Financial Planning

Financial Advisors for Equity Compensated Employees

By  Brian Thorp

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Does your employer count the potential equity you could receive in the company as a considerable percentage of your overall compensation package? If so, you fit the definition of an equity compensated employee.

While equity compensation offers the potential for significant rewards if your company grows substantially or is acquired at an attractive valuation, you’re also subject to substantial risks that your equity could be worthless if your company is outmaneuvered by a competitor, runs out of cash to operate the business or sells to another business on unfavorable terms.

What is Equity-Based Compensation?

The term “equity-based compensation” includes any compensation paid to an employee, director, or independent contractor that is based on the value of specified stock (generally, the stock of the employer, which may be a corporation or a partnership). Examples of equity-based compensation include Stock Transfers, Stock Options, Stock Warrants, Restricted Stock, Restricted Stock Units, Phantom Stock Plans, Stock Appreciation Rights, and other awards whose value is based on the value of specified stock. (Source: Internal Revenue Service)

As an equity compensated employee, you have unique financial planning needs, whether you’re just starting out in your career, or you’re counting down to retirement in a few years. Given the complexities of your compensation package, it makes sense to work with financial professionals who understand the ins and outs of equity compensation, especially the Internal Revenue Service rules governing stock options, restricted stock and other forms of equity based compensation.

If you’re thinking about working with a financial advisor, how can you be sure you’re hiring an advisor who truly understands your unique needs as an equity compensated employee?

Fortunately, you have more options today than ever before to find a specialist financial advisor with the knowledge and experience to help you navigate the complexities of your compensation plan. Beyond researching financial advisors in your neighborhood, you may find the best financial advisor for you lives several states away and is easy to work with virtually, often via Zoom online meetings, for example.

So is a financial advisor who specializes in serving equity compensated employees right for you?

Let’s learn more by getting answers from financial advisors featured on Wealthtender who offer their perspective on the potential benefits of working with a specialist.

👩‍💼 Get to Know Financial Advisors Who Specialize in Serving Equity Compensated Employees

This page is organized into sections to help you quickly find the information you need and get answers to your questions:

  1. Q&A with Financial Advisors Who Specialize in Serving Equity Compensated Employees
  2. Get Answers to Your Questions About Financial Planning for Equity Compensated Employees
  3. Browse Related Articles

– Financial Advisors Who Specialize in Serving Equity Compensated Employees –

Three Questions with TJ van Gerven, CFP:

We asked Boston-based financial advisor TJ van Gerven to answer three questions he often hears from equity compensated employees

Q: I’m interested in leaving my current job for another opportunity, but I’m worried about what will happen to the equity I’ve received where I work today. What should I do?

TJ: The first thing you should do is review your vesting schedule so that you fully understand how much you may be leaving on the table. Typically, when you leave your employer, you’ll lose any unvested equity. It’s important to understand what type of equity you have available, whether it’s shares or options. With vested options, you’ll want to review exercising before you leave your employer; otherwise, you could lose any in-the-money value. Ultimately, you’ll have to review the tradeoffs of leaving unvested equity on the table versus the benefits of the new opportunity. It’s not always about the money, but it is important to make a conscious and informed decision!

Q: My company is talking about going public in the next year and I have stock options which could be quite valuable. Should I be doing anything now to prepare?

TJ: The first thing you’ll want to do is look into your open trading windows for when you’re allowed to exercise your options. If you’re anticipating a post IPO windfall, it could be hugely beneficial to exercise your options ahead of time to get the clock ticking towards long-term capital gains (LTCG) taxation. You’ll want to understand the out-of-pocket expense to exercise your options plus any potential for an alternative minimum tax (AMT) liability so that you can avoid a cash flow crunch. Even more so than the tax planning for your potential windfall, it’s crucial to have a financial plan in place so that you have a vision of what you’re looking to do with the money.

Q: I love my company and the considerable equity I now own, but I’m worried I have all my eggs in one basket and don’t know when we’ll be able to cash out. What should I do?

TJ: This can be a tricky situation to navigate. By leaning on financial planning and understanding how on track to financial independence you are given your investing time horizon, you can start to determine if it makes sense to diversify. Remind yourself that “concentration builds wealth, and diversification preserves it.” In particular, when it comes to stock options, you’ll want to consider the time value of the options relative to the current value. Always be mindful of your concentration risk, and work towards a percentage of your net worth that you’re comfortable with. Remind yourself, “if I’ve already won, why am I still playing”?

Get to Know TJ van Gerven:

TJ van Gerven, CFP®

Modern Wealth Builders

Woburn, Massachusetts

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Helping Equity Compensated Employees Plan For Financial Independence

Woburn, Massachusetts

0 Certified Advisor Reviews

Helping Equity Compensated Employees Plan For Financial Independence

Areas of Focus

  • Employee Stock Options
  • Equity Compensation Options
  • Estate Planning
  • Retiring Early (F.I.R.E)
  • Taxes

View TJ’s profile page on Wealthtender or visit his website to learn more.

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About the Author
Brian Thorp, Founder and CEO of Wealthtender profile picture

Brian Thorp

Founder and CEO, Wealthtender

Brian and his wife live in Texas, enjoying the diversity of Houston and the vibrancy of Austin.

With over 25 years in the financial services industry, Brian is applying his experience and passion at Wealthtender to help more people enjoy life with less money stress.

Connect with Brian on LinkedIn

Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.

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