Employees with equity compensation represent a great opportunity for advisors to generate new and ongoing business.  This is because the market is largely under served and highly lucrative.  Of the approximately 8+ million employees who receive equity compensation awards, only a small percentage utilize professional assistance.  So when financial advisors cross paths with these prospects it’s important to be prepared to seize the opportunity.  Here are 4 questions to ask after meeting someone who works for a company that provides equity compensation:

  1. “What type(s) of equity compensation grants do you currently hold?”  The most common types are “shares” or “options”.  Each type requires diversification decisions, but stock options are more complicated because they need to be “exercised” prior to expiration.  Keep in mind that complexity is an advisors best friend so it is important to find out as much as possible about their grants and company stock holdings.
  2. “What role does your equity compensation play in the achievement of your financial goals?”  This open-ended question should spur an interesting dialogue because it is unlikely that they have given much thought to this relationship.  Try to reinforce the importance of equity compensation to goal attainment because this will result in diversification and reinvestment instead of consumption (buying the boat).
  3. “What is your framework for making timely and profitable decisions?”  With all investments, a disciplined approach yields better results.  Find out how their approach has done in the past.  Unsatisfactory results create opportunities for improvement.
  4. “What resources do you utilize to help you with your equity compensation?”  It is likely that their advice comes from “water cooler” discussions with their peers, so this is a good time to introduce the 5 things they should know about their equity compensation (i.e. Forfeit Value, Leverage, Goal Attainment, Concentration and Insight Ratios).  This will establish your bona fides and the next steps for moving forward (i.e. gathering their grant and assumption info to prepare an analysis).

Use this line of questioning to engage executives in lieu of telling them all about your practice from the outset.

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