WEALTH MANAGEMENT SERVICES
HIGH-EARNING EXECUTIVES NEED
FROM THEIR FINANCIAL ADVISOR

I was chatting with a colleague recently when she asked me an interesting question: What wealth management services best fit the unique needs of high-earning corporate executives? I could only speak from the experiences I’ve had serving executives over the course of my career.

When top-level executives approach our firm, I often find there are a few common underlying factors they want to address. They want to know how to best leverage their equity compensation plan (many times in the form of stock options). They want to know how to donate money and other funds to the charitable organization of their choice. Lastly, they want to know, without a shadow of a doubt, where and how their wealth will be distributed when they pass away, effectively planning their legacy.

Therefore, the three main wealth management services that directly impact high-earning executives are: equity compensation planning, charitable gift planning, and estate planning. These are the essential services any corporate executive needs from a trusted financial advisor. Here’s a look at those services in more detail.

As an executive trying to make the most educated decision when it comes to exercising stock options, you need to take into account multiple factors, including:

• Volatility: Variation in the stock price.
• Option type: Non-qualified or incentive.
• Underlying stock price: The current fair market value of the stock.
• Time: The period when the stock price is measured.
• Strike price: The predetermined price at which the option can be exercised.
• Risk-free rate: The theoretical rate of return with zero risk.

A financial advisor will account for all of these factors when utilizing the Black-Scholes model to determine the optimal time to exercise employee stock options.

A good executive financial advisor is invaluable when it comes to equity compensation planning if they can help a top-level executive see potential outcomes of exercising their stock options both in the short and long term.

One of the many ways an advisor can do this is to generate reports on a regular basis that display multiple possible scenarios that you could experience based on your equity compensation decisions. These reports, of course, factor in facets such as volatility and timing. Because you are often limited to certain time windows and other constraints when it comes to exercising stock options or moving large amounts of employer stock in your portfolio, these reports should align with those windows of time.

On average, you should expect to see an equity compensation report on a quarterly basis. If you feel that your employer’s stock is more volatile, or if you happen to be close to a milestone such as retirement, you may want to see these hypothetical scenarios more often than that. The more transparent you can be with your advisor, the better recommendation they can make for you and your situation.

Below are a few of the top charitable gift planning strategies that can act as a great starting point for a discussion with your advisor about how to give charitably while benefiting your unique financial situation:

• Donate appreciated assets: By donating appreciated assets to charity, you are able to avoid capital gains tax on the asset while also taking a charitable tax deduction. This strategy also allows you to make a larger donation because the charity can sell the asset outright, and charities are exempt from capital gains tax.
• Donor-advised fund: By utilizing a donor-advised fund (DAF), you are able to donate to many charities from the same account. You are also able to take a charitable tax deduction in the year you deposit assets into the DAF, even if the assets haven’t been donated to charity yet. This strategy allows you to donate assets when it is most advantageous for you, and earmark money and other assets for future charitable donations. Many executives believe they need a certain amount of assets before they can set up a DAF. However, there is really no threshold, making this is a great strategy no matter the amount you intend to donate.
• Qualified charitable distribution: Converting your required minimum distributions (RMD) into qualified charitable distributions is a great strategy to employ if you are over the age of 70 and want to avoid paying income taxes on unneeded RMDs. The donations you make via a qualified charitable distribution don’t count against your charitable tax deduction limit for the year either, so this strategy can be used with other giving strategies to help the charitable organizations you care about most.
• Charitable remainder trust: For some executives, leaving money behind to a charity or multiple non-profit organizations is a priority. However, you also may have an income need throughout your retirement to ensure that you and your family are taken care of. If this is the case, utilizing a charitable remainder trust can help you avoid capital gains taxation within the trust on assets sold to generate income in retirement. The best part is that you also get to leave a legacy by automatically donating the leftover funds to the charity of your choice, while taking a charitable tax deduction when you fund the trust initially. It really is a tremendous tool to use when it fits your situation and needs. A trusted advisor can help you determine when setting up a charitable trust makes sense for you.

As with any wealth management service, the outcome of your charitable gift planning is dependant on your unique situation. Your advisor should never push you in one direction or another, but rather listen to your desires and develop strategies that fit your wants and needs. An advisor that understands how to leverage your charitable contributions can be an invaluable resource in your financial planning strategy.

As an executive, it’s important that you work with an advisor who can articulate high-level ideas and strategies while making sure that these strategies are tailor-fitted to your particular wants and needs. Your advisor should follow a proven process that takes into account your assets, any planning you have already done, and what your current wishes and needs are. This process should include:

Understanding your priorities and goals: Your financial advisor should gain an understanding of your particular priorities and goals first and foremost. While it is great to have an advisor throw out different strategies and ideas for your estate plan, an advisor isn’t really fulfilling their role unless they have a good understanding of what is important to you. Once they have helped you identify those priorities, you can move on to the next step in the estate planning process.

Examining your estate planning documents: To better understand where you are coming from and what planning you have already done, it is important for your financial advisor to see your current estate planning documents. These documents can include: a will, a trust, healthcare directives, power of attorney, and any other document that could dictate where your assets will go and when. 

This is an important step because your advisor can take your priorities and objectives and overlay them on your current estate planning documents to see if they coincide as they should. If there is some variation or contradiction, your advisor can help you reroute your documents to better reflect your unique goals and priorities.

In my experience, if an executive has done previous estate planning, their documents aren’t always up to date, which can cause a conflict between their intentions and the wording in the estate documents.

Working with your estate planning attorney: A trusted financial advisor knows the value of working with other professionals who are experts in their field and the resources and insights that come with that. For this reason, your advisor should, at a minimum, offer to sit down with you and your estate planning attorney to review your estate planning documents.

It’s important for your financial planning team to work in conjunction with your estate planning attorney, along with your CPA or tax advisor, when developing estate planning strategies. To achieve the most beneficial outcome possible for your family, you need to be sure that all of your advisors and personal planning professionals are on the same page and have your best interests in mind.

Developing investment strategies: Lastly, your financial advisor should help you develop and implement investment strategies that coincide with and complement your overall estate plan. Whether those strategies include setting up your own personal donor-advised fund or working with an estate planning attorney to set up and fund a charitable remainder trust, your advisor should help you see where these investment strategies line up with your estate planning strategies.

From a service standpoint, when financial planning colleagues and other financial professionals inquire about wealth management services geared toward serving top-level executives, I always point back to the importance of a tried-and-true process and a wealth of advisors. Leveraging these two things, you should be able to develop a unique and effective financial plan. Whether your priority is to manage your concentrated stock position or ensure that your estate planning affairs are in order, an expert executive financial advisor can help you develop and implement strategies that address your needs and fit into your overall financial plan.