To trim the risk associated with concentrated stock ownership, stock protection trusts (SPTs) may be a good option. The contracts enable investors to get liquidity and defer taxes, but they only receive anywhere from 75 percent to 90 percent of the current market value of the stock, in exchange for a basket of other stocks to be paid in installments in the future. Wall Street firms also offer a complex and expensive solution through a financial instrument known as a variable prepaid forward contract. Advisors can hire managers to run options strategies on their behalf, but that, of course, comes at a price.
But option overlay strategies can be cumbersome and time-consuming, requiring advisors to continually re-price contracts as they roll over. Some advisors hedge the risk by buying options contracts and other equity derivatives to cushion a falling stock, or the broader market. Solutions for concentrated stock positions (generally, a single holding that accounts for 10 percent or more of an overall portfolio) have existed a long time but each comes with their own caveats.Įxchange funds are costly and complex. Once the client better understands the importance of risk mitigation, Guay talks to them about a methodical process to lower any risk they need to, including potentially how and when to sell their shares. “Reframing the issues is among the most important roles an advisor can play.” “I first help them understand how important it is for them to trim that risk exposure (embedded in owning a lot of just one stock),” Guay says. Most are concerned about the tax implications, or they are bullish on their employer and don’t see any reason to sell shares. Ron Guay, an advisor at Sunnyvale, California-based Rivermark Wealth Management, has found that some clients will balk at the notion of selling company stock.
Or, helping get clients access to shares of private companies with more growth opportunities. Concentrated private holdings can be even more challenging.įortunately for advisors, several new exchanges and investing platforms are gaining traction, helping them reduce concentrated ownership (or at least carve out ample downside risk protection for a stock). But too much net worth tied up in one company can be a challenging risk to manage, even with a financial advisor.
#EQUITYZEN FUND PERFORMANCE SERIAL#
Those gains have been mirrored or bested by shares of privately held companies achieving ever-higher valuations through serial capital raising.įor workers who have seen their net worth surge along with their employer’s stock, the gains have been a blessing and a curse. The S&P 500 Index - which has roughly doubled in value since the start of 2017 - surged another 21 percent through the first eight months of 2021 and many individual stocks have tripled or quadrupled in that time.
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