Personal Financial Planning for Executives and Entrepreneurs: The Path to Financial Peace of Mind PDF
Preview Personal Financial Planning for Executives and Entrepreneurs: The Path to Financial Peace of Mind
PERSONAL FINANCIAL PLANNING FOR EXECUTIVES AND ENTREPRENEURS e Path to Financial Peace of Mind Michael J. Nathanson, Jeff rey T. Craig, Jennifer A. Geoghegan, Nadine Gordon Lee, Michael A. Haber, Seth P. Hieken, Matthew C. Ilteris, D. Scott McDonald, Joseph A. Salvati and Stephen R. Stelljes Personal Financial Planning for Executives and Entrepreneurs Achieving Maximizing Financial Rewards Independence PEACE OF MIND Minimizing Planning Risks for Taxes Planning for Others Michael J. Nathanson • Jeffrey T. Craig Jennifer A. Geoghegan • Nadine Gordon Lee Michael A. Haber • Seth P. Hieken Matthew C. Ilteris • D. Scott McDonald Joseph A. Salvati • Stephen R. Stelljes Personal Financial Planning for Executives and Entrepreneurs The Path to Financial Peace of Mind Michael J. Nathanson Jeffrey T. Craig The Colony Group The Colony Group Boston, MA, USA Hingham, MA, USA Jennifer A. Geoghegan Nadine Gordon Lee The Colony Group The Colony Group New York, NY, USA Armonk, NY, USA Michael A. Haber Seth P. Hieken The Colony Group The Colony Group New York, NY, USA Boston, MA, USA Matthew C. Ilteris D. Scott McDonald The Colony Group The Colony Group Boston, MA, USA Hingham, MA, USA Joseph A. Salvati Stephen R. Stelljes The Colony Group The Colony Group Boston, MA, USA Hingham, MA, USA ISBN 978-3-319-98415-5 ISBN 978-3-319-98416-2 (eBook) https://doi.org/10.1007/978-3-319-98416-2 Library of Congress Control Number: 2018957457 © The Colony Group 2018 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifcally the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microflms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specifc statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affliations. Cover image Ⓒ z_wei / iStock Cover design by Austin Linthicum This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland Acknowledgments We would like to thank all of our contributing authors, including Michael ® ® J. Nathanson, JD, LLM; Jeffrey T. Craig, CFP , EA ; Jennifer A. Geoghegan, MBA; ® ® Nadine Gordon Lee, CPA, PFS, CFP ; Michael A. Haber, JD, CFP ; Seth P. Hieken, ® ® ® MSF, CFA; Matthew C. Ilteris, CFP , EA ; D. Scott McDonald, MSFP, CFP ; ® ® Joseph A. Salvati, CFP ; and Stephen R. Stelljes, JD, CFP . We thank our editor, Philip Revzin, for his reviews and guidance. Thank you to Austin Linthicum on the creative design work on the cover and book graphics. Julia Geffen, Faith Hill, Edward Kelly, and Joshua Nathanson provided excellent research and editorial sup- port. We are also grateful to Philip Palaveev for introducing us to the professionals at Palgrave Macmillan so that we can share our work with others. Each of us experiences great meaning and joy as we work with executives and entrepreneurs and share our knowledge with others. We thank the executives and entrepreneurs who have challenged us to bring what we hope is our very best think- ing and planning to their circumstances and to this book. We also thank the many business partners we collaborate with regularly as we seek to solve problems and create better outcomes together. Finally, we thank our families and our colleagues for patiently supporting each of us as we worked on this book. v Introduction Effective fnancial planning is complex, dense, and impossible to reduce to a single, easy-to-understand formula—but please don’t stop reading! We understand the great challenge of writing a book about fnancial planning for corporate executives and entrepreneurs that reads like a best-selling novel, and we love a challenge. Our approach is designed to keep your attention and make sure that, by the end of this book, you have a strong sense of the power of effective, targeted fnancial planning. We will begin by telling you a story about a fctional, but plausible, couple and their family who (spoiler alert!) do pretty much everything wrong in securing their fnancial future. In most cases, they don’t do the things they need to do because they don’t know what they are. Then, we’re going to break down this story in chapters that offer a practical dis- cussion of all the key points. These chapters contain the tools needed to tailor a plan for virtually every circumstance and need. As you will see, there is no single plan that works for everybody—if there were, we’d sell it to you in this book! There is complicated, technical information scattered throughout the book, and we do our best to explain it all. But the best use of this information may be to highlight things you should discuss with your fnancial advisor. All people are different, and there always will be issues and imperfections surrounding generalizations. Let’s start with a defnition of our principal subject matter: executives and entre- preneurs. For our purposes, we will focus on those employees of a business organi- zation who are in a position of leadership or management or who have substantially progressed along a career path toward being in such a position. We will use the term “corporate executive” to describe both “executives” and “entrepreneurs,” though we certainly acknowledge that there can be a distinction, with the term “executives” typically referring to the leaders of larger organizations and the term “entrepre- neurs” often referring to the leaders of smaller, earlier-stage organizations. Our fc- tional characters will illustrate some of these differences. Most obviously, a corporate executive might be a member of an organization’s “C-suite,” which can be extensive in some larger organizations (Table 1). Corporate executives may also include the organization’s President, Treasurer, Executive Vice Presidents, Senior Vice Presidents, Managing Directors, and, in vii viii Introduction Table 1 The ever-expanding C-suite Acronym Title Core responsibilities CAO Chief Accounting Offcer Implementation and enforcement of accounting policies CAO Chief Administrative Offcer Administrative and operational platforms CCO Chief Communications Offcer Public relations and communications CCO Chief Compliance Offcer Compliance with laws, regulations, and ordinances CCO Chief Cultural Offcer Cultural oversight and strategy CDO Chief Data Offcer Data mining, analysis, and utilization CDO Chief Diversity Offcer Human capital diversity CEO Chief Executive Offcer Strategic vision, oversight, and governance CFO Chief Financial Offcer Financial oversight and reporting CHRO Chief Human Resources Personnel a Offcer CIO Chief Information Offcer Information resources CIO Chief Investment Offcer Management of investment assets CLO Chief Legal Offcer Legal compliance, oversight, and issues CMO Chief Marketing Offcer Marketing and branding CMO Chief Medical Offcer Medical elements of product or service offering COO Chief Operating Offcer Operating oversight and effciency COS Chief of Staff Oversight and coordination of management team CPO Chief Procurement Offcer Supply management CRO Chief Revenue Offcer Revenue generation CRO Chief Risk Offcer Assessing and managing risk CSO Chief Sales Offcer Sales force and function CSO Chief Scientifc Offcer Scientifc research, programs, and operations CSO Chief Strategy Offcer Strategic oversight, acquisitions, and dispositions CTO Chief Technology Offcer Information technology and development a Similar titles include Chief Human Capital Offcer, Chief People Offcer, and Chief Talent Offcer 1 some organizations, Directors. A General Counsel and, in some companies, a Deputy General Counsel also would be a corporate executive, as would a marketing or sales executive, a Controller, and the senior members of the human capital team. As discussed below, corporate executives typically are among the organization’s higher-paid employees, are eligible for performance-based compensation arrange- ments, and are likely to own equity or equity-based rights in the organization. They also may have complex employment contracts and relatively extensive benefts packages. We’ll use the term “corporate executives” for people who work for large or small public or private corporations, as well as limited liability companies, partnerships, 2 or other non-corporate entities. Throughout the book we’ll try to account for the relevant variables whenever appropriate. (Again, there’s that key principle: optimal fnancial planning requires that we consider the specifc facts of each case!). What, from a fnancial planning perspective, makes corporate executives different? The answer is complex, refecting the nature of our subject matter. Here are some of the key characteristics that differentiate many (but not all) corporate executives. Introduction ix T hey Are Leaders Who Set High Goals and Worry About Achieving Them This select group includes people with leadership and management skills, often deep education and training, and vast business and life experience. But how do cor- porate executives manage their own fnances? Do they follow the same patterns as others? In general, when it comes to managing their fnances, wealthier people fall into one of three commonly delineated segments: Managers; Partners; and Loners (Fig. 1). Managers Partners Loners Most comfortable assigning Most comfortable working with Most comfortable managing responsibility for their financial others to manage their financial their financial affairs on their affairs to others affairs own Fig. 1 Managers, partners, and loners You might assume that the majority of corporate executives would be Managers, with the minority being Partners or Loners. Yet most tend to be Partners or Loners, with Managers representing the smallest segment of corporate executives. According to a study conducted by Fidelity Investments, fewer than 25% fall into the Manager 3 category, with about 45% identifying themselves as Partners and 31% as Loners. The same study reports that 69% of the corporate executives surveyed worked with 4 a fnancial advisor. Two-thirds of the corporate executives surveyed acknowledged the need for third-party expertise when planning for their own fnancial futures. Yet, two-thirds also wanted to remain directly engaged in the fnancial planning process, as opposed to delegating it fully to others. This apparent paradox suggests a basic reality: corporate executives worry more than others about achieving their goals because of their general knowledge levels, compulsion to set and achieve higher goals, and desire to stay involved in the e xecution process. Some turn to professional advisors to maximize their chances of achieving those goals; and some opt to take on all of the responsibilities themselves, again with the intent of maximizing their odds of success. Either way, corporate executives do trend toward an intensive approach, in which they often set high goals and worry more about achieving them. x Introduction The above survey also asked the executives to identify their more pressing concerns. The results demonstrated greater levels of concerns by corporate execu- tives than other millionaires in almost every single subject area covered by the sur- 5 vey! (Fig. 2). 51% 47% Corporate Executives 45% 44% 43% Other Millionares 41% 38% 37% 35% 34% 33% 30% 28% 28% 28% 26% 25% 24% Fig. 2 What’s keeping corporate executives awake at night? Source: “Tapping into the Millionaire Professional,” The Fidelity Millionaire Outlook Series (2008, 2012). © 2018 FMR LLC. All rights reserved. Used with permission When the fnancial planning dynamic for corporate executives accounts for these concerns, it is far more effective. It is better tailored to identify and achieve all of the appropriate goals and take into account the psychological elements and context of the process. T hey Are Paid More Than Other Employees It may seem an obvious point, but corporate executives often can be distinguished simply by the amount of their pay relative to others in the company. In a 2013 study conducted by the Economic Policy Institute, for the 350 largest U.S. public compa- nies by revenue, the ratio of CEO pay to the pay of other workers was almost 300 to 1—and that ratio did not account for Facebook’s impact because it was considered an “outlier.” If Facebook had been included, then the ratio of CEO-to-worker com- 6 pensation would have risen to over 500 to 1! More generally, according to the Fidelity Millionaire Outlook study, corporate executives were at the top of the list of professional categories among millionaire 7 households (Fig. 3).
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