Financial land mines faced by executives mean big opportunities for you.

It's tough being a corporate executive these days.

Before you shed any crocodile tears, consider some of the threats the nation's executives are facing.

First, there are the ever-potential shareholder lawsuits over compensation plans perceived as excessive. Executives are also living with the realization that much of their compensation, which comes in the form of their company stock, may be worth a whole lot less when it's time to sell. And instead of encouraging more prudence, the collapse of Fortune 500 companies such as Enron ironically have had little impact on executive stock ownership requirements. Which means that many executives are still walking around with the bulk of their net worth in company stock.

"With stock ownership, there's no more sanity in corporations today than there ever was," says Alan Gotthhardt, a partner in the Norcross, Ga.-based firm of Polstra & Dardaman, which works with Coca-Cola executives and is on the preferred list of three other Atlanta-based companies. "It's highly politicized at the senior executive levels. Everyone around the board table knows who has sold stock, and it may mean they get less incentives and options next year."

Increasingly, however, some of these executives are likely to hear more about the perils of under-diversification.

More and more, corporate human resources departments that vet planners for their companies' preferred planner lists are seeking out independent advisors to include (see sidebar: "Corporations ISO of Independent Planners"). "If you have a compelling story and can get to the right person, they're open to hearing it right now," Gotthardt continues.

At AMG Guaranty Trust in Denver, which manages $1.7 billion in assets and works with 69 different corporations including AT&T, Coors and Hershey, the firm's 18 advisors report that smaller planning shops, even one- and two-person concerns, are starting to show up on preferred lists. "On one list we saw Ayco, Ernst & Young, a small local firm and us," AMG's Chief Operating Officer Steve Parsons says.

While opportunities abound for planners in this market, it's risk that abounds for executives. "It's a minefield out there now," says AMG's President Earl Wright. In addition to having both their income and the bulk of their portfolio tied to the fate of their companies, many executives still have in place split dollar, insurance-based or even questionable off-shore tax shelter plans that need unwinding.

The starting point for planners is to help executives access and understand their risks and plan ways to minimize them. John Henry McDonald, president and CEO of Austin Asset Management, which has clients from Dell and Motorola, helps executives define "critical capital." That's the amount of dollars the executives need to maintain their standard of living in retirement. It's a reality check of sorts, but an important one. "If an executive has $10 million in stock and only $100,000 in the bank, they're not rich, they're in trouble. If they buy into what we're saying, sometimes that might even mean finding a new job so they can cash out."

Underscoring diversification throughout the process is key, since many corporations strongly suggest or even require their executives to hold as much as five times their salary in company stock. "We know this and work hard to get them to maintain more liquidity wherever possible. The younger they are, the easier that is," says McDonald. "We tell them, 'For God's sake, when you get the chance to sell or invest elsewhere, do it,' If that means you have to take a 401(k) plan match in company stock, but can invest in other stocks and bonds with your own contribution, let's do it."

It's not uncommon to see an executive have as much as 80% to 95% of his or her net worth tied up in company stock, and it stays that way until they change jobs or retire, Parsons says.

Planners should also expect to do careful stock option planning that transcends anything that even a complex computer program can do. "Stock option planning is one of the biggest challenges right now," says Greg Sullivan, president of McLean, Va.-based Sullivan, Bruyette, Speros & Blayney, which does planning for Fannie Mae and AOL executives. "When a stock price is falling and an executive has options expiring in six, 12 and 24 months, it's a tough call. You have to put sound probability analysis in front of the client so they can decide what to do. And you have to look at their specific situation."

As executives start to get more rational about diversification, they're also getting savvier about smart tax planning when it comes to options. In the past, executives were determined to hold a stock for a year after they exercised options in order to get capital gains treatment.

Now more are aware that income taxes can be preferable to AMT (alternative minimum tax) on stock that has tumbled in value. "Executives have seen lots of people get whipsawed when they exercised options, held the stock, incurred a big AMT bill and then saw the stock collapse after year-end," says Gotthardt.

Today, executives may not want to wait even a month before they sell ISOs. "With nonqualified options, you exercise, sell and diversify almost without exception to get diversity," Gotthardt says.

Selling is one way to diversify. The use of hedging strategies another, but it is still a mixed bag, planners agree. Officers are forbidden by securities law from using options, puts or calls to offset their exposure on restricted stock, so they're essentially stuck without a hedge until they leave the company or retire.

Non-officer executives, however, can employ hedging strategies. Sullivan says his firm has been doing some call option writing for executives who have emotional ties to stock and don't want to sell. "It's a way to generate some income off of some of the stock they're holding," Sullivan says.

The technique has allowed Sullivan Bruyette advisors to compete successfully for executive clients who had been working with Salomon Smith Barney and Merrill Lynch reps. "I've rarely seen the wirehouses using this technique. They're just trying to sell people wrap accounts. Their other big claim to fame is to get them to use margin accounts," he says.

Gotthardt has seen some variable prepaid forward contracts, which allow executives to collar a stock so they can basically pull out 80 % to 90% of the value of the collar position to invest elsewhere. While such strategies can work, it's crucial to value the costs as well as the risks (such as the risk the IRS will require the executive to undo the contract and pay taxes and penalties).

"What's most important is that you build a strategy that fits the client and takes full advantage of opportunities to sell stock and options over time," Gotthardt says. Smoothing the way, he adds, is the SEC's easing of insider trading rules that allow executives to file a plan to sell stock with company attorneys beforehand. Under the new rules, sales are not stopped on future sale dates, provided the executive had no knowledge of insider information regarding the dates when the plan was filed.

Other valuable assistance planners can provide: Helping executives understand what their job is actually worth so they can clearly evaluate golden handshakes, early retirement and job changes. "We had a client who was offered $10 million in a sign-on bonus at a competing company," says AMG's Wright. "We crunched the numbers and went back and told him that if he stayed put for two years, he'd make up the $10 million in vesting. Our question to him was, 'Why take the risk at another company?' He ended up staying. Which has had huge value for him and the company.

Getting Your Foot In The Corporate Door

While the dust is still settling on the scandal-ridden implosions of Enron, K-Mart and Worldcom, to name a few, the cautionary lesson for the human resources departments charged with vetting planners for companyís preferred list is this: Look for independent firms. What HR executives really want is planning competence and protection from scrutiny and legal backlash. To find it, theyíre seeking out independent planners, who they believe are free from the taint of conflicts of interest. The plus for planners who work with corporate executives is multifold: Itís a lucrative market where annual fees can range from $5,000 to $20,000 per executive. And itís a homogeneous market; the executives at a given corporation have the same comp plans, risks and opportunities, which gives you a chance to serve them particularly well. So how do you get the chance to tell your story? ìThe key is getting to the right person, who is the internal promoter of planning at the company,î says Greg Sullivan, president of McLean, Va.-based Sullivan, Bruyette, Speros & Blayney. ìOne of the best people to work with is the head of HR. Weíve done that at Fannie Mae,î says Sullivan, whose firm is on the preferred list at Fannie Mae and also works with executives at Microsoft and AOL. Remember, however, that this is a two-tier sale, says Earl Wright, the president of AMG Guaranty, which works with executives at 69 different Fortune 100 and 500 corporations. At the corporate level they want to ensure that you have the resources and depth to deliver high-quality, pothole-free services. Executives tend to be more oriented toward results and performance. On both fronts, however, itís important to deliver. ìYou have to have the resources to a good job,î says Sullivan. ìExecutives talk. If you slip up with one, everyone at the company will know about it.