Strategies for Concentrated Positions in Company Stock

Join us on June 28 for a webinar featuring insights and case studies from a panel of experts who manage concentrated stock holdings

Wealth in company stock has become increasingly concentrated and volatile as markets fluctuate and business conditions shift in uncertain times. Volatility, recession fears, and recent bank failures make it more important than ever to understand the wide range of strategies available for managing and preserving wealth in concentrated company stock positions.

Join us on June 28 for a webinar (110 minutes) in which experts at managing concentrated holdings in company stock will provide strategic insights, including case studies of real-world situations and outcomes:

– Valerie Gospodarek, Owner, VG Financial Consulting LLC
– Mark Leeds, Partner, Mayer Brown
– Marcel Quiroga, Founder and CEO, TQM Wealth Partners
– Brian Yolles, Founder and CEO, StockShield LLC

TOPICS COVERED
– Role of the financial advisor in explaining overconcentration risks and solutions, and in getting clients to take action
– Strategies to diversify, create liquidity, and/or protect stock in a tax-efficient way
– Basic strategies: sales, gifts, and charitable donations of stock
– Short-term strategies: protective puts, covered calls, collars, and forwards
– Long-term strategies: exchange funds and stock protection trusts, including new offerings
– Tax, legal, and SEC complexities, including how Rule 10b5-1 plans can be used
– Key features of each strategy
– Checklist to evaluate which approaches are best
– Case studies of actual client situations and outcomes

The webinar moderator will be Bruce Brumberg, the Editor-in-Chief and Co-Founder of myStockOptions.

Register now. Time/date conflict? No problem. All webinar registrants get access to the webinar recording, detailed presentation, and handouts.

Wednesday, June 28 ● 2pm–3:50pm ET, 11am–12:50pm PT
See the webinar registration page for a detailed agenda
2.0 CE hours for CFP, CPWA/CIMA, CPE (live webinar only), EA (live webinar only), and CEP/ECA

Bank Failure Demonstrates Importance of Protecting Non-Qualified Savings

Participants have likely lost all of their savings in SVB Financial Group's deferred compensation plan

The recent failure of Silicon Valley Bank demonstrates the importance of FDIC insurance. Bank depositors are now increasingly aware of the potential pitfalls associated with uninsured bank deposits.

StockShield believes participants in Non-Qualified Deferred Compensation (NQDC) plans also need to understand that their non-qualified retirement savings, like bank deposits, are unsecured “promises to pay” and subject to the same pitfalls of uninsured bank deposits. For example, Fidelity notes the following for a deferred compensation plan:

Your plan is an unfunded, nonqualified plan, and no funded account has been established for you. Any account is only a recordkeeping account that records your deferred compensation and any notional earnings applicable to your deferred compensation. In the event of a bankruptcy or insolvency, you would be an unsecured, general creditor of the employer or service recipient.

Similar to FDIC insurance which protects bank deposits, the Deferred Compensation Protection Trust (DCPT) has been established to provide increased security for retirement savings in NQDC plans. However, unlike FDIC insurance, participants in NQDC plans need to proactively seek out and acquire the protection; it is not automatically provided as the DCPT is a private risk management solution and is not affiliated with the U.S. Government.

StockShield believes NQDC participants should view the DCPT with the same level of importance as FDIC insurance for their bank deposits.

To learn more about Silicon Valley Bank’s Deferred Compensation Plan, please click here.

Strategies for Concentrated Positions in Company Stock

Join us on May 4 for a webinar featuring insights and case studies from a panel of experts at managing concentrated stock holdings

Wealth has become increasingly concentrated and volatile as stock markets fluctuate and business conditions shift in uncertain times. Even S&P 500 companies are experiencing severe stock-price volatility. It’s more important than ever for advisors to understand the wide range of strategies available for managing wealth and mitigating wealth loss in concentrated company stock holdings to meet clients’ financial goals. In this webinar (100 minutes), experts at managing concentrated stock wealth explain the approaches.

TOPICS COVERED
– Role of the financial advisor in explaining over-concentration risks and solutions
– Strategies to diversify, create liquidity, and/or protect stock in a tax-efficient way
– Basic strategies: sales, gifts, and charitable donations of stock
– Short-term strategies: protective puts, covered calls, collars, and forwards
– Long-term strategies: exchange funds and stock protection trusts
– Tax, legal, and SEC complexities, including how Rule 10b5-1 plans can be used
– Key features of each strategy
– Checklist to evaluate which approaches are best
– Case studies

PANELISTS
– Valerie Gospodarek, Owner, VG Financial Consulting LLC
– Marcel Quiroga, Founder and CEO, TQM Wealth Partners
– Brian Yolles, Founder and CEO, StockShield LLC
– Mark Leeds, Partner, Mayer Brown
– Bruce Brumberg (moderator), Editor-in-Chief and Co-Founder, myStockOptions.com

Wednesday, May 4, 2022
2pm to 3:40pm ET, 11am to 12:40pm PT
Registration Page

Peloton Stock Falls Off Treadmill

Peloton shares have continued their decline following an “urgent warning” from the United States Government, commanding owners of the company’s Tread+ treadmill to stop using the machine. The Consumer Product Safety Commission said it has become aware of 39 accidents involving the treadmill, including “multiple reports of children becoming entrapped, pinned, and pulled under” the machine. A child died in March of 2021 in an incident involving the machine.

While Peloton initially claimed the federal agency’s notice was “inaccurate and misleading,” they decided to switch gears and cooperate with regulators and have now issued a recall of their treadmills. From a high of $171 per share to now $82, the stock is down more than 50% from 2020, which saw shares soar more than 400%.

Peloton’s ordeal with its treadmill shows how quickly the fortunes of a high-flying Wall-Street “darling” can change. With social media, a company’s products are always under intense scrutiny. All it takes is a single “viral” tweet or video – casting a company’s product in an unfavorable light, rightly or wrongly – to cause significant and sudden damage to a stock.

If they participated in a Stock Protection Trust, the Peloton investor could have protected their gains without selling their shares. They could have avoided most, or all, of the damage sustained by this more than 50% decline in the value of their stock.

Their plight offers a lesson to other investors with highly-appreciated or concentrated stock positions: it is prudent to protect your gains when the Company’s outlook appears healthy, as it is possible shares can fall off the treadmill at any time.

Lessons and Performance through COVID-19

For the past decade or so, investors have become accustomed to – even expected – above-normal returns from their stock investments. At StockShield we have viewed the upward move in equities skeptically, primarily because of the extremely precarious financial health of most Americans, including most American small businesses. It seemed curious – even bizarre – that the stock market continued to hit all-time highs while the economy’s productivity languished, many businesses and individuals had little to no savings, and most Americans were living in the same material conditions (or worse) than a decade or so ago.

During this time, we repeatedly recommended investors pursue sensible risk management strategies such as the Stock Protection Trust, Deferred Compensation Protection Trust, and ESOP Protection Trust. We warned that catastrophic risk to investments had not been eliminated by the decade-long bull market and would likely occur due to causes unpredictable and beyond the control of anyone, including even the most skilled company management.

2020 came and swiftly brought COVID-19, a human and financial catastrophe. Although the precise cause of loss was unexpected, the large losses suffered by many concentrated investors was entirely predictable and avoidable had prudent risk management strategies been established well before the crisis hit.

COVID-19 has revealed – and revealed beyond question – that the financial health of most American individuals and businesses is not strong. If a company like Boeing can teeter on the edge of bankruptcy after its stock declined more than 75% in 2020, any company could suffer the same fate. The current crisis is revealing in plain sight that U.S. individuals and businesses need trillions of dollars in bailouts to survive even after a mere week or two of suspended operations. The entire U.S. economy appears to be a “shoestring economy” hardly of a nature that would give a reasonable investor confidence in long-term viability.

COVID-19 is demonstrating that the past decade’s gains in stock market value were largely the result of the easy money policies and liquidity boost provided by the Federal Reserve in response to the financial crisis. Famed investor Julian Robertson predicted as early as 2008 that (excluding the value of the home) 80-85% of Americans were broke, which would cause a “very poor” U.S. economy for 10 or 15 years. We saw the logic of Robertson’s view then and we do so even more now.

Because of this, we urge investors of the 2020 decade and beyond to implement sensible, cost-efficient risk management strategies to prevent the financial devastation that we are only beginning to preview in the market this year.

As an example of performance of the Stock Protection Trust through this crisis, at the end of December 2020, stock losses are currently limited to 0.00% (referred to as our “Maximum Stock Loss” calculation). For a group of 20 stocks protected since August 2018, 5 have declined while 15 are posting gains. The largest loss – a decline of 45% – is limited to 0.00%, as noted above. Other losses – in the amounts of 44%, 26%, 22%, and 19% – are also “capped” at 0.00%.

As demonstrated above, the Stock Protection Trust substantially reduces an investor’s downside risk without limiting or capping upside potential.

Strategies for Concentrated Positions in Company Stock

Brian Yolles of StockShield, Tim Kochis of Kochis Global, and Michael Fulginiti of Columbia Threadneedle Investments will present on the topic Strategies for Concentrated Positions in Company Stock on June 18 at the Hilton San Francisco Airport Bayfront.

While executives and high-net-worth employees are often admirably loyal to their companies’ stock, their net worth is at risk if it is concentrated in a single stock. An important role of a financial advisor is to explain the risk of over-concentration and recommend solutions to manage it, including strategies to diversify and create liquidity, and/or protect the stock in a tax-efficient way. This session will discuss various approaches to managing concentrated stock wealth, along with the tax and legal issues they raise. Strategies covered include:

• Selling, gifting, and donating stock

• Hedging strategies (prepaid variable forwards, equity collars, protective puts, covered calls)

• Exchange funds

• Risk-pooling (stock protection trusts)

The presentation is part of myStockOptions’ annual conference Financial Planning for Public Company Executives & Directors.