I work for a local technology firm.
Our company has been growing very quickly. I have a significant amount of stock options, but I am not sure what to do with them. Should I hold or sell? What are the tax implications? Should I keep all of my money in my company stock or should I diversify? I realize that right now it’s just paper wealth so how do I convert that to real money? Ferris Capital has been working with tech executives for decades, and has a great deal of familiarity with the issues these individuals face.

Am I gambling my retirement on my company stock?

Simply put, having a significant amount of your wealth tied up in the same company that you receive your paycheck from may not make the most financial sense. When an individual or family has a significant portion of their finances and asset allocation invested in a single company stock, this is considered a concentrated position.

It is important to diversify your holdings in order to build long-term wealth, and set yourself up for a comfortable retirement. Unless you actually exercise your stock options and sell the company stock, you have nothing more than what Ferris Capital likes to call “paper wealth”. Until the point where you “cash out” of your individual company stock, your wealth is directly correlated to that one company’s earnings and stock performance. Again, considering that you also rely on the same company for your salary creates a more volatile financial picture than most realize.

Ferris Capital recognizes that owning stock options and company stock does entail an emotional component. Most people believe in the company they work for, and in turn hope that the company stock will continue to increase in value. Your belief in the underlying company is a large reason why you work there in the first place. However, it is important to take the emotion out of owning stock, and make rational decisions that are in your best financial interest by systematically diversifying your concentrated positions and building your nest egg.

The professionals at Ferris Capital have dealt with these exact issues countless times for many of our clients over the years. We can help you take the emotional component completely out of the equation. After doing so, Ferris will assist you in determining the best course of action to sell your company stock in a responsible and calculated manner. In many instances, we work directly with your employer’s administrator to craft a 10b5-1 plan. We also have experience in navigating the tricky issues surrounding Rule-144 filings with the SEC (for our clients that are considered “insiders”).

After we have aided in divesting from your concentrated position, Ferris Capital will help you invest in a diversified portfolio that suits your risk profile. If you are currently sitting with a large portion of your net-worth in your company stock, let Ferris Capital evaluate your options.

What are stock options?

Options are the ability to purchase or sell an item for a specific price at a different date. If the option’s specific price is unfavorable for some reason, the holder is not required to use the option.

In the case of employee stock options (ESOs), the employer is promising to sell an employee a certain amount of stock at certain price (called the strike price). The employee hopes the stock’s value will grow and he or she will be able to use the ESO for profit: buying at the lower strike price and selling at the market value.

If managed correctly, stock options may provide employees with an opportunity to build and maintain significant wealth.

How do I turn my paper wealth into real wealth?

It is important to remember that stock options are different from stock ownership. Stock options are benefits that give employees the right to purchase company stock. However, until you exercise your options, you do not actually own any stock. Furthermore, simply owning company stock does not create real wealth. You do not realize a gain (or loss) until you actually sell the stock that you own. Hopefully you sell the stock at a price that is higher than what you purchased it for.

You create liquidity by selling your stock and diversifying your holdings away from your concentrated position within your company. This enables you to turn your paper money into real money and creates actual wealth. Many people fall victim to the emotional aspects that go along with owning stock.

The important question to ask yourself is this: What would hurt more, selling your stock and missing out on an extra 20% of upside appreciation, or, not selling your stock and watching it decline by 20%, thereby decreasing your net worth?

There are many more factors and scenarios to consider before selling your company stock options. Ferris Capital has the experience to help you answer these questions, and create a plan to divest from your concentrated position, while ultimately diversifying your assets into a balanced investment portfolio.

What is a Restricted Stock Options (RSO)?

A third type of equity, restricted stock options (RSOs), is another widely used form of compensation. RSO’s are similar to NQSOs and ISOs, but place a higher importance on the “vesting” aspect. With RSOs, employers give shares (or sell them at a deep discount) to employees or other interested parties. However, though usually exercised immediately, the option does not hand over control of the shares until it vests.

With RSOs, vesting is typically tied to some event in the career of the holder. An RSO might vest once the holder has been with the company for a certain number of years, or when he or she reaches a set goal (e.g. makes a set number of sales.) Companies can use RSO vesting objectives that motivate individuals to accomplish more or remain with the company longer.

When handling your employee stock options, Ferris Capital has the experience and knowledgeable professionals to assist you in regards to how to maximize the rewards of working at your company.

What is an Employee Stock Purchase Plan (ESPP)?

An employee stock purchase plan is a way for companies to reward employees by offering to them the opportunity to purchase their company’s shares, often at a discount from the market price (typically at the end of an offering period). Employees usually indicate their interest to participate in the ESPP at the beginning of an offering period.

If the employee wishes to participate in the ESPP, he/she indicates the percentage or dollar amount of compensation to be deducted from their payroll. The percentage or dollar amount employees are allowed to contribute varies by plan and are subject to IRS limitations (currently set at $25,000 per year).

Under most stock purchase plans, the purchase price is set at a discount from the fair market value. Some plans allow the discount to be applied to the value of the stock on the purchase date, however, it is more common to see the discount applied to the stock on the first or last day of the offering period, whichever is lower.

There are two types of Employee Stock Purchase Plans. A qualified ESPP allows for special tax treatment for shares that are held for more than a year and meet certain requirements. Non-qualified ESPPs are simple payroll deductions to purchase company stock and do not allow for special tax treatment. A non-qualified plan may not be available to all employees.

Get in touch with our experts

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   Matthew Elsenbeck

Matthew Elsenbeck


The Ferris Capital Process

We firmly believe that the best results come from a consistent process with a thoughtful design.

We use low cost ETFs, mutual funds, individual bonds, and stocks to build custom portfolios for our clients that are in line with their larger financial plan. We always seek to use the lowest fee, most efficient investment vehicles possible and to utilize best of class managers when they offer more value than an index or ETF.

Understand Your Goals and Financial Situation 

Ferris Capital meets with you to fully understand your goals, time horizon, anticipated cash flows, and feelings towards investments in general . We also conduct an in-depth evaluation of your total financial picture including insurance, wills, trusts, 
and employee benefit options.

Create a Financial Plan Tailored to Your Goals

Ferris Capital works with you to develop a comprehensive financial plan that positions you with the highest probability of success in meeting your goals. The plan includes goal-driven asset allocations, tax sensitivity, long-term estate planning, and overall 
risk management.

Establish the Proper Accounts and Legal Structures

If applicable, Ferris Capital can direct you to top notch accountants and attorneys or work with your existing relationships to formulate and execute the structures and strategies to best protect your assets from taxes and liability. 

Current Investment Evaluation and Tax Analysis 

We analyze your current holdings to see if there are any embedded taxable gains or additional issues that should be considered in building your portfolio. If there are any issues, we will construct the investment portfolio to address those issues specifically and potentially use the existing investment as proxies to our investment model choices. 

Portfolio Construction

Using the risk profile from the financial plan and the considerations from the analysis of your existing assets, we manage your capital in one of our strategies that corresponds with your risk level which are designed using our proprietary market outlook, historical asset class performance, manager interviews and internal expenses. 

Ongoing Maintenance, Monitoring, and Reporting 

Ferris Capital monitors market and portfolio changes and keeps you informed on performance, risk and goals-based progress through quarterly calls or meetings. We also look to address any liquidity needs or life changes that may impact the long-term financial plan. 

Why Ferris Capital?

All investment firms offer “financial planning”. However, not all investment firms are bound by the fiduciary standard and not all firms are conflict free. Ultimately the most important difference between firms comes down to the people, their experience, and the service they provide.

At Ferris Capital, our independence ensures that your interests always come first. We believe that transparency and integrity are critical to building long-term relationships. We’re devoted to a client experience that revolves around the needs of you and your family, not around commissions.

Our work doesn’t end with a financial plan; that’s where it begins.


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