Preserving the Wealth of Successful High-Tech Community Members

By Joyce L. Franklin, CPA, CFP®

Preserving the Wealth of Successful High-Tech Community Members

A few years ago, I had two clients who worked for a hot telecommunications company that went through an initial public offering (IPO). After taxes, each wound up with more than $3 million in vested options in their company’s stock. I formulated specific plans for each to diversify. We discussed verbally and in writing the importance of selling some of their stock options to diversify their net worth. But despite my imploring, the only selling these recent millionaires did was just enough to buy and remodel homes.

As they rode the company’s stock on a rollercoaster from less than $10 per share, up to over $200, and back down to nearly $0, they hoped and prayed the stock would go back up, but they never sold more. The stock price dropped, and the company changed its name. My clients were left with worthless stock options and modest (remodeled) homes. Neither had contributed any of the windfall toward retirement, wealth accumulation, or other life goals.

I took their inability to diversify personally.

As the personal CFO for my clients, I’m not going to let this happen again. In my 20 years as a wealth planner, I love that I’ve helped so many people enjoy their lives and meet their goals. But those two telecommunications clients still give me pangs of regret. I feel like I let them down. And it didn’t have to be that way.

 

The Simple Secret of Wealth Preservation: Have a Plan

Preservation of wealth after an IPO, acquisition, merger, or other liquidity event is a challenge, to say the least. The water coolers and watering holes of Silicon Valley are full of tales of IPO lottery winners who wound up back where they started within a few years of vesting.

Fear is a huge reason so many in the high-tech community fail to preserve wealth. But so is loyalty. “Engineers try to be analytical, but they get emotional about their own company,” says Marc Tarpenning, a longtime Silicon Valley entrepreneur and a co-founder of Tesla Motors. This feeling can be especially true of employees who join start-ups early in Phase I and put their heart, soul, 16-plus-hour days, and weekends into their work.

In my more than two decades as a CPA and wealth planner, I’ve prepared plenty of stock option analyses and tax projections. But it was only after my husband, a high-tech entrepreneur, sold his first company to Autodesk in 2008 that I learned the emotional side of having your net worth tied to the stock of one company.


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Preserving the Wealth of Successful High-Tech Community Members
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Preserving the Wealth of Successful High-Tech Community Members
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The BE WISE Planning Strategy
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The BE WISE Planning Strategy
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