"It's one of the most difficult problems we face, to tell you the truth," says Bill Carter of Carter Financial Management in Dallas. "It's one of those things that you have to work with, and it's hard."

A Wrong Approach

Advisors are unanimous in criticizing the stringent proposals as being unfair to the overwhelming majority of corporate executives who are fair and honest people, who could be forced to put their financial futures into jeopardy. Many, they say, already own portfolios that are dangerously concentrated in company stock and options.

"The current era of scandals caused by a few notorious executives has created a climate of suspicion of all corporate executives, but that is very undeserved," says Tim Kochis, CEO of Kochis Fitz Wealth Management in San Francisco. "Most of them are very hard-working individuals who are doing a good job for stockholders and employees. Most of them are not jerks. But there are always some bad apples out there."

Carter says he understands the reasoning behind such proposals, but opposes the across-the-board action. "The proponents of it are saying that if you have more money involved in it you'll put forth a greater effort," he says. "But as a planner, I don't like it. There are a lot of things that can happen that an executive can't control. I don't agree with that. I think it's unfair for those executives."

Such high retention requirements go so far as to contradict safeguards put in place to protect investors, says Alexandra Armstrong, chairman of Armstrong, MacIntyre & Severns Inc., in Washington. For instance, Armstrong says, such a policy "really conflicts" with the prudent investor rule. "Now, that's the guideline for estates and trusts, that you have to be the most conservative and if you don't you're not being a prudent investor. But if you're going to have any consistency in philosophy, then you have to be consistent with it in all respects," she says.

Advisors also see an irony behind the issue: Their problem over the years has been convincing executives to exercise options and reduce heavily concentrated positions in their company stocks. They describe CEOs, CFOs and vice presidents who suffer from "myopia" about the virtues of their company's stock, senior executives who face a corporate culture-without any written policy-to hold options and stock, fears of tax liabilities or running afoul of regulators, and even old fashioned loyalty as constant roadblocks on the path to diversification.

"You have to help them to try to see what is difficult to see-that it's not what they know about their company that makes the stock price, it's what everyone else thinks they know about the company that makes the stock price," says Kochis. "And you can't control that. You are the potential victim of a lot of other peoples' ignorance. You need to protect yourself."

The problem isn't a new one but trends in corporate governance policies are compounding it. "I've been in the investment business for 30 years, and this has been a trend for as long as I've been in it," says Armstrong. "Often you find it was much more a matter of company loyalty."

Many advisors say their clients cite appearances-how selling off stock would be perceived. "Often these people are worried about how it will look to the analysts or on the Street, or to the people under them, " says Carter.

Timothy B. Brown of Brown Wealth Management LLC in Woodbury, Minn., also finds that appearances within the company loom large for many executives. "If you're a senior executive and you're seen selling that stock, you must be looking for a new job. And the same if you're selling your options. A lot of people have that problem-they don't want to be seen selling that stock," Brown says.