The Financial Life Of America's Senior Executives

A look at their demographics and financial concerns.

This is the first in a series of three articles based on a recent research study of 388 senior executives with at least $500,000 in investable assets that will examine 1) their key financial concerns, 2) the financial products and services that they use and are interested in using, and 3) their relationships with their financial advisors.

How are senior executives different from other clients on a financial advisor's roster? And, perhaps more importantly, how are they different from their fellow executives who are one or two rungs above them on the corporate ladder?

To get the answers to those questions, we recently surveyed 388 senior executives, asking them a range of questions about their financial life. All of them held positions of vice president or higher inside publicly traded, Fortune 1000 companies. They were all 45 or older, 81.2% of them were males, and all of them had been with their company for at least ten years. When it came to managing their financial life, each had at least one financial advisor.

Of the group, about half, 49.2%, had investable assets of $500,000 to $1 million, 32.5% had $1 million to $5 million, and the remaining 18.3% had more than $5 million. As we moved up the asset scale, there was a dramatic difference in the percentage of wealth that the executives had in company stock. Those with $500,000 to $1 million in investable assets had less than a third, 31.4% in company stock, for example. Those with $1 million to $5 million had 51.1%, and those with $5 million or more had 62.2% in stock, more than twice the total of the least wealthy executives in our study. The amount of assets they had-and, by extension, the percentage they had in company stock-would make a big difference when we asked the senior executives about their key concerns (Exhibit 1).

Key Concerns

The issue that the executives were most concerned about, and one of the few where they were equally concerned no matter which wealth bracket they were in, was that the value of their company stock might go down. Not surprisingly, those in the $5 million and more group who had nearly two-thirds of their wealth tied up in company stock were the most worried. But, having already been there for at least a decade, all of them were clearly on a committed career path and they considered company stock to be their most important asset. Their concern about their stock's value has no doubt been aggravated by the stock market downturn of the last three years. Greater diversification would be one way to address this issue, but diversifying can be complicated for those executives who are deep in company stock, especially if that stock had either appreciated significantly or if it was in the form of stock options.

Worries About Life After Work

The number two concern was not having enough money for retirement, and here we began to see the level of concern diverging from group to group. Understandably, the more investable assets they had, the less worried they were. The executives with less money would likely be better targets for retirement planning, though previous studies have revealed that very few people keep their retirement plans up to date.

The story was the same regarding the respondents concern over losing their jobs; less than half of those with $5 million or more were anxious compared to nearly two-thirds of those with $500,000 to $1 million.

Lack Of Diversification

The biggest difference between the level of concern in these groups came when we asked them about diversifying their investment portfolio, with less than one in ten in the least wealthy group being concerned compared with slightly more than seven out ten in the higher-end group. This, of course, is the flip side of owning a lot of company stock; it left them overconcentrated in a single stock and that much more vulnerable to the state of the stock market which, as we've all learned in the past few years, is increasingly volatile. As we shall see in our next article, it also relates to the financial products that would be appropriate for the wealthiest segment of senior executives, for example hedging and charitable remainder trusts (CRTs). These two products directly address the risk of having a highly concentrated stock position and two products that they are not yet using.

Other Concerns

There was a similarly wide spread from top to bottom when it came to the executives' concern about being sued. As is the case with most affluent clients, the more money they had, the more worried they were about someone trying to take it away from them. With more than two-thirds of those senior executives with more than $5 million worried about being sued, their financial advisors might want to explore various asset protection options that are designed to ward off, or at least discourage, lawsuits. More money, and a likely higher profile, tends to be a magnet for frivolous, but painful, lawsuits. Those executives concerned with being sued are excellent candidates for asset protection planning. Further, the least wealthy executives were far more concerned about managing the cost of their children's education and would therefore be better candidates for 529 plans than their wealthier peers.

The wealthier executives were also more worried about making sure that their heirs were properly taken care of. The more wealth people have, the more they worry about making sure that it is passed on in the way they intend it to be. As a result, this group would be far more interested in estate planning products and services than those execs in the $500,000 to $1 million group. (Though, again, our research has shown us that few people update and revise their estate plans on a regular basis.)

Finally, all of the executives were somewhat interested-and to the same degree, for a change-in giving to charity. For the wealthiest executives, this opens the door to such options as private foundations, while the less affluent execs might be interested in less pricey options such as donor-advised funds.

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