Sophie: Corporate Executive
Occupation: Global Brand Director, Fortune 500 company
Objective: Manage concentrated stock exposure
Concerns: How do I diversify concentrated stock risk while minimizing taxes and maintaining growth
Risk Appetite: Moderate to Aggressive
Investing Experience: Knowledgeable
Sophie started out as an account manager at a global marketing firm, moved her way up as a brand manager at a large retailer and eventually as a global brand director at a Fortune 500 company. As her experience and seniority increased, more of her compensation was coming in the form of company stock – restricted stock units, non-qualified options and incentive stock options.
Given Sophie’s salary was also increasing over the years, she found herself with a large cash balance she was unsure of how to invest, a complex compensation package, more concentrated risk and less time to manage the complexities. At one point, she did exercise one of the option grants on her own but after the unexpected tax bill that came with it, turned to GoalVest for guidance on the rest.
Wealth Plan
Executive Compensation: We spent time understanding Sophie’s current exposure and defining the terms around all her stock and options compensation. We also educated her on the implications of each component and estimated after tax exposure of the company stock and options. We discussed the benefits of diversifying while still maintaining exposure to high growth potential investments and the differences in tax implications of non-qualified options versus incentive stock options versus restricted stock units.
Automating Finances: We went back to the basics and started automating finances to save Sophie time. All eligible payments were set up on autopay and we established a link between her checking account and investment account for automatic investment transfers with a predetermined cash amount. This would avoid her ending up with too much cash unnecessarily in the future.
401k and Company Benefits: We rolled over all prior outstanding 401ks into her current employer’s plan and made sure to choose appropriate low cost, diversified exchange traded funds that would meet her risk tolerance and financial goals. We made sure she was maximizing her 401k contribution and reviewed all other corporate benefits. (Healthcare spending account, commuter benefits, insurance coverage, etc.)
Education Planning: As a parent and high tax bracket individual, the benefits of a college 529 plan make a lot of sense for Sophie. We talked about what they are and set up a plan for each of her children.
Financial Goals and Investing: Sophie had seen a lot of growth in her company stock price and therefore her “paper” wealth increasing as well. While she was tempted to keep a significant amount of exposure in her company stock so she wouldn’t “miss out” on future gains, we discussed the benefits of diversification and taking some gains off the table. She used stock proceeds to buy her family a weekend home and started a diversified investment portfolio with core exposure in addition to pockets of high growth exposure.
Case studies presented are based on actual clients, however, some of the information may have been changed or altered. These studies are provided for educational purposes only. Similar, or even positive results, cannot be guaranteed. Each client has their own unique set of circumstances so products and strategies may not by suitable for all people. Please consult with a qualified professional before implementing any strategy discussed herein. No portion of these case studies is to be interpreted as a testimonial or endorsement of the firms' investment advisory services.
