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With
many companies now tying executive compensation to stock options,
what was once a tiny specialty in the financial planning universe
is now a hot issue.
The
springtime swoon in tech stocks did nothing to dampen interest in
options. Nervous executives may look to exercise their options grants
earlier, and the volatility may have heightened interest in hiring
a planner to run different options exercise projections. To plan
correctly, you need to make multi-year tax calculations for setting
options exercise and stock sales strategies.
Unfortunately,
such planning is unwieldy and time-consuming; there have been no
good tools for the job. Financial advisors have longed for a good
stock options planning software package. Long no more.
StockOpter®,
from Net Worth Strategies Inc. (NWSI) in Bend, Oregon, is the answer.
Furthermore, at $500 for a 12-month single-user license, it‘s
inexpensive.
We
asked a panel of three veteran financial planners to try the full
version of the program.
The
mere fact that NWSI submitted to our review indicated that something
good was to come. A year ago, we reviewed another stock options
planning software, Option Optimizer from MDE Group in Parsippany,
New Jersey. Unfortunately, we had to report that it fell short of
its claims to be "a foundation for success in any practice
targeting employees with options." 
So,
when Sarah Ward, a friendly sales representative from Net Worth
Strategies, called, she was warned that submitting to a review does
not always result in the desired outcome. A day later, however,
she called back and said the company was ready to risk it.
Glen
Buco of West Financial in Annandale, Virginia, was not expecting
much from NWSI; he was a reviewer of the other program last year.
"I was completely and pleasantly surprised," says Buco,
who has already ordered a one-year license for StockOpter®.
Buco
says that this program’s greatest strength is also its biggest
weakness: It’s run through Excel, which makes it easy to change
data fields, but it can make it complex for advisors who are not
Excel spreadsheet experts. This program does have some wizards,
but it’s not slick.
Shawn
Gray of Diesslin Associates in Fort Worth, Texas, owns the MDE Option
Optimizer that until now was the only solution for options planning.
He says that program is not nearly as flexible. For instance, when
you assume a 10% rate of return on a stock to make a multi-year
projection of taxes and see how many options can be exercised without
triggering the Alternative Minimum Tax, the new program from NWSI
lets you manually go into the spreadsheet to vary the returns year
by year.
Stephen
Kessler, of Quantum Asset Management in Seattle, says the new program
is "far superior" to a spreadsheet he created himself
for options planning. "Most programs and personal spreadsheets
couldn’t begin to approach this level of complexity,"
he says.
 A
key feature is optimizing for the amount of options that can be
exercised without triggering AMT. The program uses an Excel function
called "goal-seek" to solve this. Most advisors run their
own spreadsheets, make their own tax calculations, then "guesstimate"
the correct number of options than can be exercised without triggering
the onerous AMT.
The
problem with creating your own spreadsheets is that you propagate
dozens of "what-ifs" for clients, and then if the law
is changed, "you have to change each plan for each client,"
Gray says. "With this program, there’s an update feature
you can use when tax rules change, and it will change all your existing
plans and spreadsheets at once."
Even
for the nerdiest of advisors who create their own spreadsheets and
deplore the use of "black box" software that makes all
your calculations in formulas you can neither see nor change, this
is a happy solution.
While
StockOpter® is impressive, it is still just the first version. A
useful addition would integrate it with a Monte Carlo probability
analysis for making stock price projections.
Ward
says every licensee receives a one- to two-hour training session,
which is necessary because of the complexity of StockOpter® and since
there is, as yet, no written documentation. With the training, the
program won’t be difficult to use for a financial advisor who
has taken a couple of continuing education classes about options
and who is comfortable using Excel.
"Inside the News
- Option Play"
by Andy Gluck Investment Advisor July 2000, p.20
© Copyright 2000 by Wicks Business Information. All Rights
Reserved
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