Advisors must contend with potentially complex tax and retirement issues.

Four years ago, Beth V. Walker became frustrated when she sought advice about her husband's employee stock options from tax and investment professionals. "His company gave us the obligatory forms and explanations, but we still had questions about alternative minimum tax implications, IPO blackout periods and other issues," says Walker, a financial advisor with The Wealth Management Group in Las Vegas. "I got conflicting advice, and much of it turned out to be incorrect. It seemed like no one could point me in the right direction."

Walker decided to capitalize on her frustration by learning about stock options so that she could use her specialty to advise clients and build business. She joined the National Association of Stock Plan Professionals to learn more about employee stock options and other forms of equity compensation. She ran stock option seminars for employees at public companies in the area.

Two years ago, she wrote a book on the topic called An Employee's Guide To Stock Options (McGraw-Hill). Today, she specializes in stock options planning, an area that she believes remains vastly underserved. "The Las Vegas area is home to 23 gaming companies and 42 other public companies," she says. "It's a very good market for what I do, and I have almost no competition."

Financial advisors considering boning up on employee stock options, either to build new business or to serve current clients more effectively, do so at a time when these instruments are making a comeback. Over the last decade, the perception of stock options has changed from an obscure perk for upper management at technology companies, to a path to quick wealth for bull-market wave riders, to underwater fodder for dashed dreams. After last year's bull market, some of those dreams became resurrected as option holdings vaulted back into profitable territory.

To be sure, options are not the hot ticket they were in the late 1990s, when overnight "optionaires" cashed in at triple or better the exercise price. Financial Accounting Standards Board proposals to change the way companies handle option expensing could curtail their use, to some extent. A bearish or sideways market would jeopardize profitability, or increase the time it takes to reach that goal.

Still, employee stock options will likely remain a popular way for companies to attract and motivate executives and workers. At the same time, they will continue to create opportunities for financial advisors willing to put in the time and effort needed to learn about them. Individuals with vested, in-the-money options-including those with options granted in the mid-1990s that are approaching their ten-year expiration dates, as well as those holding options granted during the recent bear market-have to decide whether this is a good time to take their money off the table, or to hang on and wait for their employer's stock to climb higher. Contrary to popular perception, techno geeks at start-up companies aren't the only ones facing the decision. According to the National Center for Employee Ownership, 14.6 million individuals representing 14.4% of employees at for-profit companies have been awarded stock options. More than 41% of employees earning at least $75,000 a year at companies that offer stock options own them. While employees in the technology sector are the most likely to own stock options, they can be found in just about any industry.

Yet many employees have only a vague idea of how their options work, or even whether or not they have them. According to a recent survey from Fidelity Investments, nearly 1 million U.S. households let options expire from late 1999 through late 2000, a period spanning both bull and bear markets. More than half of stock option plan participants let their options expire not because of market conditions, but because they simply did not understand such plan specifics as how to exercise.

The study also shows that many option holders who exercise let outside circumstances, rather than careful forethought and planning, drive the decision. Of those who exercised, 22% said they did so because they needed the money while another 21% pulled the trigger because their options were set to expire.

This casual attitude toward options can make it difficult to effectively integrate them into a financial plan. "Many advisors don't find out that someone has stock options because clients view them as a perk or a benefit, rather than as compensation," says Walker. "You may need to do some digging and ask questions to get the right answers."

Walker finds that even upper-level managers can be surprisingly clueless. "I had the CFO of a major gaming company tell me he had no idea what kind of stock options he had," she says. "Another senior executive ran into my office three days before his options were set to expire and asked what he should do."

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