The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Eaton Vance are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance fund. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results.

LATEST INSIGHTS

 
Topic Category
Authors
The article below is presented as a single post. Click here to view all posts.

By Holly SwanExecutive Director, Advisor Institute

Employees of public companies can find themselves in the happy predicament of having a large amount of employer stock to which they are quite attached. While diversification is a hallmark of modern portfolio theory, many people who hold concentrated positions have a difficult time moving away from the stock that has been so good to them. How can we help prospective clients appropriately diversify?

Some concentration conversation approaches are dead ends. If you have ever challenged a prospect's rosy expectations regarding his or her employer's stock performance, you have probably seen that dead end yourself. Consider shifting the subject away from the attachment to the stock and toward the tax code by reminding prospects that Uncle Sam can be a coach, not just a referee. The tax code treats some shares of employer stock more favorably than others by taxing the eventual sale at a lower rate, deferring the taxable event or both.

It is important not to pretend to be a tax advisor or legal advisor. However, by learning how and when various exposures to employer stock are taxed, you can enlist Uncle Sam's help with the concentration conversation. Reviewing prospective clients' statements can start a conversation about using the tax code to prioritize exposures to employer stock and can help them determine which shares they should consider holding for the long term and which to dispose of more quickly.

Suppose a prospective client receives incentive compensation from his employer. You might ask:

"Would you be willing to share your incentive compensation statement with me? One small step we can take is to explore how the tax code might make it more attractive to keep shares that offer an advantage, such as those held inside a qualified retirement plan, and sell others that are comparatively less attractive. After all, Uncle Sam can be a coach, not just a referee."

Showing people how to distinguish among their shares of employer stock can turn a prospective client into a client.

Bottom line: Understanding the tax code can help you navigate—and improve—your diversification conversations.

tax365banner