With the recent return of Gordon Gekko, the fictional star of the 1987 movie Wall Street, it feels like we are in a time warp, with issues of soaring profits, banks’ excessive risk taking and insider trading all again taking center stage. Executive pay packages especially are the subject of endless debates in Congress, shareholder meetings and, on Main Street, a symbol of all that went wrong the past two years.
This backdrop has resulted in new sets of issues and challenges when it comes to not only creating a sound financial plan, but more critically, maintaining it in the months and years to come.
I recently had a conversation with Kamesh Nagarajan, a financial adviser and senior VP at Morgan Stanley Smith Barney, to understand how women executives today can best understand and best adapt to this new environment. Given the increasingly complex and ever-changing dynamics around compensation, what are the steps women executives can take to properly plan for their future rather than fall financially victim to it by their own lack of preparedness or true understanding of their plan?
Here are the five most pressing take-aways from our conversation:
1. Build your personal finance team with the same focus as you would in business
Like any great executive, your success is in large part driven by your ability to create a strong long-term vision and to build a team with the expertise and commitment to help execute and achieve these goals.
In light of this, it’s imperative to assemble a “financial team” that properly encompasses and covers all areas of your financial needs — from financial advisers, to estate planners, tax experts and accountants. and choose these individuals with the same due diligence, research, and thoughtful planning you would in hiring one of your direct reports. these experts are critical to your long term financial health, so make it a priority to identify the best pool of talent.
2. Recognize that career advances may require adjustments to your financial team
Just as a sound financial plan requires continuous monitoring and fine-tuning, so does your financial team. “Many of us did our own taxes when we were younger,” Kamesh reminds “but when we buy a house, start a new job or start donating to charity, we relinquish control and develop new financial needs.”
Rising up the corporate ladder often means outgrowing your current financial advisor — new portfolio dynamics require new areas of expertise. Management of regulatory issues becomes critical as does ensuring that all trades take into account public perception. a higher corporate profile translates to a greater visibility and scrutiny around all things related to your compensation and stocks options.
It’s imperative that the sophistication of your financial team is commensurate with your executive status.
3. do not ignore the importance of specialization in choosing a financial team
“The world of financial advisors is unquestionably large,” Kamesh notes, citing the over 335,000 wealth managers currently working with clients. “But very few of them are working with executives, and this specialization is key.”
Kamesh stresses the importance of building a team that is not only based on your financial status but, more importantly, one that effectively can navigate the complex world of corporations in addition to your specific industry. Kamesh noted that clients truly benefit from working with advisors who have formed relationships with the HR and compensation teams within your company and also created an internal network of clients that facilitate a deep-rooted understanding of the company’s specific nuances of benefit and salary packages.
4. Ensure proper diversification within the new age of compensation plans
“From the late 1980’s onward, executive pay packages and insider training have been sources of critical concern not only for executives and employees themselves, but also regulators, the media, and shareholders,” explains Kamesh. “As a result you are seeing different pay packages, with longer vesting and restrictions on stock options, particularly for executives.”
For corporate executives today, compensation and net worth will now be comprised of a greater percentage of corporate stock. In addition, many companies are now moving toward executive pay packages tied to the long-term performance of the company, not short-term results.
Work with your financial advisor to develop the best personalized strategy to mitigate long-term risk and achieve a sound, diversified plan that is based around the new dynamics of compensation plans.
5. to Vest or not to Vest: Mitigate risks of emotional attachment to a particular stock
“Hard as it may be to believe, parting with stock is often an emotional exercise for a lot of us,” explains Kamesh. If an executive has had a long track record with a company or has strong opinions about it’s future trajectory, this can often cloud their ability to make the best decisions around their stock options and in a timeframe that can have a profound affect on their financial future.
Kamesh advises, “Whether it’s a company we are working with, or working for, you should always be managing your exposure.” Develop an objective trading plan with your financial advisor to best manage stock-related decisions and leave your emotional attachments at the door.
6. Stay informed and stay involved!
Be aware that executive pay packages are changing every day. Nuances of compensation plans and pay packages are shifting on what seems a daily basis requiring constant fine-tuning of your long-term plan with your advisor. these new dynamics also requires constant monitoring to ensure compliance with your company’s trading restrictions, in addition to avoiding any potential perception-related minefields.
Despite the changing environment on Wall Street, Kamesh stressed the importance of always remaining proactive and informed on issues of financial planning. “Without question, executives are incredibly busy today, particularly for women executives who are wearing any number of different hats. Staying on top of your portfolio’s well-being is challenging, regardless of one’s financial acuity, but nonetheless essential.”
Yet Kamesh assures that you aren’t alone is this challenging endeavor. “By working with a wealth manager, developing a trading plan, and streamlining your financial team’s operations, you can ensure you are on the right path to a sound, long-term financial strategy.
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