ELLEVEST INSIGHTS

Your company is about to go public, aka an initial public offering, or IPO. The decision’s been made. All that hard work, and it’s finally happening. First things first: Congratulations! This is a supremely exciting thing. You (and your team) earned it. And you deserve it.

While this is an exciting time, it also probably brings up a lot of questions. Especially about your financial future. It’s a time when you start to make a big list about what to do (and what not to do). 

If this potential windfall is your first foray into the world of wealth management, it’s reasonable to feel a little lost and more than a little overwhelmed. You might also feel like this shouldn’t really be a problem. But it’s a lot of new money issues to work out, and those can be stressful. Not so fun fact: 59% of women told us they stress about money more than once a week, and 43% said they actively worry about money at least once a day. And our concerns with money go far beyond the decision of whether to sell your stock. Things like inflation, housing prices, cost of childcare, and economic uncertainty all play into our money stress. 

And even if it’s not your first time connecting with a wealth advisor, you may be wondering, “What part of this can she help me with? Does she manage my stock? Will she help me understand the risks?” Up until now, she may have helped you with a portfolio based off of your earnings but things have changed. Now what? And does she even have the expertise to help with this? In my experience, I’ve heard of advisors who have ignored their client’s new financial situations which can cause unnecessary concentrated stock positions, tax issues, and other problems.

It’s true that there’s no real playbook for this — every IPO is different, and everyone who goes through one has a different money situation. But as a wealth advisor and the head of Ellevest’s wealth management team, I’ve helped women navigate these waters before. So have my colleagues — we get it. And we’ve got you.

So don’t panic. It’s time to build you a team.

An accountant who knows equity and IPOs

Pre-IPO, “taxes” might have just meant signing a W-2 and filing online every February. But with stock options and equity thrown into the mix, you’re not just filing tax returns anymore — you need a strategic plan. Now’s the time to find an accountant who has done this before, and is someone you like and trust.

There are nuanced and important tax strategies associated with exercising options and selling stock — the timing, the amount, the type of equity, etc. And you might need to look at your tax withholdings, too. A good accountant can help you through those decisions. And let me tell you, getting in front of this will be important. It can cause unnecessary taxes later on if not planned correctly.

Even if you already have an accountant, and even if you like that person a lot, it still might be worth looking around. Your new situation is probably going to be a lot more complicated. Interview some other accountants and make sure you’re working with someone who really understands the ins and outs of equity compensation.

An estate attorney

If you don’t have one, you need one. An estate attorney is the one who can help you make a plan for where you want your money to go if something happens to you. Family, charitable organizations, whoever — you want them to be taken care of. And now, that’s a lot more complex than “I should probably have a will.”

Having an updated will is still important, though, and a good estate attorney can help you get yours written or changed. They’ll also help you with decisions like creating a power of attorney (which gives a person the power to make decisions for you if you can’t) and appointing an executor of your estate.

Importantly, an estate attorney can also help you think through questions about what kind of financial structures you might need after the IPO is over, like whether it will make sense for you to set up a trust, make gifts to your children or family, or start a charitable account like a donor-advised fund.

A wealth advisor

You’ll want a wealth advisor who gets you and listens to you, who can hold your hand through this process, translate, and help you make a financial plan. Yep, that’s what we do at Ellevest. Look for one who’s a fiduciary so you know they’ll always put your best interests first.

If you don’t have a wealth advisor yet, you need one now. And if you already have one, consider whether he or she can help you with your new situation.  If not, you might need a new one.

Here are some ways a wealth advisor can help

Wealth advisors are the team members who will coordinate across the team. They can help you model how any decisions affect your short-term and long-term goals. And they can help you in defining what those goals are today. It can be overwhelming to suddenly have so many new options for yourself. 

At Ellevest, we think it is important to take a step back and look at your wealthcare. Or what you want your return on life to be. Do you want to buy a new home? Set your kids up financially? Retire early? Or maybe just continue to grow your wealth in a prudent matter? All of these have tradeoffs. A wealth advisor shouldn’t tell you how to live your life, but the actions to take in order to achieve those goals. 

Wealth advisors will help you think through the risk of your stock as a concentration in your portfolio. They’ll also help you think through how to handle equity compensation, like restricted stock units, going forward. 

Wealth advisors will help you with understanding what’s about to happen to your wealth.

Again, everybody’s situation during an IPO is different. The amount, type, and status of the equity compensation your company gave you all factor into it. Working with your accountant, your wealth advisor can explain the following questions and help you find the answers.

Do you have ISOs, NSOs, RSUs? Some of each?

Incentive stock options (ISOs) give you the opportunity to buy company stock at a guaranteed price (aka “exercise the option” at a “strike price”), although you aren’t required to do it. ISOs come with tax benefits, but the trade-off is that you have to hang on to them a little longer than some other types of equity compensation.

Non-qualified stock options (NSOs) are similar to ISOs, but they’re simpler and more common. They also give you the opportunity to buy stock if you want to, but without the favorable tax treatment.

Restricted stock units (RSUs) aren’t options — they’re grants of equity, aka shares in the company itself. No need to decide whether you want to buy company stock, because they gave it to you as compensation — plain and simple.

Vested or unvested? Equity compensation is often subject to a vesting schedule, which means you have to wait a while before you fully own them. Whether your options or shares are vested or not at the time of the IPO will also affect your financial plan.

If they’re vested, you’ll decide whether you should exercise (aka buy) them before or after the IPO. If they’re unvested, you’ll want to know whether your unvested awards vest under a different timeline post-IPO. And (of course) you’ll want to have a good idea of how your decision might impact your taxes. I have seen some major mistakes be made by not considering the tax impacts and planning for it accordingly. 

Helping you protect your new wealth after the IPO

A lot of employee stock comes with a lock-up period, so you aren’t allowed to sell it for a certain number of days after the IPO. (That’s meant to keep employees from flooding the market and driving the price down.)

Once your lock-up time is over, you might have what’s called a concentrated stock position, meaning a significant chunk of your net worth will be tied up in a single company’s equity.

I’m guessing you work for your company because you believe strongly in its future success. It can be really tempting (and understandable) to want to hang on to all of your company stock and watch it go up. But if it doesn’t? You could lose almost everything. Add to that the fact that you work for that company, and suddenly you’re staking your income and your net worth on one company’s performance. And we can help you understand how the performance of your company’s stock might be affected by more than the company’s growth prospects like the overall stock market, the sector performance of your company, and many other external factors.

At Ellevest, we like to help our clients create a schedule to sell some of their concentrated position and build a diversified investment portfolio that includes stocks, bonds and alternatives, when appropriate. For the rest, we can help you build a completely personalized financial plan that takes your goals and values into account in order to help you make the most of your new wealth.

Once you have your team in place, you’ll have the support you need in order to go from stressed to psyched and build a financial plan that fits your new life.