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How can a financial advisor help with your equity?

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You’ve been offered stock options, you’ve considered all your timing options for exercising, and you’ve decided on your personal approach to managing risk.

You might be asking yourself, “Now what?”

You may still have questions, or unsure if the exercise plan you put together is the right one. After all, these can be complicated decisions that take into account your financial position and have tax implications. That’s why it might be the time to hire a financial advisor.

Why? First and foremost, your advisor is the person who gives you objective counsel. They simply want to make sure you’re on track toward your goals and making smart decisions about your equity. They’ll teach you what you need to know to understand your personal finances and make informed choices. That objective, educational approach is invaluable to helping you reach your goals.

Why do I need a financial advisor in the first place?

An advisor thinks about your financial situation holistically. That means not solely focusing on managing your investments, or strictly creating a financial plan to achieve your goals. An effective advisor should take a coordinated approach that aligns your investment portfolio with actionable recommendations for your situation that puts you in position to achieve your personal goals.

By having the same person coaching you on investments as helping manage your finances and life goals, you can trust you have someone watching out for your holistic financial life. That person should always be there as counsel, never the decision maker. They give you the information you need to make decisions for yourself and your family. That means peace of mind for you and more time to devote to the things you love.

Below are all the roles your financial advisor plays for you, and why each is important to the future success of your equity decisions and ability to reach your life goals.

1. Your personal CFO

The first question you’ll likely get from an advisor is, “How’s your cash flow?”

An advisor can't tell you what exercise scenario is most appropriate for you until they know how much cash you're sitting on, so they can weigh options with you. They'll want to know if you have outstanding debt, are your household's sole income provider, etc.

They can put an equity plan together for you that’s built on your priorities. If you want to exercise all of your options, but are also saving for a down payment on a house, they may suggest a strategy of exercising over time that can minimize taxes. If you’re on a time crunch, they can help you explore possible financing solutions. They might advise waiting until an exit, if you’re not at risk of losing your equity.

If exercise costs plus taxes are low (or you recently received your stock option grant), a financial advisor might explore if your company allows you to early-exercise your options.

Your advisor can walk through the pros and cons of this approach. If you plan to stay with the company for at least the next 12 months, then your advisor might discuss the benefits of potentially taking a multi-year approach and not triggering AMT.

Your company equity is not an isolated aspect of your financial life. You won't be able to get the proper advice of what's appropriate for you if you're just looking at one segment. By providing you ongoing guidance of all your investments and finances, your advisor acts as your personal CFO. Just as your company relies on your CFO to proactively manage its finances, you’ll want your own family CFO to make sure everything in your financial house is in order.

This third-party involvement becomes particularly important as your financial picture gains complexity, such as when you decide to implement different equity planning options alongside tax saving strategies and large purchases or financial goals. Your advisor will help you determine how to balance and prioritize all of those different goals in a way that makes sense — and ideally lets you keep the most amount of your money possible, rather than paying more than you should in taxes or other fees.

2. Your counselor

Just as a good therapist never tells you exactly what to do or gives you a direct answer — but rather helps you talk through your life, goals, and desires — your financial advisor will help provide you with all the information you need to make smart decisions for yourself and your family. What’s right for one person isn’t necessarily right for another, and cookie cutter financial solutions rarely work.

Even when you hear water cooler talk of financial advice, remember that the financial advice you overhead was intended for someone else's specific situation, not necessarily yours. The same advisor might recommend something completely different to you. That’s why your advisor will take the time to get to know you, your personal situation, your goals, your time horizon, and your risk tolerance before ever suggesting you make an investment or financial decision.

For example, a financial “best practice” is to max out your 401(k) to lower your taxable income. But that may not be necessarily what’s right for you. You could be trying to pay down student loans or credit card debt, or you could be saving up for a down payment on a house.

Your advisor can put those goals and needs in perspective and offer guidance on how much to pay each month towards your student loan and how much to put in savings. They can also help you know how much you should put toward exercising stock options. You may have short-term needs like remodeling your house, but an advisor puts long-term goals like equity into perspective and plan for. Again, it all depends on your personal situation.

3. Your accountability partner

Perhaps best of all, your financial advisor will be your accountability partner. They’ll make sure you follow through with actions that you’ve agreed are in your best interests. Then, they’ll monitor your investments and proactively come up with recommendations, so you can focus your time on what is most important to you.

In times of market or company volatility, this behavioral coaching is extremely valuable. It’s easy to create a plan and stick to it when times are good, but when doubt starts creeping in, it’s easy to give into that fight-or-flight instinct. A good advisor will help you stay the course as long as they believe it is truly in your best interest.

Even if you're an investment expert or a tax guru who knows exactly what you should do, distractions arise and life happens, causing many bright minds to fail to implement what they intended to do. Many advisors hire their own advisors, strictly for this reason.

4. Your sounding board

When big life decisions present themselves, having an objective third party is extremely beneficial. For instance, you might be wondering, “I have a $200K job but feel chained to my desk. Could I afford a $50K pay cut if a new job offered me more flexibility?”

Or, maybe your company is going public, and you’re thinking, "My stock options are my largest financial asset, but I still believe there is strong growth ahead. Should I sell my stock? If so, how much and when should I sell?"

Your advisor can help you run the numbers and talk through important life choices like these, so you can ultimately decide what’s best for you and your family while also feeling confident that you have a plan for your future. Your financial advisor will always be there for your big life decisions, no matter how often you choose to talk to them in between. That peace of mind of having someone in your corner when you need it is invaluable.

5. Your equity advisor

Your advisor is here to give advice that is right for you, no one else. Your advisor will start by getting to know you as a person. That personal connection has to precede a technical approach — technicalities don’t matter until you’ve aligned on goals, fears, and what you’re driving toward.

Your advisor will start by getting a game plan in place for your stock options. They’ll help model multiple exercise scenarios, including the tax implications and net benefit to you in each scenario, and provide a recommendation that best fits your personal situation.

Once the advisor has a game plan in place for your startup equity, they’ll focus on how to incorporate your equity into your broader financial picture (i.e. What possibilities could a financial windfall unlock? How can you most effectively use this value to achieve your financial goals?).

Hopefully your company continues on its growth trajectory and has a successful exit event in the coming years. When this time comes, they’ll help you develop a tax-effective strategy to diversify your concentration in this highly-appreciated stock position. They can also help if you have multiple equity grants in place.

Over the course of this process, they should demonstrate their value and build an ongoing relationship with you so that you trust them to recommend a customized investment strategy to continue growing and protecting your hard-earned wealth.

You might think you can’t afford a financial advisor or that it’s a nice-to-have; but it really is a need-to-have. The small fee you might pay for an advisor will likely easily pay for itself in the taxes, fees, and investment losses you avoid.

We’re not the only financial advisors in town, but we’re the ones who understand equity best. If you have equity as part of your financial package, we’ll help you create a plan that positions you to realize the most from your hard-earned equity and use this to accomplish what you value most in life.

Secfi Wealth is a brand name for investment advisory products and services, including financial planning and investment management, offered by Secfi Advisory Limited exclusively to Clients under an in-force Agreement. Secfi Advisory Limited is an SEC-registered investment adviser and is a separately managed, wholly-owned subsidiary of Secfi, Inc.

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