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A
new company to the financial-planning scene, Net Worth Strategies,
Inc. has released StockOpter®, an exciting product that may reduce
your reliance on custom-designed spreadsheets as you analyze your
clients’ stock-options options.
If
you aren’t stock-option planning now, you will before long.
It is not uncommon these days for both mid- and low-level employees
to participate in an employee stock-option plan alongside top corporate
officials. According to Sara Ward of Net Worth Strategies, 7 million
to 10 million non-management workers in the United States have employee
stock options.
StockOpter®
is an Excel add-in. It installs itself on top of Excel, allowing
the program to make use of  Excel’s
significant computing power. To use the program, you must have a
copy of either Microsoft Excel 97 or Excel 2000 installed on your
computer. If you are using Excel 97, either the SR-2 or SR-2b patch
must also be installed on your machine. The patch is necessary because
the original release of Microsoft Excel 97 had an "auto recalculation"
bug that could prevent sections of a worksheet from recalculating.
The
program handles incentive stock options and non-qualified stock
options, as well as restricted stock. Working within the Excel environment
gives you a great deal of flexibility, because you can manually
edit individual cells.
When
you boot up StockOpter®, it prompts you for the tax information,
stock information, and the cash-flow account (which tracks the cash
impact of stock exercise and sale activities) necessary to do the
calculations. The next step is entry of your client’s option
grants. Once this information is entered, you are ready to explore
various exercise strategies.
StockOpter® comes loaded with a number of preprogrammed strategies,
so scenario comparisons are greatly simplified. “The program
does the math quickly, which is great,” says Jill Boynton of
Mackensen & Company, Inc. in Hampton, N.H. “I've used it
in a conference room with the client, and we've played around with
different scenarios. We can see the consequences immediately and
make decisions.” The program allows you to enter as many different
situations (called “cases”) as you like so you can compare
one with another.
One
common strategy that requires user interaction is optimizing for
the amount of incentive stock options that can be exercised without
triggering the Alternative Minimum Tax. This is accomplished using
Excel’s built-in goal-seek function.
After
the scenarios are analyzed, you can print out a number of tables
and graphs to illustrate recommendations to the client and aid in
any discussions. One graph allows you to illustrate multiple scenarios
on a single page for easy comparison. StockOpter® also provides a
to-do schedule that you can send home with the client. This, coupled
with the analysis table, is an excellent compliance tool. It clearly
illustrates your analysis and recommendations to the client for
future reference, should questions ever arise.
 Initial
reaction from financial planners who have purchased the program
has been generally favorable. “Overall, I like the program,
particularly as to showing the AMT cost and AMT credits for [incentive
stock options].” says Mark Gleason, of Westcap Management Group,
in Glendale, Calif.. “The multiple case feature is quite useful,
though it only allows copying strategies from the base case, not
any of the others.” Donnie Roberts, of Woodway Financial Advisors,
in Houston, agrees. “StockOpter® does AMT calculations, particularly
within the one- to five-year range, very well.”
An unscientific survey of users indicated that the company's customer
support has been first rate. “The programmers are very accessible
and knowledgeable,” Boynton says. “They’re open to
discussing future changes to the program, and they welcome client
input.” Other planners who have called the company for customer
or technical support reported similar favorable impressions.
Advisors did express some criticisms, but none is serious enough
to prevent us from enthusiastically recommending this product. “I
have some nitpicking issues, such as lack of batch printing of custom
groups of reports and not allowing pyramiding of [incentive stock
options], and no net present value difference of various cases,”
Gleason says.
According
to Boynton, the program only allows you to enter one stock price
per year. “In other words,” she says, “I assume a
growth rate for the stock [e.g., now at $100 with a 5% growth per
year, so next year the stock is at $105], and that is the price
the program uses for all action for a given year. I'd like to see
capability to exercise at different prices in the same year, as
my clients have done.”
This
criticism was echoed by every user we talked to. They’ve also
been told that Net Worth Strategies plans to address this issue
in a future release.
In
our own tests, we discovered a few other minor problems. There is
a bug that can occur when a certain sequence of keystrokes is entered.
The company has released a workaround, and a fix should be available
by the time you read this. Another minor annoyance is the inability
of the product to automatically account for stock splits. This feature
is also in development, according to Ward.
A
limited demo version is available, but we suggest you try out the
full version to appreciate the program’s capabilities. Single-user
licenses are available for a special introductory rate of $495 until
August 31. The single-user license allows you to install the program
on your desktop and laptop computers. The price includes tech support
and any upgrades released during the year. Registered users are
also entitled to an orientation session conducted over the phone.
Five-user licenses are available for $1,495. License renewals will
be available at a reduced rate, but the price has not been set.
For
those of you who deal with employee stock options--and that will
be more of us with each passing year--StockOpter® deserves serious
consideration. I suspect that all but the most demanding practitioners
will find that StockOpter® is an attractive alternative to building
custom spreadsheets. A friendly and responsive customer support
staff adds to the appeal of this promising newcomer.
Copyright (c) 2000 Morningstar,
Inc.
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