If you are one of the fortunate employees of the almost 10,000 public company employers in the US who receive a portion of your compensation in company stock, you should think seriously about the advice you get on how to tactically manage it in coordination with your other investments. Your current advisor may not be the best qualified person for the job. A second opinion on your finances can be just as important as the one you got from a doctor and could be the difference between a comfortable retirement and the quick unraveling of your net worth.
Five Reasons You Might Need a Second Financial Opinion (Or even a Second Financial Advisor)
- Is your advisor qualified to give advice about your equity compensation? Maybe, maybe not. There are a wide variety of professional qualifications and designations used by advisors. Your advisor may be a Certified Financial Planner (CFP®) or a Certified Private Wealth Advisor (CPWA®). These two designations are the most common among experienced advisors who have spent the time to get independent, advanced advisor training. At a minimum, your advisor should have one of these designations. Most other industry designations reflect expertise in financial products, like insurance, mutual funds or portfolio management, not planning.
- Does your advisor offer specialized advice and planning or are they a money manager? Money management is important but it is distinctly different from and requires a different skill set than advising you about how to manage your equity compensation. Most licensed investment professionals holding themselves out as advisors, get paid to manage your assets. Many give planning services away for free. Free planning advice is often worth what you pay for it.
- Is your advisor faced with a conflict of interest? If the brokerage firm that sells administration services to your company with which they manage your stock plan, also has an investment banking relationship with it, you might not get the most objective advice about when to exercise, when to sell or how much to diversify. An advisor who depends on the research recommendation of his own firm for advice to you may, unwittingly, be basing his advice on conflicted data.
- Does your advisor have access to planning tools that do more than just illustrate the potential cash flow outcomes from your equity positions? Effective tactical management of your total portfolio requires that you have a measurable strategy for when (and why) to hold or sell your equity compensation grants. You also need a way to value your un-vested grants. This means your advisor needs access to a tool that will consider time value as part of the decision making process. None of the popular, widely available, financial planning software tools provides a comprehensive evaluation of your equity compensation grants using time value.
- Does your advisor have time for you or is their time focused on the top executives at your company? Let’s face it; the people in the C-suite at your company have much more complex finances than you do. Their grants are bigger, they have more trading restrictions and they are the ones making the decision about which investment banking firm to hire. Very often, they command most of the attention of the representatives of the brokerage and consulting firms who provide advisory solutions to you. Where does that leave you?
Equity compensation planning advice is a specialized skill. Acquiring the planning experience and using the tools specially designed for this unique planning environment takes dedication to a relatively small niche in the big world of financial planning. Only a small number of advisors have dedicated themselves to this practice. The majority of financial advisors are captive of big firms with set ways of delivering a proscribed list of planning and investment management solutions. Some investment firms focus on the wealthiest segment of the investing public. If your investable net worth is under $3 million, you may have difficulty getting the full attention of an advisor at one of the big name full service firms, even if they are the administration platform provider for your company. Other investment firms are focused on delivering low cost services. The biggest of these also provide equity compensation management solutions to big public companies. You may have one of these as the provider at your company for your stock plan 401(k) or both. Low cost sometimes means 1-800, do-it-yourself and learn on-line. If you are already an expert on equity compensation, great! If you aren’t, maybe you need a second opinion or maybe…another advisor.