Editor's Note: This article is part of the Financial Advisor series "How I Solved It." Advisors describe a client with a problem and what they did to help.
A North Carolina couple faced what should have been – and mostly was – a wonderful situation. The husband had gone from a well compensated executive who helped found a startup company to a wealthy stockholder of what was no longer a startup.
But, in this case, the move meant that almost all of their new-found wealth was held in company stock. Joshua R. Whitney, a financial advisor and tax accountant with Advantage Accounting & Tax in Fuquay-Varina, N.C., helped the couple diversify using a range of strategies and investments and also helped them start to enjoy their wealth.
“We took a couple that had a concentrated position of greater than 99% in one asset and created a portfolio that is now 50% concentrated in the company stock and they have additional opportunities this year to further reduce that concentration,” Whitney said.
The couple, both in their mid-40s, became concerned after the biosciences firm went public because so much of their wealth was tied up in the company. If something should happen to the business, their income and investments could shrink to nearly zero, Whitney said.
The couple wanted to diversify, but “when you are a founder of a company that goes public, you are not allowed to sell as much of the stock as you want, whenever you want. This rule guards against insider trading,” Whitney explained. “So, first, we implemented a 10b5-1 executive selling plan that set out a binding agreement for what he could sell, when and at what price. We sat down with our client and the company attorney and agreed on a plan.”
The husband is still working at the company and the wife is a professional who is also still working, so they have salaries coming in, but they also wanted to deal with their out-of-balance stock holdings.
Whitney took the money from the stocks they were allowed to sell and distributed it through a number of vehicles. Advantage Accounting, through its financial advisors, works with numerous pre-retirees and working professionals aged 30 to 50 who have $100,000 to $300,000 saved for retirement and want to grow that amount to provide for stability in the future.
The couple in question came to Whitney about five years ago as a referral from another client. At that time, Whitney reviewed their assets, and saw they held some 4 million shares in company stock that was then valued at 4 cents a share. It went up some over the years, but they were not really concerned about it until the company went public and the stock skyrocketed to $19 a share.
“They were suddenly in a totally different stratosphere for planning, taxes and leaving a legacy,” Whitney said.