CHARLOTTE, N.C. -- Just because your clients are successful executives doesn't mean they understand their own finances.

"I worked with a lot of C-level corporate executives," says John Nersesian, managing director of wealth management services at Nuveen Investments in Chicago. "I served them under this misconception: Because they had been really successful in their careers, they were very knowledgeable or fluent in the financial planning issues that affected them."

Speaking to an audience of advisors at NAPFA's Evolution Now conference here, Nersesian warned them not to make that same assumption. These executives are "very smart people," he pointed out, but many need help from planners.

Equity-based compensation is one area in which advisors can help: "11% of in-the-money stock options held by C-level executives are allowed to expire each year as worthless," Nersesian says. "They look at their investment portfolios every night when they get home from work, but they probably don't view their option statements or the restricted stock grants."

But when discussing investments with executive clients in particular, mind your approach, he says: Ask questions rather than simply telling these clients what to do. He suggests asking a client if they would rather see a stock that they sold skyrocket or a stock they recently purchased plummet.

Executives also tend to have concentrated positions that can be difficult to navigate, he says, identifying a few strategies that he says have helped him with clients.


One strategy that Neresian implements to create liquidity for executive clients is the sale of restricted stock.

Under the SEC's Rule 144, he says, investors are governed largely by two limitations: a) a holding period of six months to a year from when an investor took possession of the shares, depending on the type of company, and b) share sales can't exceed the greater of 1% of outstanding shares or average weekly trading volume during the preceding four weeks. 

"The good news is, if your client is dealing [with] under $50,000, you don't have to file" a notice with the SEC, Nersesian says.

Executives employed by public companies may also want to create a predetermined plan for selling shares, Nersesian says: "10b5-1 plans are a very effective way for clients to engage in a disciplined sales process without raising red flags and without public disclosure."


"Zero cost collars make a lot of sense," Nersesian says. "Essentially your client is selling a call option, receiving a premium and using that premium to buy a put option."

Such strategies allow clients to minimize downside risk and defer tax consequences, Nersesian says -- but if the stock skyrockets, the investor will lose out on some of the upside. "It effectively collars, or limits, the upside and downside," he says.

For executives who need to diversify holdings, Nersesian says "exchange funds can be very effective."

There are downsides, he notes -- "the minimums are quite high and the [management] costs are pretty high as well" -- but he says the funds, which let investors take a concentrated position stock and pool it in a basket of stocks, do offer some "intrinsic benefits."

The greatest risks are at the front end, Nersesian says, because investors might have a difficult time being able to contribute shares to a specific exchange fund. "Be careful and make sure you test the waters to determine whether your client's shares will be acceptable to the fund before you recommend it as a strategy to your client," he says.


"If there is one conversation we should be having with our clients between now and the end of the year, it is charitable giving," Nersesian says. "Your clients have to at least know of their charitable options between now and Dec. 31."

Higher income and capital gains tax rates make it more beneficial now for clients to engage in charitable giving, he says; many clients are also much wealthier than they were five years ago, with large unrealized capital gains in their portfolio.

"If I set up a donor advised fund or a charitable remainder trust, we intentionally choose how much we want to give and the year in which we receive the deduction to maximize the after-tax benefits," he says. "It's controlling the timing of the deduction so it provides the maximum benefit to your clients."

Read more:


Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access