The benefit of becoming a high earner is apparent: more money. You can go beyond creating financial security for yourself and your family and start making choices that may have been out of reach. Not having to worry about covering the basics can also provide you with a measure of peace of mind. It can help you operate from a mindset of abundance, and not scarcity, which can free you to actualize your financial and personal goals.
But before you get to that state of satori, you need to get all the money you’ve earned into your financial plan in a reasonably efficient way, while minimizing the taxes you’ll pay across your lifetime, and creating a diversified financial plan.
And if that’s not complicated enough, being a high earner very often means your compensation is unpredictable, lumpy, or you’re no longer a W2 wage earner. Whether you have deferred compensation, restricted stock, stock options, an annual bonus, or you own your own business, high income levels can equate to situations in which you have very complex compensation.
How do you simplify it? Who can help? It turns out that the answers to those questions are interrelated. Simplifying your wealth and your life, and creating a diversified, fully-realized financial plan requires an advisor with specialized skills who prioritizes putting the client’s interest first.
They can recommend the right moves at the right time because they are not motivated by product or fee structures based on assets.
Depending on the type of compensation you have, the way you need to address it is different. Executives with stock in public companies will have different needs than employees of start-ups that haven’t gone public yet or are in early stages. The type of equity compensation you hold will dictate the strategy you need to put in place. With equity compensation, two things are most important:
Equity compensation is never a “one and done.” Your options will have a vesting schedule, and you’ll have to make serial decisions on what to do with them. Whether you exercise, if you want to continue holding, or if you want to sell are all things that will come up every quarter, and you’ll need to think about them in the context of three things:
Just because you have equity compensation, you can’t neglect retirement savings. You also need to think through ways to diversify your portfolio to avoid an overconcentration in company stock.
If your equity is a little closer to home, meaning if you own your own business, you may have an even more complicated picture. Your retirement plan is often an exit or succession event in your business, and the time horizon for planning for that is long. You’ll need to be sure you are building personal wealth outside of your business. And because your wealth is tied to your company, your risk profile will look very different from the typical investor.
In these two very different situations, the common denominator is an advisor that provides specialized advice that puts the client’s interests first. A fee-only, fiduciary advisor isn’t motivated by selling a product. They get paid for the advice they give. Handling equity compensation, diversifying a portfolio with a real estate investment, advising a business owner on how to set up a qualified retirement plan, or planning for a sale are all possible when advice is at the core of the relationship.
The role of a financial planner is to look across your entire financial plan and understand what you want to achieve. You aren’t working for money, you’re working for your family, to create a life you love, and to have the option of “buying time.”
A financial advisor with a planning focus can understand where and how to place your assets so that you can realize what you want, whether that’s early retirement, a work-optional mindset, or some other goal that is meaningful to you.
Simplifying your complex compensation is just the first step in creating a comprehensive financial plan that allows you to live the life you want.
You’ve worked hard to be a high-earner, and it brings benefits but can create another layer of complication in your life. Working with an advisor that can provide the specialized advice you need while putting your wealth in service to your goals can help you simplify things, so you can think about enjoying the fruits of your labor.
Collabria Capital, Inc. is a San Francisco-Bay Area fee-only fiduciary financial planner& investment manager providing wealth management services to clients locally and virtually throughout the US.
Paul Saad, Co-Founder at Collabria Capital, Inc, is a CERTIFIEDFINANCIAL PLANNER™ (CFP®) focusing on comprehensive financial planning, personalized investment management, and equity/variable compensation.
The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.
• 3 different types of options
• How to know when to sell
• Terms to know
• How to reduce risk