As a corporate executive, you may have the benefit of a non-qualified deferred compensation program. When managed properly and considered in light of other traditional benefit programs and personal assets, such plans can significantly impact positively on your family’s wealth creation and financial plan.

Executive compensation often includes the ability for our client to build a meaningful position in their employer’s stock. For some, a minimum position in the stock must be maintained, tying the individual’s risk to the company. Such positions must be monitored to help ensure compliance and strategy to control the family’s risk. By understanding the client’s requirements, risk preferences, financial needs, hedging and potential restrictions (blackouts), we actively consult and manage to maintain financial balance.

Many executives today have the opportunity to participate in a robust stock option program. Managing one’s planning can meaningfully impact the family’s wealth creation, but specific focus must be placed on tax exposure. Managing stock option plans improperly can expose the executive client to excessive taxation that may have otherwise been minimized or even avoided.

 

Raymond James and its advisors do not offer tax advice. You should discuss any tax matters with the appropriate professional.

In addition to stock options, the companies our clients work for often reward them with grants of stock to enhance their compensation package. Generally, there is no tax event upon the grant of these awards, and there is typically a vesting date in the future, at which time the award becomes the legal possession of the employee and is taxed as compensation. As part of our process with corporate clients, our team evaluates each restricted stock plan and creates a strategy for incorporating it into the overall financial plan.

Due to the fact executives are often in possession of non-public information, their ability to sell stock in their company can be restricted. By establishing a 10b5-1 selling plan at the right time, the executive may be able to schedule a systematic selling program even while restricted.

Few executives focus on the true financial implications of retirement while they are still working. Instead, many rely solely upon accumulation of wealth with the hope sufficient capital is owned at retirement. As a result, risk can be introduced via over-concentration, insufficient accumulation or simple missed opportunity. Meaningful impact can be realized when planning begins early and considers all benefit programs and opportunities available. Truly, planning can never begin too early!

With wealth comes responsibility for an executive’s immediate and often extended family, including descendants. We take the time to fully appreciate our clients’ family dynamics, needs, desires, and long-term goals. SWG works collaboratively with clients and their legal advisors to develop, implement and actively monitor a family’s comprehensive estate planning strategy.

The vast majority of our clients are large company executives in Northwest Arkansas and Eastern Oklahoma who have accumulated significant assets through the company 401(k) plan, deferred compensation and employer stock.

These individuals want to make the most of the wealth they have worked so hard to build, and understand that so much hinges on choosing an advisor they can trust. We generally begin working with clients when they are within five years of retirement.

With any new client, we start with an in-depth discussion of their financial needs and objectives, as well as their tolerance for risk. We also answer any questions about the markets and investing. Together, we set reasonable goals and expectations for their retirement plan.

For clients with deferred compensation, we conduct a cash flow analysis and consider several payout scenarios. We then develop a retirement income strategy to help cover expenses and fund their lifestyle in retirement, while also being mindful of mitigating taxes.

We also take careful measures to address the complexities associated with holding extensive company stock options. This included valuating options, making sure we comply with mandatory holdings policies, and consider hedging opportunities and ways to potentially reduce or eliminate the alternative minimum tax.

Based on our discussion and analysis, our team will then create a customized plan that reflects the goals and level of risk that is comfortable for our client.

With our client’s consent, we make buying and selling decisions on their behalf according to the investment plan. We attempt to mitigate the effect of market downturns by implementing risk management tactics, and use strategies such as hedging opportunities and bond laddering designed to help address the client’s objectives of income and liquidity.

Our team continually monitors client portfolios and we consult with them regularly. Our investment committee meets monthly to review client portfolios, drawing on current market research and economic data we seek to take advantage of any opportunities in the market with tactical changes to the portfolios. As your circumstances change, and the markets fluctuate, we’ll discuss investment alternatives and adapt your plan as needed.

The hypothetical example above is for illustrative purposes and is not representative of any actual experience. Individual results will vary. Asset allocation and diversification do not guarantee a profit nor protect against a loss. There is no assurance that any investment strategy will be successful. Investing involves risk including the possible loss of principal. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.