By: Andrew Rosen, CFP®, CEP® Welcome to the final stretch of this 4 part blog series on equity award planning.  Thus far we’ve identified how a stock option and restricted stock unit operates, and strategies for dealing with stock optionsFor this final piece, I’ll discuss my general thoughts on RSU planning and a few strategies for handling these awards. What we know: Receiving restricted stock units means you are heavily tied to your employment company (just as it is with stock options).  Being more than just your salary, your compensation continues to align with the company’s success (or failure). Unlike a stock option, a RSU is not a leveraged relationship.  A $1 increase in the stock price is simply $1 of profit for you.  I like to refer to these as 1:1 relationships.  They are no different than owning stock in any company for that matter; the exception is that you are employed by that specific company. This logic means it’s both important to understand the value to be gained and lost, as well as the risk worth taking and the risk worth avoiding.  Below, you will find some expert thoughts on these restricted stock units. Strategy 1: Sell! Sell! Sell! This happens to be my favorite strategy in most cases.  Ideally, the restricted nature of these units allow a few years of growth from when it was first issued.  Once received, I generally see little reason to stay so concentrated in any one position. At Diversified, we believe in broad diversification at its core.  Even though you continue to work for the company, we don’t see this general philosophy changing.  The risks associated don’t change just because they are your employer. You are taxed when you receive the RSU. Therefore, why not sell it at that time to help diversify more appropriately in your portfolios?  There is generally more risk to be had on the down side (over the upside) by holding a heavy concentration in one position. That’s why we typically try to have our clients avoid these risks. I recognize sometimes you are very close to the situation and it may be hard to see the forest from the trees.  However, that is why we partner with our clients.  We help frame the dialogue and see the “big picture.”   Strategy 2: Set a limit and stick to it! I gave similar advice when it came to stock options. I’ve called on this strategy when:
  1. There is a strong conviction to a stock (or its heightened growth potential).
  2. When we’ve seen an unusual dip in the price.
I’ll give an example of each; I’ve seen them both play out: Example 1: You believe in heightened growth. We’ve worked with some companies that were/are in the midst of merger talks.  Everyone’s general belief is this is a really good thing for the company.  They have also seen when talks get heated, the stock price spikes.  Conversely when these deals fall through, the stock reverts back to its previous trading price (or below).  This would be a case where picking a certain stock price could be beneficial. Example 2: We’ve seen an unusual dip.  Chemours (a company we deal a lot ) went through a very similar situation.  When they spun off from DuPont into an independent company stock instantly dropped. It went from about $20/share to about $3/share.  Lots of executives had RSU’s given to them at the higher price of $20.  When they vested, these shares were worth a fraction of what they were when issued.  There were still strong fundamentals of the company, however.  So, this was a great circumstance to hold onto the stock until it hopefully rebounded.  (Spoiler alert, it did rebound. Now it has been trading in the $50 share range.) Whichever of the two main reasons lead you to hang onto this closely held stock, it is important to keep a few things in mind:
  1. Think through your threshold of risk and the return necessary to get what you expect out of this stock;
  2. Don’t deviate from this initial strategy; and
  3. Check your emotions at the door.
That was a mouth full. There you have it — my high level thoughts on equity awards.  They are exciting, but also nerve-wracking at the same time.  A lot of thought and strategy should go into deciding which path is best for you.  It is one part science, one part math, and one part experience.  If you don’t think you are equipped to handle all three, I suggest working with someone you feel comfortable with who can help fill the void(s).
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Andrew Rosen

In his role as Financial Planner, Andrew forges lifelong relationships with clients.  He coaches them through all stages of life and guides them to better achieve their life goals.  For more information about Andrew or the other firm partners, Kyle Hill and David Levy, click the link below.

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