Many executives occupying the C suites of large firms have spent their careers growing and managing the businesses for their shareholders and employees. Their busy, demanding jobs can often preclude them from devoting the same time and attention to their own personal financial situations.
The good news is that there are benefits to taking a thoughtful, systematic approach to addressing your financial challenges while continuing to serve your company.
Delving into the challenges
To understand fully the specific financial challenges of today’s C-level executives, I conducted in-depth interviews with 25 individuals, including executives and related professionals in New England. I selected each for his or her ability to provide insights into the financial issues faced by C-level executives today.
These are the key challenges I heard in my conversations:
•Complex compensation packages. Many top executives are compensated with a combination of salary, incentives, bonuses, stock options and a range of employee benefits. The complicated design of some of these packages may make it difficult for executives to fully understand and then maximize them.
•Highly concentrated stock positions. Given that many executives are compensated with company stock, it is not unusual for them to have a large portion of their net worth invested in a single stock. Some executives I spoke with expressed a desire to diversify their concentrated holdings but were unsure of how to do so in a tax-efficient manner.
•Inadequate retirement planning. Despite their financial resources, some executives I spoke with have not implemented a long-term retirement plan. Many attributed their large company stock positions as a barrier in creating a diversified asset allocation strategy for retirement saving and income.
• Lack of charitable planning. Many of the executives I talked to have charitable aspirations, but they generally were unsure of their options for fulfilling those goals in a tax-efficient way.
Taking a systematic approach
While these issues can pose significant challenges for some executives, they can be systematically addressed to help increase the likelihood of achieving their goals.
Given their complex and varied financial needs, many executives can consider using a wealth management approach. To define wealth management, I use this formula:
WM = IM + AP + RM
The first element of wealth management (WM) is investment management (IM). As I mentioned, this is the major focus of many financial advisors, and certainly astute investment management can be the foundation of executives’ ability to address their most important goals.
However, my interviews revealed that many executives need more than just assistance in managing their investments. This is why I have the second element of wealth management, advanced planning (AP). Advanced planning addresses these four major areas of financial concern beyond investments:
• Wealth enhancement: mitigating tax burdens
• Wealth transfer: helping ensure that heirs are taken care of
• Wealth preservation: helping to protect loved ones and preserve assets
• Charitable giving: maximizing the impact of one’s charitable gifts
Since no one person can be an expert in each of these complex areas, wealth managers work closely with other professional advisors, such as CPAs, attorneys and insurance specialists, to address these issues. Depending on the preference of their clients, they may do this in conjunction with the clients’ current professional advisors.
This brings us to the third element of wealth management, relationship management (RM). To fully understand their clients’ most important goals, values and challenges—both now and long into the future—wealth managers must cultivate trusting, long-term consultative relationships with those clients.
Taken together, these three elements comprise a systematic approach that can help many executives to make informed financial decisions for themselves and their families.
Not everyone wants to work with a financial advisor. If you do choose to work with a professional, consider one who uses the wealth management approach.
A systematic approach—one that addresses their entire financial lives—can help to increase many executives ’probabilities of achieving their most important goals.
Together, we can work to keep you on-track towards your financial goals.
Request a consultation with me to learn more.
Read more articles by James William Buzgo