We understand the financial needs and lifestyle concerns of corporate leaders who are often unequally divided between family and business. We help you make the most of your time and simplify your life by maximizing benefits such as stock option plans and restricted stock, creating risk management plans and analyzing retirement scenarios. The team at CrossleyShear Wealth Management will work by your side to develop a plan that best suits your needs both now and in the future.
Concentrated Stock Positions
Executives may own large concentrations in their employer's stock. This concentration can come in the form of shares of stock, options, restricted stock, SARs and shares in qualified plans. Executives also need to consider their reliance on the company for non-stock-related factors including cash compensation, healthcare benefits and retirement packages. If something were to happen to an executive's employer that severely impacted its ability to perform over the long run, it could have a devastating effect on the executive's personal financial situation.
There are a variety of strategies available to address a concentration in a single stock. Every client's situation is unique so our team works to first identify the client's objectives. After understanding the company's trading policy, we offer recommendations of any possible strategies that can accomplish the client's goals.
Techniques that may be of interest to executives with a concentration include:
- 10b5-1 Sales Plans
- OTC Collars
- Variable Prepaid Forwards
- Equity Exchange Funds
- Net Unrealized Appreciation
- Charitable Techniques
In addition to cash compensation, executives are often compensated through stock ownership. This can come in several forms, including stock options, restricted stock, and stock appreciation rights (SARs).
Stock options offer executives the ability to purchase company shares at a predetermined strike price no later than a defined expiration date. They typically have vesting periods that prohibit exercise prior to a specific date. Stock options come in two forms: non-qualified and incentive.
Non-qualified stock options are taxable as compensation to an executive upon exercise. Incentive stock options can offer favorable tax treatment if certain conditions are met. However, they also create alternative minimum tax implications for some individuals.
There are many factors that go into stock option planning. Our team focuses on a comprehensive approach that analyzes the relative valuation of each option grant, the tax ramifications of an exercise and the client's overall exposure to the company. Additionally, catalysts such as an approaching expiration or unexpected liquidity need can also warrant exercise. If a decision is reached to exercise, our team can also assist in evaluating methods to pay for the exercise (i.e., cash payment vs. cashless alternatives).
Options involve unique risks, tax consequences and commission charges and are not suitable for all investors. When appropriate, options should comprise a modest portion of an investor's portfolio. No statement within this document should be construed as a recommendation to buy or sell a security or to provide investment advice. Prior to making any options transactions, investors must receive a copy of the Options Disclosure Document which may be obtained from your financial advisor.
Restricted Stock / SARs
Companies can compensate employees by granting restricted stock. These shares have vesting schedules which prohibit the sale of the stock until the vesting date. Upon vesting, the shares are taxed as compensation at the prevailing market price. The executive must pay for the tax withholding, including federal, state and any applicable local taxes, either through cash or a sale of some of the restricted shares (cashless exercise).
Companies can also issue stock appreciation rights, which act like restricted stock, but are often settled in cash instead of shares. These provide the employee with the same economic benefit as restricted stock, without the company actually issuing shares. This can also be referred to as a phantom stock plan.
Our team is available to help plan for future restricted stock vesting dates and to analyze the possibility of making an 83(b) election within the first 30 days of receiving a new grant. This technique can be useful for executives expecting significant price appreciation in their company's stock. Electing 83(b) requires the employee to pay taxes upon grant of the restricted stock and converts any appreciation between the grant date and vesting date into a capital gain.
Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While familiar with the tax provisions of the issues presented herein, Raymond James Financial Advisors are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.
Company Trading Policies
Each public company has a policy governing employees' activities related to company stock. These policies may include required minimum ownership levels as well as define open trading windows and blackout periods for executives.
Our team assists executives in understanding and addressing company policies as part of the broader consultation work we provide. Using a 10b5-1 plan can be an effective way to affect a plan that targets an executive's goals while adhering to corporate policy.
Additional Corporate Solutions
Raymond James is a full-service financial institution and, as such, offers the following corporate solutions:
- Qualified and Non-Qualified Benefit Plan Review
- Stock Option Accounting and Administration
- Share Repurchases
- Marketing to Institutional Investors
- Balance Sheet Cash Management
- Investment Banking Services
- Corporate Lending
- Consultation on Other Issues (Revising Corporate Trading Policies, Alternative Capital Raising Structures, Corporate Derivatives, etc.)
How We Can Bring Clarity To Your Future
The Client: A high-net-worth executive of a medium-sized company.
The Vision: Early retirement.
The Plan: We would devise strategies to maximize his yearly contributions into his retirement plan, provide guidance on stock option valuation, create concentrated equity strategies, review regulatory issues and plan to minimize the impact of taxes.
This case study is for illustrative purposes only. Individual cases will vary. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Prior to making any investment decision, you should consult with your financial advisor about your individual situation.