrictive covenants to help protect the owner’s book of business
  • New employee handbook with complete policies, federal guidelines and state-sensitive regulations
  • Guidance and consulting on employment policies and procedures
• Established equity-interest agreement between owner and producer
• Provided accounting guidance for proper handling of GDC between legal entity and sole proprietor accounts
• Provided day-to-day support throughout the transition period