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Advisor Brief - 1st Quarter 2006
Attracting & Serving Executives with Equity Compensation

Now that the expensing of stock options is mandatory under FAS 123 and most companies have either reduced and/or changed grant types, employees with equity compensation need professional assistance more than ever before to manage these powerful wealth-building investments. With this in mind, this newsletter will provide financial advisors with some ideas and resources that they can use to attract and serve clients in 2006 with equity compensation planning. Additionally, we are announcing a change in focus for this newsletter and the addition of a new newsletter directed at stock plan sponsors.

Changes to the Newsletter

The focus of this newsletter over the past five years (view the archives) has been equity compensation planning and analysis. Our primary audience has been financial advisors, but with the introduction of FAS 123 we noticed that stock plan professionals began to subscribe. So in 2005 the content of our newsletters became twofold: 1) information to help advisors to serve clients with equity compensation and 2) information to help stock plan sponsors and professionals to maximize the value of their programs.

We found it difficult last year to create equity compensation content that addressed the issues of both financial advisors and stock plan professionals so this year we decided to establish two separate newsletters. You are currently signed up for the "Advisor Brief" so you will be receiving quarterly updates on ways to build an advisory practice with equity compensation planning. You can unsubscribe from this newsletter using the link at the bottom of the page if you are no longer interested in this information.

If you are a stock plan sponsor or professional interested in learning about ways to improve the effectiveness of corporate equity compensation programs, you will want to subscribe to the "Stock Plan Sponsor Brief". This quarterly publication will discuss new concepts and research in the areas of equity compensation communication, education and analysis that will enable firms to increase their programs' ability to attract, retain and motivate key employees.

The first edition of the Stock Plan Sponsor Brief will be emailed to subscribers in about a month. It will include a summary of the preliminary findings from an ongoing study of option holder perceptions. The focus of the study is on the effects of equity compensation education on improving recipients' perceived value of their stock and option grants. Click here to sign up to receive more information on this research and on other equity compensation employee communication issues.
Ideas to Attract and Serve Executives

The 1st quarter is a good time to establish a marketing focus for the year. A good way to do this is to start by conducting a quick assessment of your market by:
  • Calculating the percentages of each different type of client you have (e.g. retirees, doctors, business owners, executives, etc.) and then...
  • Calculating the percentages of your total business revenues (assets under management, planning fees, etc.) by client type.
If you find that executives make up a small percentage of your total number of clients but a relatively large percentage of your business then you might want to increase your efforts to attract additional executives and to provide them with a higher level of equity compensation planning assistance.

There are three things that every advisor needs to have in order to pursue executives with equity compensation. The following section discusses the
"easy ways" to fulfill these necessities:
  1. An up-to-date understanding of equity compensation: This field is constantly changing and if you don't want to "step in it" with a client or prospect you've got to know your stuff. There are lots of sources of information on equity compensation planning. Two of the better sources of current information are:
    • The company's "current" plan and grant documents. Employees rarely read these documents and are often mistaken on the terms of their grants, so it's the advisor's responsibility to understand the details. Don't be afraid to ask your client or prospect for their documents. We find that most executives will readily provide this information to an advisor so that they can help them to make sense of their equity compensation grants.
    • myStockOptions.com: This source of equity compensation planning information is constantly being updated with articles and FAQs written by experts in this field. A list of new and updated content is displayed on the home page, but an easy way to update your knowledge is to simply take the online quizzes. One of the quizzes provides CFP's with 6 hours of continuing education (CE) credit based on a program of study included in their content.

  2. A means of illustrating equity compensation concepts that drive decisions: Verbal recommendations on when and why to exercise or how to minimize the tax liability often don't suffice in getting clients to make decisions. They get this information from their peers so they expect more from a financial advisor. A comprehensive analysis of their equity compensation position like the Personal Option Profile© from StockOpter® Insight provides advisors with a framework to help clients decide if the present is a good time to exercise a particular stock option. It does this by giving clients objective reasons to exercise that rarely result in regret. These reasons include: the theoretical potential (Insight Ratio®) is less than 15%, the client is overly concentrated in company stock and options, their retirement goal has been achieved, etc.

  3. A process for engaging executives: Start with your existing clients and set them up for regular review sessions to discuss their equity compensation issues using a consistent and comprehensive format like the Personal Option Profile©. Use these opportunities to help them to make a decision on whether now is a good time to exercise a particular grant. These periodic review sessions are also a good opportunity to ask for referrals ("...are there others that you work with who would find this analysis helpful?"). There are lots of ways of prospecting for clients with equity compensation, but one trick is joining associations or social groups that attract executives (e.g. Rotary International, the AeA, country clubs, etc.). Once you meet someone with equity compensation here are 5 questions to ask them that will encourage them to schedule a meeting with you to get the answers:
    • Do you know how much theoretical value you still have in each of your grants?
    • If the price of your company stock goes up by 20% what percentage does your in-the-money value go up by?
    • Do you know at what stock price you will reach your retirement goal?
    • What percent of your total net worth is currently held in company stock and options?
    • Are you interested in knowing how much you are really leaving on the table if you were to leave your company?
Equity Compensation Advisor Profile: After 24 years as a corporate executive, Samuel Swisher joined Vantage Financial Partners to assist other executives pursuing the path towards financial security. Using StockOpter® Insight, Sam secured 8 new executive clients in the last two months and expects this to result in about $4 million in assets under management. To get the word out about his expertise in equity compensation, Sam has written an article entitled "When do I exercise my stock options" that will soon be published on myStockOptions.com. Sam admits that this market segment requires a substantial investment in time and effort even for a former executive, but it seems to be paying off.


News & Announcements

  • The 2006 release of StockOpter Pro© which contains the current tax update is currently undergoing final testing and should be available shortly. Licensed users will be notified by email and will be able to upgrade over the web.

  • We have software training webinars scheduled in March, April, and May to help StockOpter® users to improve their equity compensation planning and analysis skills. Call 877-728-5964 to enroll in any of the following sessions:
  • Keep in mind that Net Worth Strategies offers more than just software to help advisory firms to attract and serve executives with equity compensation planning. For additional information on any of the following services contact Bill Dillhoefer at 541-383-3899:
    • Back Office Planning Support: If you don't want to learn another software program or if you need help with a complex equity compensation situation, let us be your back office. We can run a general portfolio analysis to help your client or prospect make diversification decisions or we can analyze tax and cash flow issues to build an exit strategy or to facilitate a decision whether to hold or disqualify their ISOs.
    • StockOpter® Corporate Services: This offering enables large advisory firms to market and deliver fee-based equity compensation workshops to corporations of any size. StockOpter® Corporate Services requires a sizable investment in time and resources but it is a proven way to get in front of large numbers of highly compensated executives.
    • Custom Software Development: Net Worth Strategies has created custom versions of StockOpter® Insight and StockOpter Pro© for several institutional advisory firms. Custom enhancements can include: interfacing with your stock plan administration system, developing unique output and analysis, tracking usage, adding new forms of equity compensation (e.g. Restricted Stock Units, RSUs or Stock Appreciation Rights, SARs), etc.
    • Organization Assessments: How effectively is your organization pursuing executives with equity compensation? Are you achieving your goals for new executives and assets under management from this market segment? What kinds of marketing programs would enable you to efficiently achieve your goals? If you would like answers to these questions we have developed a process that gathers this information, documents it, and provides you with a set of recommendations that will help you to achieve your equity compensation business objectives.

  • If you are actively prospecting for executives with equity compensation you can download two powerful new marketing pieces from our website:

  • The 2006 edition of our list of "Winning Companies" will be emailed to current users of StockOpter® Insight and StockOpter Pro© by the end of March. This list, sorted by state, analyzes the historic stock prices of publically traded companies over the past 7 years to help you to identify companies that are likely to have stock options that are in-the-money.


  • Equity Compensation Planning Tips for the 1st Quarter 2006:

    • StockOpter Pro©: If your client has a good reason to exercise an ISO grant this year (e.g. the grant has an Insight Ratio® of less than 15%) and is considering holding the stock for one year to get favorable tax treatment, exercising early in the year is a prudent strategy. This way they will have most of the year to watch the stock and to disqualify (sell the underlying stock) before December 31st to avoid a large AMT liability if the stock price increase is small, flat or negative.

      To model this in StockOpter Pro© create 2 case sheets representing each strategy and compare them with the "Tax Comparison Report". Then vary the "Estimated Annual Appreciation of the Stock Price" on the assumption sheet based on the client's views of the best, worst and most likely projections. The difference in "Total Portfolio Value" in the comparison report will help the client to decide whether exercising and holding makes sense for them.


    • StockOpter® Insight: Do you know that the "Personal Option Profile©" is highly customizable? This is done by simply creating custom templates that include the tables and text you desire and excludes those that you choose to avoid.

      For example, if you do not want to include the sections of the report that discuss VaR (Value at Risk), this can be done by eliminating the VaR section and using the ratio table tag (< > ) that shows only the Insight Ratios®. Visit the Report Templates Page on our website to see a variety of sample reports and templates that can be downloaded and customized to your specific requirements.
That's all for this edition, let us know if we can be of any further assistance to help you build your practice with equity compensation planning.
Editor@networthstrategies.com •  Net Worth Strategies