Silicon Valley special: Wealth managers weigh in on working with tech executives

Silicon Valley special: Wealth managers weigh in on working with tech executives
From left: Dave Alison, Tony Blagrove, Tom Connaghan
Financial advisors often have to deal with tech execs and their concentrated portfolios. Here's what they say about their experiences.
FEB 04, 2025

It’s not that technology executives are better, smarter, or richer than other financial advisory clients. They just have different wealth planning challenges.

Okay. Maybe they are wired a little bit differently too.

One of the biggest financial planning challenges for Silicon Valley and tech executives is sizing up risk, according to Dave Alison, president and founding partner of Prosperity Capital Advisors. More specifically, determining how much of their net worth they should keep in concentrated company stock and understanding the tax implications of selling to lower their risk.

“Many tech employees who have built significant wealth in the last 10 years have a strong bias that their company will continue to outperform the broader market. This mindset often leads them to accept a higher level of concentration risk than is financially prudent. They may assume the momentum will continue indefinitely, causing them to resist selling or taking gains off the table,” Alison said.

The first step Alison takes with clients is to assess their level of concentration risk. If a client is an ultra-high-net-worth individual, they may be able to afford higher concentration. But for others, holding too much in a single stock can be risky. As a guideline, he suggests a range of 10 percent to 25 percent of net worth in company stock, adjusting based on their risk tolerance and overall financial situation.

Another challenge is the tax impact of selling those concentrated, and often low-basis, shares.

“Many clients let the ‘tax tail wag the investment dog.... holding onto concentrated positions because they don’t want to realize gains and pay up to 37 percent in combined federal and California long-term capital gains taxes," Alison said. "However, we educate them on strategies to minimize tax impact, including donor-advised funds, charitable remainder trusts, exchange funds, and exchange fund replication.”

Perhaps more importantly, Alison reminds them that many clients who refused to diversify saw their net worths plummet in 2021, when their stocks crashed.

“To balance FOMO (fear of missing out) with prudent decision-making, we encourage clients to set defined exit strategies rather than trying to time the market emotionally,” Alison said.

Tom Connaghan, senior wealth advisor at Kayne Anderson Rudnick, agrees that taxes pose a challenge as most investors seek less concentrated stock risk, but are "hesitant to unnecessarily trigger a significant tax liability which could result in lower short-term and long-term returns.”

He also points out that active employees have restrictions against using customized option hedging strategies and exchange funds, something that wealth advisors need to keep in mind.

A public or private matter

The top planning challenges are split between those executives who work for companies that trade publicly and those that don’t.

For the public traded company executives, the most acute challenges are managing their stock-based compensation to make sure sufficient taxes are being withheld or they have a plan to pay what is owed, said Tony Blagrove, CEO and founder of Traveka Wealth. Otherwise, Blagrove said they could be surprised by an unexpectedly large tax bill and need to scramble to find the money to pay for it - an unnecessary yet fairly common occurrence.

Making sure stock-based compensation is managed for diversification and understanding the tradeoffs of not divesting from your employer stock are also paramount.

“People tend to have short-term memories from what happened last time and the painful popping of the first tech bubble on the stock darlings of that time period like Cisco and Sun Microsystems. This holds true today for employees of Nvidia, Meta, and Google,” Blagrove said.

Meanwhile, for private companies, Blagrove said the top planning challenges are making the right choices with how they handle their private company equity with the tax and liquidity considerations of each. That is not to mention cash flow planning when compensation is heavily skewed towards equity compensation and not salary.

Blagrove added that most of his clients are careful about their financial futures and realize stock option success is far from guaranteed.

“Very few of our clients live by the Silicon Valley mantra of 'move fast and break things.' Most are methodical, careful, diligent people who understand the balance between short-term and long-term trade-offs to reach financial security,” Blagrove said.

“Ultimately, the key lesson is that concentration can make you rich, but diversification can keep you rich.”

When clients have stock in a private company, sometimes they are offered a tender offer to give employees some liquidity on their shares. Katy Song, chief financial planner at Domain Money, points out that the employee is usually eligible to sell a certain percentage of their vested shares at a specified price depending on the terms.

“Typically, I tell my clients to go for it. Take some cash when you can and use it to put towards your financial goals. Taxes tend to be withheld from vested shares and paid so you don’t need to. You will still have upside on the remaining shares and even more as they vest,” Song said. 

Finally, outside of educating clients on the alphabet soup of RSUs, RSAs, ISOs, and NQSOs that might make up their equity compensation, Joe Lum, regional president of MAI Capital Management, said it’s important to understand the tax treatment of each vehicle and the timing of when the tax liability is owed.

“For an executive at a publicly traded company, it is common for the income tax for vested RSUs to be withheld at the federal supplemental tax rate, generally around 22 percent, which is likely much lower than the effective tax rate. Without proper cash flow planning, this can cause an unwelcome surprise come April 15 or even underpayment penalties,” Lum said. 

Year-round tax planning can help avoid this pitfall by understanding the vesting schedule of all equity compensation and reviewing the client’s paystub on an ongoing basis and adjusting withholdings if necessary, Lum said.

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