The Advisor Institute: Coach's Corner
Make the most of a misunderstood employee benefit

Practical messages intended to help you elevate the success of your practice.

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      By David GordonDirector, Eaton Vance Advisor Institute

      We believe one of the best ways for advisors to demonstrate their competence and goodwill is to see the full picture and advise on assets they currently manage as well as ones they do not (i.e., employer-sponsored qualified retirement plans, stock purchase plans, etc.). Doing so allows you to provide full-balance sheet advice when making recommendations about the assets in your care.

      Employee stock purchase plans (ESPPs) are often a misunderstood employee benefit. Due to confusing language and little to no guidance, many employees may not take advantage of the favorable tax treatment of ESPPs under Section 423 of the Internal Revenue Code. Typically, ESPPs allow employees to accumulate after-tax payroll deductions during the course of the plan and then purchase company stock commission-free and potentially at below-market prices.

      You can uncover potential opportunities to help your clients by asking a few probing questions such as:

      1. Does your company offer a Section 423 ESPP?

      • If a company offers such a plan, it must be made available to all employees
      • An employee can contribute up to $25,000 (after-tax dollars) per calendar year to a Section 423 ESPP

      2. What are the details of your company's plan (plan length, look-back, employer discount)?

      • Your client should be able to share with you a plan document describing the particulars
      • Look-back and employer discount can both reduce the price a participant pays for company stock, and plan length can range from 6 months to 27 months

      3. Do you always participate, renewing automatically at the end of each plan?

      • The plan document may show whether clients need to affirmatively renew or are automatically reenrolled in successive plans
      • Clients may think they are enrolled when in fact they are not

      4. What have you done with the shares you have purchased in past plans?

      • Clients who dispose of shares by gift, sale or transfer before satisfying the conditions for a Qualifying Disposition may experience unfavorable tax treatment
      • Purchased shares, if still held, likely reside at a stock plan administrator — but could be transferred to your care

      5. Do you also receive equity awards and if so, what kind?

      • You can help clients understand the relative attractiveness of their different exposures to employer stock
      • Understanding a client's ESPP participation and equity awards allows you to provide full balance sheet perspective

      Many of your clients might have trouble putting participation in an ESPP in the proper context within their overall plan. Showing them how and why these are attractive shares to accumulate can help them make the most of this valuable benefit.

      Bottom line: Incorporating clients' ESPP participation into your discussions will help you provide the full balance sheet advice they are looking for.