Licensed from 123RFA report published by Kitces.com entitled “The Technology That Independent Financial Advisors Actually Use (And Like)” provides some interesting insights on what financial advisors are using to assist clients that receive employee stock options and other forms of equity compensation.
Stock Option Planning
Stock Options is another specialized domain where advisors often find a need to stretch beyond the capabilities of their existing financial planning software. Especially given the often-high-dollar stakes of stock options and other equity compensation, and the unique tax issues involved in planning around liquidations of those positions.
Notably, though, in practice stock option planning is an area where advisors are still most often relying on their financial planning software (the primary response in the “Other” category), or building their own solutions. Accordingly, beyond planning software itself, Excel was the most commonly used tool for stock option planning, at an adoption rate of 15%, and other “self-built” tools also scored a solid ~7% adoption rate (and an above-average user rating).
Other third-party solutions that have strong adoption included StockOpter (12%) and myStockOptions (9%), which notably have significantly higher Satisfaction ratings than simply using Excel or financial planning software, suggesting that for advisors who focus on stock option planning, there is additional value perceived in using more specialized solutions.
In the meantime, home-office proprietary tools (i.e., created by the firm’s custodian or broker-dealer) again ranked low for this category.
Stock Option Planning: Changes In Market Adoption
Overall, 3.9% of advisors indicated a plan to change stock options planning software within the next 12 months, a relatively low change rate that signals most growth in the category will come from advisors adopting solutions for the first time.
Similar to other specialized categories with narrow adoption and limited players, advisors looking to make a change were typically unsure of what they would be going to, with few clear winners for adoption. Though in general, advisors most commonly have been utilizing myStockOptions, leveraging their existing financial planning software, or just building their own analyses in Excel to evaluate stock option scenarios for clients.
Notably, while StockOpter scored similar advisor satisfaction ratings to myStockOptions, neither is experiencing significant outflows of users, StockOpter has not been gaining market share as quickly, suggesting that it may benefit by (more targeted) marketing to interested advisors.
More generally, though, when it comes to stock options planning, the challenge is that as a more specialized niche, the overall market size will forever be limited (not all advisors have some or even any clients who have substantial stock option positions). As a result, growth in the category is less likely to come from new advisors adoption of software, per se, and primarily from those who are instead using their own self-built solutions (or related Excel spreadsheets), to begin using higher-rated third-party software instead.
