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Austin, a current sales director at a cybersecurity unicorn, was given a compensation package that had a healthy amount of equity at one of his first tech companies.
Fast forward a year, and the company was acquired. But the acquisition happened so suddenly that he didn’t really have room to do much with his vested options, which were automatically converted to cash in an account set up for him.
“On paper, it looked like I had made hundreds of thousands of dollars,” he said. “But then I actually looked at the account, and then the taxes and all that,” he added. That’s when he realized that “maybe I could have done better in how I navigated this.”
“My eyes got open to: Man, there’s a big opportunity here.”
So when he took on his next role as one of the first employees at the now unicorn, he was more intentional about his equity stake, and knew what questions he needed to ask. “I at least wanted to know I had some skin in the game,” he said. “And they were able to give me enough information for me to say ‘hey, this is a good deal to go work there.’”
The other major difference is that, while he was able to cash out equity in his first exit, the proceeds went to very practical things like paying off student debt and buying a house. But now that he has a young family, he’s looking further into the future with his stock options. “I’m more focused on how this could impact our long-term goals,” he said.
He certainly knew more about stock options at his new company, but he didn’t necessarily know what he should do with them. From time-to-time, his company would have sessions where the finance team, or a third-party, would do some basic overviews about equity. “The overview was very basic, it was very much just definitions,” he said. “But you could tell people joining those sessions, they were excited, they wanted to learn.” And when anyone did ask a more specific question, the response was usually to talk to an advisor. “And, at some point, after hearing that a dozen times, I was like, ‘I don’t know who this advisor person is.’”
So that’s when he started looking into speaking with a financial advisor. He even has good friends that are financial advisors. But he never found anyone that could answer questions that were specific to stock options and equity.
“I’ve always been someone that has managed my finances on my own. Or, as a couple,” he said, referring to his wife. “We both feel like we’re pretty savvy about it. But I remember telling my wife that I feel like I’m wading into new waters here. It’s like, if we get this wrong, it could either cost us a ton in taxes now or thousands of dollars down the road.”
During his search, he came across Secfi’s equity tools, which he found useful. But he also realized that Secfi had financial advisors that understood pre-IPO equity and could help him make decisions about it. He remembers thinking, “finally, somebody who gets it for the small percentage of us who are in this situation.”
Originally, he just wanted to ask about exercising more options before the tax year was over. He had had a very good year, from a sales commissions perspective, and wanted to make sure that exercising wouldn’t bring any tax surprises he wasn’t anticipating.
But on his first call with Secfi’s advisory team, Chris Arnold and John Morrison, he realized that they may be able to provide more help and value than just his initial question. And that he and his wife needed help thinking about their broader financial portfolio, and where his equity fit in.
“It’s not just the planning,” he said. “And it’s not just the actual exit event, but the tax planning ahead of time. Plus the tax planning after the fact, how we manage our portfolio once you do exit.”
“The light bulb went on for me,” he said. “It’s going to be about more than just this exit. And there’s so much more on the line here.”
“The question I had about taxes at the end of the year is only going to turn into another question, and another question, and another,” he added. “And every single one of them, there could be a big impact if I get it wrong. So that’s ultimately why I decided to work with them.”
First, they helped him with this original question about exercising before the end of the year. “They told me, exercise this number of shares and it’ll save you this much,” he said. Chris advised that he exercise his ISOs (incentive stock options) up to the Alternative Minimum Tax (AMT) limit for the year. Going forward, he advised taking a multi-year approach to exercising his remaining stock options allowing Austin to continue to utilize the AMT exemption, thereby saving him money in the long-term.
But, he also loves that Chris and John are helping with his other financial priorities, like his kids' education funds, his own retirement funds, and his other investment funds. He appreciates the holistic approach John is bringing to his investment strategy, and how it compliments the equity stake he has in his current company. He noted that many investment managers might tell him to heavily invest in public tech companies, not taking his equity into account. But John and Chris know he already has a large exposure to tech, so they’re able to advise him on a diversification strategy that’s personalized for his unique situation.
“The value I'm getting is the tax planning, and the holistic approach. It's like all these things that I felt like were missing from a traditional financial advisor.”
Another great example of the value they’re giving him, he shared, was when he had a large quarterly commission check come in. “I don’t know that any other financial advisor would say ‘hey, you should exercise this many options and set aside this much in taxes because that’s going to be better for you in the long run than just throwing that money in your joint account,’” he shared. “That’s the type of stuff I love.”
“They get to see the whole picture and they actually incorporate it into the plan,” he added.
Now, he has a financial advisor in his corner that can help him achieve his goals, and he can reach out whenever he has a question. His most recent was that he wanted to figure out how to exercise all his options over the next year.
“Chris was like, ‘okay, let's set up some time to meet and talk through scenarios. I'll have a plan for you,’” he said. “He had a detailed plan on how we’re going to get exercised: ‘Here's how we're going to do that. This is when you exercise, what it’s going to cost you, how much you put aside in taxes.’ And I'm like, you're the guy from that equity session, the one they told me to go talk to. You are that guy.”
Learn more about Secfi Wealth and set up time with a financial advisor here.