Pity Elon Musk. Tesla announced this week it was giving him 96 million shares of the company’s stock, each of which trading at more than $300. In turn, the Tesla CEO will have to pay $23.34 for each of those shares, equal to the amount he was expected to pay when he was first awarded his 2018 compensation package.
Oy! Think about tax implications and long-term planning required to optimize all that moolah! What a headache that’s going to be for poor Elon!
Fine. Figuring out what to do with an approximate $29 billion windfall is not that bad a problem to have. In fact, anybody in their right mind would take it any day of the week. Nonetheless, dealing with the intricacies of all that equity-based pay is still an issue for Musk, and, more likely, his financial advisors.
While most individuals – okay, everybody else on earth – will never experience a multi-billion-dollar bounty like Musk, most wealth managers will indeed encounter clients with a sudden windfall of some sort or an equity compensation plan question. And that means they too will need to know how to deal with the disruption – good and bad - it may bring.
Generation Capital Advisors, for example, is developing a comprehensive “concentrated stock playbook” designed to help their clients evaluate a full range of strategies, including exchange funds, long/short hedging, direct indexing, prepaid variable forwards, collars, and securities-based lending. These tools are tailored to each client’s unique circumstances, especially when navigating constraints like Rule 144, 10b5-1 plans, or company trading windows.
“Our focus is on helping executives diversify effectively, optimize taxes, and align their equity with long-term financial goals,” said Samuel Diarbakerly, the firm’s founder.
Meanwhile, Anne Marie Stonich, chief client experience officer at Coldstream Wealth Management, believes advisors should begin by acknowledging both the opportunity and the risk inherent in concentrated stock positions. For executives, their company’s success is often directly tied to their personal wealth, which can create emotional and behavioral biases that make diversification difficult. That’s why, in her view, a good advisor doesn’t rush to sell, but helps clients understand the full scope of their exposure.
“We analyze the concentration in the context of overall net worth, risk tolerance, company outlook, and future liquidity needs. Then we create a custom diversification strategy that aligns with corporate policies, tax implications, and personal goals. This might include pre-scheduled sales, charitable gifting, hedging strategies, or using proceeds to fund diversified investments or trusts,” Stonich said.
Emphasized Stonich: “The key is to act proactively, not reactively, and to position equity as a component of the broader financial plan - not the whole story.”
Along similar lines, Anthony Englert, managing director at Alfa Advisory, partner firm of Sanctuary Wealth, finds that owners and executives are often confident in the company’s future strategy and upside - if things go right. Unfortunately, that conviction can also blind them to the concentration risk of having so much of their income and net worth tied to a single company. Or in other words: golden handcuffs.
“It’s rare for all stock awards to vest and become liquid at the same time. That’s by design – to retain talent. As a result, there’s never an ideal moment to walk away,” Englert said.
One of the biggest mistakes wealth managers see is that busy executives, focused on running their businesses, often lack the time or bandwidth to develop a thoughtful financial plan for their equity compensation. This can result in missed tax planning opportunities, like disqualifying dispositions, poor management of an incentive stock option (ISO) or non-qualified stock option (NQSO) tax treatment, or selling the wrong lots and realizing unnecessary short-term gains, according to Diarbakerly.
On top of that, many advisors either lack the tools or aren’t permitted to advise on these plans if they don’t custody the assets.
“That’s why it’s critical to work with a holistic advisor who understands the mechanics of your equity and actively helps you manage it,” Diarbakerly said.
According to Coldstream’s Stonich, the most common missteps are “inaction and poor tax timing.”
“Executives often wait too long to exercise options or diversify stock, either due to optimism, lack of awareness about expiration timelines, or fear of missing out on further gains. Others exercise without understanding the tax ramifications - triggering avoidable AMT or missing favorable long-term capital gains treatment,” Stonich said.
Advisors generally believe that the best outcomes result from advanced preparation and coordinated planning when it comes to dealing with windfalls and equity-based pay.
Generation Capital’s Diarbakerly regularly educates clients at private companies through decisions like making an 83(b) election, utilizing Qualified Small Business Stock (QSBS) exemptions, and even stacking those exemptions across entities. He also integrates these strategies into estate and exit planning, whether that means setting up a GRAT or SLAT for appreciating assets, or incorporating charitable vehicles like CLATs, donor-advised funds, or private foundations.
“We act as the quarterback across your estate attorney, CPA, and broader advisory team, ensuring nothing gets missed and every detail is executed with precision,” Diarbakerly.
Stonich, meanwhile, starts the process by separating the client’s identity from their balance sheet - helping them define success on their terms, not just their company’s stock price. After that, her next step is to build a long-term plan that includes multiple what-if scenarios, like what happens if the stock underperforms, or a change in leadership affects company culture.
“We look at what’s already vested vs. what’s at risk, and we stress-test their plan using conservative assumptions. Importantly, we encourage executives to fund key goals - like college, retirement, or real estate - with diversified assets, so their future isn’t entirely dependent on a single company,” Stonich said.
Finally, Alfa Advisory’s Englert likes to remind clients that there’s what you make, and then there’s what you keep.
“Taxes create a big gap between the two. But don’t let the tax tail wag the dog,” Englert said.
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