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The Top 40 Under 40: Handling Highly Concentrated Portfolios

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No. 27: Eric Bickler

Firm: UBS

AUM: $663.54 million

Location: White Plains, NY

Age: 37

Note: This profile is part of a special series devoted to On Wall Street’s Top 40 Under 40 ranking for 2012. Every day we take a look at an advisor who made the list to find out the secrets of their success.

Eric Bickler’s typical clients are current and former corporate executives. A major wealth management concern for key executives is handling their employee benefits, Bickler says.

Such executives often have highly concentrated portfolios. They might hold employer stock options and restricted stock in addition to shares of employer stock held outright or within their pension plans. In such cases, these clients may be highly exposed to a drop in that stock’s price, so diversifying their holdings can be important.

“A concentrated portfolio can be helpful if that stock does well,” says Bickler, “but it cuts both ways. Generally, such clients need to diversify to spread the risk.”

One way to diversify is to sell part of the concentrated position, if that’s permissible, and reinvest in other assets. Selling might generate taxes, though, if the employer’s stock has appreciated. “The past few years have been gain-friendly,” Bickler says. Federal income tax on long-term capital gains has been capped at a relatively modest 15%.

With tax rates on high-income taxpayers on the rise and a less-friendly environment for taking gains, will Bickler’s clients will turn to sophisticated strategies for reducing a concentrated position?

“Some of those strategies are viable,” Bickler says, “but we have not used them very often. They tend to be complex and expensive. However, higher tax rates will make selling appreciated assets less appealing so we may see more interest in certain strategies.”

Beyond the techniques and tax aspects of diversifying a concentrated portfolio, other hurdles must be cleared. “Our clients are not worried that their employer’s stock will crater,” says Bickler. “They’re comfortable with what they have. We have discussions with clients, to get them used to the idea that other investments can have a place in a more diversified portfolio.”

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