Top 5 Financial Planning Challenges of Executives

  • By John Brown, CFP®
  • November 2023

Top 5 Financial Planning Challenges of Executives

I work with corporate executives to help them navigate their financial planning choices. That means I’m privy to a close-up view of the challenges faced by highly compensated earners. In contrast to other salaried employees, executives often face complex financial choices that affect their compensation and incentive plans. 

To help shine a light on this subject, I’m sharing a summary of the top financial planning challenges I see most frequently from my corporate executive clients.

Understanding Tax Implications

Sometimes corporate executive clients attempt to access cash from illiquid assets without considering the tax implications.

This is never a good idea.

For example, it is very important to determine what the tax consequences are of selling part or all of your investment in a Non-Statutory Stock Option (NSO), Incentive Stock Option (ISO), or Restricted Stock Unit (RSU). Each type is taxed differently depending on how the transaction is structured. Taxation could occur at vest or at exercise and sale. That’s why it’s important to work with a financial professional to help you understand what all the tax implications are before the transaction occurs. 

Managing Concentrated Stock Positions

The importance of diversifying investments is another issue I frequently discuss with clients. An investment portfolio with large holdings in a small number of securities contains high levels of concentration risk. This means that a large portion of your financial well-being will be tied to your employer’s stock performance.

Typically, I advise my executive clients to spread out their investments across different asset classes and investment strategies to potentially reduce or eliminate concentration risk. It is important to understand how Rule 10b5-1 works for corporate executives as it allows corporate insiders to sell company stock without violating insider trading laws. 

The big-picture goal here is to reduce my clients’ risk of experiencing large losses from concentrated positions that compose a large portion of their liquid net worth.

Shielding Assets with Insurance

While insurance premiums continue to climb, not being properly insured has become one of the bigger mistakes I see my wealthy clients make. Adequate insurance is a must.

When disaster strikes, having the right type and amount of insurance can safeguard your assets from steep medical bills, property damage, and job loss.

For example, imagine a highly compensated executive has a swimming pool in the backyard of their waterfront estate. If a child drowns in the pool, the parents of the child can potentially sue the homeowner, jeopardizing the homeowner’s assets. If the homeowner had adequate umbrella insurance coverage, the insurance company would potentially cover expenses and protect the homeowner’s assets.

Additionally, having adequate individually owned life insurance beyond your employer’s available group coverage may be necessary to cover your family and spouse in the event of premature death so that your loved one’s future and quality of life are not drastically affected. Furthermore, purchasing adequate permanent life insurance can address your family’s life insurance needs as well as provide an opportunity for further tax deferral if you find yourself in the top tax brackets.

Optimizing Employee Stock Purchase Plans

Employee Stock Purchase Plans (ESPPs) can be a substantial perk for employees. What is a great way for employees with a large income to participate in these plans?

ESPP gains, including shares bought with a fair market value discount, are taxed as ordinary income when the stock is sold. But there are two notable exceptions to this rule: qualifying dispositions and disqualifying dispositions.

Put simply, depending on your individual financial situation and how you utilize each exception, your ESPP yield can be taxed as either a long-term capital gain or as ordinary income. This can be particularly beneficial for high earners.

Enhancing Deferred Compensation

Another common difficulty for executives is taking full advantage of Non-Qualified Deferred Compensation (NQDC) plans. NQDC plans allow corporate executives the ability to defer more of their compensation beyond qualified retirement plans and to defer taxes on these contributions until paid. Not only does this defer further compensation from being taxable, but also provides further company matching beyond the limits of your 401(k). These are known as spillover plans. Also, many plans allow you to schedule distributions during different points in your career, not just when you retire. For highly paid professionals, deferred compensation plans can be a great way to save for retirement. There are several benefits, including: 

But deferred compensation plans, like most financial planning strategies, can get tricky and include a number of complex factors to consider. The best approach is to consult a professional financial planner before making any decisions.

We’re Here to Help You Navigate Financial Challenges

At Wealth Advocate Group, we understand that executives have very little time to manage their finances. Equally concerning, the challenges that high earners face can get extremely complex.

Whether you have concerns about tax strategies, safeguarding your assets, diversifying your investments, or optimizing your retirement with ESPPs and deferred compensation, our team of professionals can provide customized advice to help simplify your financial decisions.

Call 440-505-5704 or email to schedule an appointment.

About John

John Brown is a wealth advisor at Wealth Advocate Group, LLC, an independent, fee-based wealth management company. With over 10 years of experience in the financial industry and a background in accounting, John provides sophisticated and specialized services to his senior executive clients who need the expertise of someone well-versed in concentrated securities and restricted stock strategies, as well as the risk and tax burdens that come along with their compensation. John has a bachelor’s degree in accounting and financial management from Hillsdale College and is a CERTIFIED FINANCIAL PLANNER® professional. John is known for his thorough approach, often asking questions and bringing up details his clients have not considered. He strives to address every piece of his clients’ financial picture to make sure they are on the path toward their goals and financial confidence. In his spare time, John and his wife, Christina, enjoy traveling and staying active. You can often find him spending quality time with his friends and family. To learn more about John, connect with him on LinkedIn.

The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

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