You wouldn’t be where you are today without talent, insight, goals, and the will to achieve. Because of your leadership position in a large company, no doubt you are knowledgeable about financial matters and you understand the unique complexities of how you are compensated.
Incentive-based equity compensation plans were created to be competitive, but not all that user-friendly — especially when it comes to having a big-picture understanding of the financial planning implications. Making smart moves at the right time means knowing exactly which levers to pull and which ones to leave in place. Missed windows of opportunity can be costly to you and your family.
It takes a serious investment of time and attention to stay on top of all the rules and regulations. Between the demands of work, family, and your other responsibilities, spare time is the one thing that you have in short supply. Because your Bridgeworth advisor works with other executives and is immersed in the details of incentive-based equity compensation on a routine basis, he or she can be a valuable resource to you.
Organizing Your Financial Life
Over the years, it’s not unusual for executives to end up with multiple deposit accounts, investment accounts, insurance policies, and important documents that they are not even aware exist. If that sounds familiar to you, get ready to finally know where everything is.
One-Size-Fits-None™ Financial Planning
It all begins with a blank sheet of paper and a conversation. This initial discussion between you and your Bridgeworth advisor will be one that continues over many years. It’s a conversation about your goals, values, and the people and things that are most important to you.
The sum total of this ongoing conversation will yield a holistic and highly personalized financial plan which is analyzed and vetted before any final recommendations are made. The resulting plan is then presented to you in a manner that is as straightforward and jargon-free as possible.
Timing + Insights
Our insights will enhance your ability to make both time-sensitive and longer-term financial decisions by thoroughly researching your options. We have the time, tools, and resources to provide you with actionable information, insights, and recommendations to keep you on the path toward the financial future you have envisioned.
This is a team sport. In order to provide you with the best available insights, your advisor is constantly drawing on Bridgeworth’s extensive wealth of knowledge and financial planning resources.
We serve as a sounding board and advisor to bright people like you.
Call us and let’s begin a conversation.
This case study reflects the combined experience working with hundreds of clients over the past 20+ years. It does not represent any one Bridgeworth client, but serves as an example of the benefit of planning. As Dwight D. Eisenhower said, “plans are useless, but planning is indispensable.”
Celia is 60 years old and works as chief human resources officer at a large company. Celia came to Bridgeworth at the suggestion of a friend and fellow executive at her company who shared how his Bridgeworth advisor served as a partner to create a plan to exercise stock options and diversify a concentrated stock position. Celia, like all executives in her company, is required to keep company stock equal to two times her annual salary and bonus, but she held an amount closer to 5 times her salary and bonus.
At her first meeting, Celia shared that has worked since she was 16, enjoys her current job and plans to continue working for at least 3 more years. She wants to make sure she saves enough to maintain her current standard of living for the rest of her life, continue making annual donations of $35,000 to a charity that provides educational resources and support to inner city students, spend $250,000 to renovate her primary home, buy a second home in the mountains for $750,000, and leave at least $1,000,000 to the same charity she supported during life. Celia’s plan also includes an estimated expense for purchasing individual health insurance as she anticipates retiring before becoming eligible for Medicare at age 65.
After helping Celia get financially organized, we prepared projections which showed that Celia’s likelihood of accomplishing all her goals is 75%. Celia was not pleased with a 75% likelihood of success, so we ran another scenario that assumed she did not buy a second home as this purchase would also increase her standard of living by approximately $25,000/ year to pay for insurance, property taxes, utilities and maintenance. This plan increased the likelihood of success to 84%, which is within Bridgeworth’s confidence zone. We also acknowledged that, if she received more from exercising stock options than projected, she may be able to purchase the mountain home and still maintain a higher level of confidence that she will be able to accomplish her other goals.
Once the big picture plan was in place, we reviewed the outstanding stock options and agreed to exercise ¼ of the ones closest to expiration each quarter as long as the stock price was $100 or more. If the stock price increased to $125, any remaining options in that group would be exercised immediately. We shared this plan with Celia’s CPA, so she would be aware of the tax implications upon exercise. Celia then took this plan to her company to establish a 10b5-1 plan, so shares could be sold automatically at these set prices, thus avoiding any accusations of insider trading.
Because Celia already has so much company stock at low cost basis and is charitably minded, we recommended that she give $250,000 of the stock to a donor advised fund at the Birmingham Community Foundation. She gets the benefit of an immediate tax deduction and is then able to make annual gifts from her donor advised fund to the education charity she supports as well as to other charities, like cancer research and clean water for developing countries.
We also worked with Celia’s estate attorney to review her estate plan and to name her donor advised fund as beneficiary of her IRA and 401k. Naming the charity as beneficiary of retirement accounts accomplishes Celia’s goal of leaving money to the education charity at death plus it avoids tax. Charities, unlike individuals, do not have to pay income tax on retirement accounts, and they are also exempt from paying estate taxes. Celia’s estate is larger than the estate tax exemption of about $5.5 million, and she is more than happy for money to go to charity rather than to the IRS.
The results of Celia’s financial plan showed her ability to take risk with her investments and her responses to a risk tolerance questionnaire showed her willingness to take risk with her investments. The risk tolerance questionnaire also highlighted the need for Celia to continue reducing her exposure to company stock; she became even more aware of the risk of having “too many eggs in one basket.” We then developed a plan to invest Celia’s 401k, IRA, and taxable investment account in a balanced portfolio, which has 50% in stocks and 50% in bonds. Once Celia’s portfolio was fully invested in the balanced portfolio, she could access information online at any time to see how her portfolio was performing. These online reports are in addition to the regular Bridgeworth investment reports that Celia receives semi-annually.
Going forward, we will review Celia’s goals and the financial planning projections annually to make sure Celia remains on track to accomplish what is most important to her. We will also regularly monitor how Celia’s investments are performing and whether her ability or willingness to take risk has changed.
Bridgeworth can be a resource to provide objective information and analysis to give you peace of mind about your financial condition.