Niche Building: What It Takes to Serve C-Suite Executives and Optimize Their Financial Plans

Written By: Zac Beckerley, Wealth Manager | Partner

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Focusing on a specific niche can be a significant marker of your long-term advisory business success, allowing you to be nimble in serving unique client needs while building a reputable brand for creating solutions for a demographic. Research from CEG Worldwide, an advisor coaching firm, found that 70% of advisors who earn over $1 million annually focus on a particular niche.

We often hear advisors express an interest in working with executive- and C-suite-ranking clients and business leaders, a coveted client base for financial advisors, given their high earning potential, unique planning situations, and related opportunities.

To be successful with this group, advisors need to be strategic in their approach and keenly aware of the challenges this group faces in their financial planning measures. Often, their planning begins with an executive compensation package and they will look to their advisors for insight and advice on how to best manage the details. Optimizing the package can be the key to demonstrating value for this client group.

Our team works with executives from major national corporations, and we have helped our clients navigate countless planning scenarios. Here’s our best advice for working with executive clients and helping them optimize their executive compensation plan.

Important Considerations for Executive Clients

Stock Ownership

Stock ownership is one piece of the puzzle for executives but it can be a significant aspect of overall compensation in many instances. The stock ownership structure can be complex, and oftentimes the executive doesn’t plan for the long-term implications of a package offered 10-15 years before retirement. If the executive is receiving stock options, it can be easy to overlook how that will be realized during retirement. Some companies will vest restricted stock units immediately upon retirement, while others will force executives to surrender outstanding RSUs when they retire or leave the company.

Tax considerations go hand-in-hand with stock options, ultimately determined by whether the executive can afford to purchase and hold the stock or if they need to sell it immediately. If the client sells immediately, they pay short-term capital gains rates. But if they hold it for a year or longer, they are subject to the lower capital gains tax rate. For clients who are charitably inclined and own stock, they may opt to bypass the stock themselves and gift appreciated stock to a selected organization.

Company stock ownership also raises questions around insider information, especially if the executive is a high-ranking official who has access to important and confidential financial information. It is essential to understand both the SEC’s and their company’s rules and regulations around selling company shares. I have worked with clients who were required to hold a certain amount of company stock at all times and with clients who were only permitted to sell during specific open periods. For these individuals, establishing a 10b5-1 plan can be a way to allow them to unload a predetermined number of company shares while protecting them from SEC scrutiny.

With various strategies in play, advisors must understand the clients’ full picture and be positioned to act proactively on their behalf.

Deferred Compensation

Deferred compensation is one of the more well-known aspects of executive compensation packages. While these plans offer some room for strategy, they are generally based on the company’s standard policies. The executive needs to know 1) What their current expenses look like and 2) how much money they need to maintain their lifestyle in retirement. If they are able to defer some income, they could be able to save on taxes. What’s more, is some companies offer matching or contribution benefits for executives who elect to defer. When an executive is deferring compensation, they may have to decide their deferral timeline, be it five or ten years or electing a lump sum payout. This decision is largely based on taxes and the anticipated tax rate in retirement.

One important consideration for deferred compensation planning is where the client plans to establish residence in their retirement years. Consider: does their current or future home state collect state income taxes? I worked with a Texas-based client who planned to relocate to California upon retirement. He was able to choose his deferred compensation timeline, and we determined it was best for him to take the lump sum while he was still living in Texas, therefore avoiding the 12% tax that California would assess on the income. If he were to receive gradual payouts while living in California, he would be paying taxes from the highest bracket, plus subject to the 12% extra income tax for residents and significantly eroding his earnings. 

Healthcare Considerations

Advisors must always be proactive in planning for healthcare expenses in retirement, but this becomes a much larger need for those retiring early, as can often be the case with executives.

Consider an executive who retires at age 60, ready to enjoy a comfortable retirement lifestyle, only to realize his family’s healthcare plans have not been adequately considered. He is facing a five-year gap – and a significant dollar spend – before Medicare benefits are available. The executive and his spouse could easily spend well over $100,000 on health insurance in that time period and considering health insurance costs outpace inflation, it is easy for retirees to spend significant portions of retirement savings on healthcare.

Sometimes executives are able to negotiate retirement healthcare benefits or a related stipend into their compensation package – a significant advantage from a planning perspective. For those who find themselves without adequate healthcare coverage, their options can be limited. Depending on how retirement assets are structured, sometimes your client can secure tax advantages or less expensive health insurance. As their advisor, you can help design a strategy to cover the expenses and minimize the impact on larger retirement savings.

Tax Implications

Taxes play a role in every single decision you make for a client. For executive clients, tax strategy becomes an even larger component in the planning strategy. Tax implications come down to whether clients want to pay taxes now or later, specifically whether they will be in a higher tax bracket in the future.

As with all clients, advisors are forced to make educated guesses on how the tax picture may evolve, especially as political administrations change hands. It is up to you to have the right conversations with clients and ensure they see the full tax picture now and well into the future.

The Takeaways for Your Practice

As with all clients, advisors who continually show their value and go above and beyond will be most successful – and their clients will be, too. Here are the top takeaways for advisors who work with or wish to work with executive clients:

  1. Perform scenario-based planning. Know your clients’ plan and help them understand it. Executive compensation packages are complex, making it difficult to understand the short- and long-term implications of certain decisions. As the advisor, it’s important that you work closely with your executive clients to understand the full benefits offered and perform scenario-based planning to demonstrate how minor details can make a major impact. 
  2. Understand where you can and cannot help them negotiate their package. While certain details, like stock ownership structure and offerings, are fairly straightforward, there are certain aspects that can be negotiated to best position your clients for the future. In our experience, executive clients have the opportunity to negotiate more as they get closer to retirement – decisions like when to vest or whether health insurance is fully paid or via a stipend. Take advantage of these opportunities to optimize the plan.
  3. Align with your client’s other professional partners. Creating strategic partnerships with your client’s network of professional partners is essential to their long-term success. For example, working closely with the client’s CPA ensures a strong line of communication and minimizes tax implications for the client with the tax professional’s guidance. These relationships help maintain a comprehensive view and strategic approach.
  4. Inspire action. A financial plan is only as good as the paper it is written on if there is no action on its components. Leave no stone unturned when assessing your executive clients’ financial picture and strive to think outside the box with your planning strategies. Executives bring a complex financial picture and require creative and actionable planning strategies to optimize their financial picture. If clients and advisors don’t work together to take action on the recommendations, planning is a fruitless effort.

If you hold yourself out as a financial planner, you must be willing to take a holistic approach with your clients. Advisors will often defer to investments as the starting point but the real value is shown when you demonstrate to a prospect that you understand their situation, needs, and goals. Executive clients in particular are seeking comprehensive planning. Being responsive and integrating them into your service model quickly and efficiently will help you win their business.

Zac Beckerley, CFP® is a Wealth Manager for Merit focusing on investment growth and income strategies through comprehensive financial planning. He enjoys helping clients build and pursue their financial goals for a comfortable and exciting retirement. Zac received both his Bachelors and Master’s degree from Texas Tech University. He has always enjoyed numbers, so it was a good fit for him to earn a degree in financial planning. Zac likes to play and listen to music, as well as spend time with his wife and three children.