Managing Concentrated Stock Wealth: An Advisor's Guide to Building Customized Solutions(Bloomberg Financial)

The Methodical Compendium of Concentrated Portfolio Options Managing Concentrated Stock Wealth, Second Edition is the adviser's guide to skillfully managing the risk and opportunity presented by concentrated stock holdings. Written by Tim Kochis, a recognized leader in financial planning, this book walks you through twenty strategies for managing concentrated stock wealth. Each strategy equips you with the tools and information you need to preserve and grow your clients' wealth. Supported with examples from the author's forty years of experience, this practical resource shows you the available options, the best order for clients to review those options, and the reasons why some options are better than others. Kochis addresses common obstacles—such as securities law, taxes, and psychological resistance—and shows you the strategies and execution to prevail. This new second edition includes: Updated references, calculations, and illustrations regarding the latest tax laws Revised coverage of derivatives strategies and more examples of potential blind spots Tactics to convince some clients to diversify their portfolios and optimize their wealth Techniques to exploit concentration in pursuance of greater wealth They say that you should never put all of your eggs in one basket, but compensation packages, inheritances, IPOs, buyouts, and other situations leave many investors holding a significant portion of their wealth in one stock—often leaving their portfolios in a dangerous position. Managing Concentrated Stock Wealth, Second Edition shows you how to manage the risks and turn a precarious position into an advantage.

Table of Contents:
Foreword xiii Acknowledgments xvii Introduction xix Getting the Priorities Straight xix Knowing the Client xxi Chapter Note xxiii Part I: Sales Chapter 1 Constraints on Managing Concentration Risk 3 Taxes 4 Pre‐IPO Illiquidity 8 Post‐IPO Lockups and Other Market Considerations 8 SEC Constraints, the Sarbanes‐Oxley Act, and Dodd‐Frank 10 Notice and Reporting 10 Controlled Sales of “Founder Stock” 11 No Trading on Material, Nonpublic Information 11 No “Short‐Swing” Profits for Corporate Insiders 11 No Favorable Financing for Senior Executives 12 Employment/Career Constraints 12 Psychological Barriers 14 Chapter Notes 17 Chapter 2 Sale and Diversification 19 Overcoming the Tax Constraint 21 Overcoming Psychological Barriers 24 ESOP Sales 25 Pre‐IPO Considerations 26 Let’s Just Sell It 27 Chapter 3 Coordinating Long Shares with Stock Options 29 Employee Stock Options 30 Taxes on Options 32 Exercise Strategies 35 Swapping 40 Option Leverage 40 Long Shares: No Leverage 42 Ordering Rule 42 Chapter Note 43 Chapter 4 Diversification Sales and Deferred‐Compensation Plans 45 Deferred Compensation: Then and Now 46 Sweetening the Pot 47 Risks and Returns 48 The Rabbi Trust 51 Investment Options 52 The Benefits of Deferral 52 The Coin’s Two Sides 54 Chapter 5 An Out for Insiders 55 SEC Rule 10b5‐1 Plans 56 Third‐Party Discretion 57 Formula Plans 57 Short‐Swing Constraints 58 Sales During Retirement‐Plan Blackout Periods 58 Plan Logistics 58 Prearranged Plans: Often a Corporate Requirement 59 Appendix XYZ Co. Nondiscretionary Rule 10b5‐1 Sales Plan 59 Chapter 6 Restricted Stock: Tackling Temptation 67 Managing the Section 83(b) Election 68 All That Glitters 69 Risk of Forfeiture 71 Opportunity Cost 72 A Second‐Best Strategy 74 Seeing the Light 75 Complications for Insider 76 The Right Fit 77 Chapter Note 80 Appendix 80 Part II: Gifts Chapter 7 Gifts to Family 85 Transfer Taxes 85 Income Tax Leverage 89 Special Rules on Employer Stock 90 Transfer Structures 90 Gifts Under the Uniform Transfers to Minors Act 91 Minor’s Trust 91 Intentionally Defective Grantor Trusts 92 Family Limited Partnerships 94 Gaining Psychic Distance 95 Chapter 8 Nonqualified Stock Options: Gifts to Family 97 Investment Leverage 98 Tax Leverage 99 Timing and Valuation 100 Chapter 9 Gifts to Charity 105 Tax Savings 105 The Cost of Charitable Gifts 107 Special Income Tax Considerations 109 Loss Positions 109 Short‐Term Gains 109 Seasoned Incentive Stock Option Stock 110 Low‐Basis Shares 110 IRA Assets 111 Tangible Personal Property 111 Structures for Charitable Gifts 112 Direct Gifts 112 Donor‐Advised Funds 112 Private Foundations and Supporting Organizations 114 A Word of Caution 115 Appendix: Key Characteristics of Charitable Vehicles 116 Chapter 10 Charitable Trusts 119 The Charitable Remainder Trust 120 Tax Requirements and Opportunities 121 Tax Deferral 122 Coordinating a CRT with the Client’s Financial Plan 123 The Charitable Lead Trust 125 Chapter 11 Nonqualified Stock Options: Gifts to Charity 129 The Charitable Gift 130 Mismatches of Valuation and Timing 131 Why Bother? 132 Charities Close to Home 133 The Wealth Effect 134 Part III: Retention Chapter 12 Margin: An Acquired Taste 137 Margined Diversification 138 Logistics 138 Margin and Liquidity 140 Reduced Risk 141 Enhanced Return 141 The Unexpected 145 Margin Calls 147 Chapter Notes 148 Chapter 13 Managing Concentration Through an Index Proxy 149 Tax Management 149 The Index‐Proxy Account 150 Managing Concentration Risk 151 Limitations and Drawbacks 153 Asset‐Class Limitations 153 Tracking Error 153 Higher Expenses 154 Deferred Tax Liability 154 Chapter 14 Exchange Funds 157 By Invitation Only 157 Costs and Benefits 158 The Future of Exchange Funds 160 Stock Protection Funds 160 Chapter Notes 162 Chapter 15 Derivatives and Hedges: Buying Time 163 The Versatile Hedge 164 Selling Calls 164 Changing a Mindset 165 Buying Puts 168 Collars 170 The Put‐Spread Collar 171 Tax Consequences of Derivatives 171 The Forward Contract 172 A Competitive Market 174 Chapter 16 Powers of Concentration 175 Embracing Risk 175 Corporate Stock‐Holding Requirements 177 Stock Options: The Decision to Hold 179 The Golden‐Parachute Constraint 180 Capturing Dividends 181 Change in Tax Rates 181 Incentive Stock Options and the Alternative Minimum Tax 182 Gifts of Options 183 Charitable Lead Trust 184 Company Stock in IRAs or Qualified Retirement Plans 184 The Control Premium 186 Chapter Note 188 Afterword 189 About the Author 193 About the Contributing Author 195 Index 197

About the Author :
TIM KOCHIS is the CEO of Kochis Global, a firm he founded to advance best-in-class wealth management and investment planning services, especially in the emerging economies of Asia. He pioneered the independent model in the U.S. financial services industry, chaired every professional organization in his field, received every achievement award his profession confers over more than 40 years, and directly provided personal financial planning services to thousands of clients at Bank of America, Deloitte, and Aspiriant. MICHAEL J. LEWIS is the Director of Wealth Strategies at Vernal Point Advisors. Michael previously worked at Aspiriant from 2008–2015, where he served as a wealth manager for high net worth and family office clients, and was deeply involved in developing the firm's systems and intellectual property. At Vernal Point Advisors, Michael focuses on areas of concentrated wealth management, executive compensation optimization, and family office services.