Case Studies
Here are examples of how we have helped solve specific client problems and assisted in putting their financial affairs in order.
Click on the title to go directly to the case study:
- Employee with Appreciated Stock Options
- Highly Compensated, Busy Executive
- Individual Who Retired Early
- Pension Trustees
- Retiree
Problem:
This person came to us with a significant portion of their net worth in their employers stock options which were granted as additional compensation. Nearly 30% or their net worth was attributed to the difference between grant prices to market price for the stock. The client also had as a goal early retirement. We developed a plan to exercise their options gradually and helped the client decide which to exercise based on the ratio of current in the money value to future potential gains (Black-Scholl model was used). The exercise of the options was considered also in relation to the goal of early retirement with multiple scenarios projected.
Our Solution:
- Devising a strategy to exercise options that were in the money as they were vested and out of the black-out period.
- Fully modeling the tax implications of the exercise.
- Creating a portfolio allocation and investment policy statement to make sure the proceeds of exercise were invested properly to help insure the client’s early retirement.
The benefits to the client:
- The client’s early retirement was nearly ensured through the preservation of wealth generated by the options.
- The risk in the client’s portfolio was reduced to roughly 1/3 that of the employers stock.
- All options were exercised as cashless transactions so the client would not have the risk of holding the stock and having it plummet while owing substantial tax.
- The client was set up in a well diversified portfolio that was fully tailored to meet their long term goals and objectives.
- The client’s peace of mind was greatly enhanced since they no longer had to worry about retirement.
Highly Compensated, Busy Executive:
Problem:
A executive with a advertising firm came to us with a substantial sum of money in cash accounts earning little or no return. The clients had little or no time to properly manage their financial affairs and therefore had no strategy to invest their holdings, had legal documents that were years out of date, and wanted to know if they could retire at a relatively young age and what lifestyle they could expect.
Our Solution:
- Creating detailed cash flow projections and modeled their tax liability. We were able to reduce their tax liability by $10,000 by adjusting the payment timing of some of their deductions.
- Modeling several different retirement scenarios to help pinpoint when the executive could retire, what rate of return they needed to earn on their invested assets and what lifestyle they could expect to enjoy in retirement.
- Creating a prudent portfolio allocation and investment policy statement so the client’s idle cash could be invested properly and in a fashion that would greatly increase the odds they will meet all their goals and objectives. Their long term projected return increased from 4% to 9%.
- Reviewing all insurance and employer benefits to identify potential areas of risk. In particular risks such as premature death, disability, and lawsuits were considered.
- Providing the client with outlines for new wills, and other legal documents and introduced them to an attorney that specialized in estate planning. The client now had a plan to help preserve their significant estate through the next generation and one that met the unique needs of their family
The benefits to the client:
- They were happy to learn they could retire early if desired and could still fund several of their goals (satisfying some long term dreams).
- The client now had good projections for the growth of their net worth over the next few years.
- The non-executive spouse was put at ease in knowing that a premature death would not impact their lifestyle.
- The client’s family was put at ease knowing a solid plan existed to pass on assets at the lowest possible cost.
- The client now had a strong long term approach to the proper management of their significant assets.
- The client now has peace of mind knowing that we are monitoring their financial circumstance on an on-going basis, leaving them to concentrate on their career.
Individual Who Retired Early:
Problem:
A middle aged man and his wife who retired recently came to us from a well known national brokerage firm who could not provide comprehensive financial planning services. The client had a substantial net worth and decided to retire at quite a young age. With the market downturn the client was worried they might outlive their assets or might have to severely reduce their standard of living. The previous advisor did not develop an investment policy appropriate to the client’s goals and their portfolio was not adequately diversified, causing their net worth to decline more than necessary during the recent severe bear market.
Our Solution:
- Preparing a complete financial analysis that considered many different retirement scenarios. We used Monte Carlo techniques to simulate the client’s retirement under varying rates of return and inflationary conditions.
- Properly identifying the clients required rate of return from their portfolio.
- Creation of an investment policy that matched their goals with a minimum of risk and a lowering of volatility.
- Closing the “feedback” loop by re-running their financial projections on a regular basis to verify they were still on track and not at risk of becoming financially insolvent 20 years from now or before age 100.
The benefits to the client:
- The client was put at ease knowing they could enjoy their retirement and maintain their present standard of living.
- The client could concentrate on their retirement activities … not spend time managing their assets.
- The reduced volatility in their portfolio will help them not feel “guilty” about making withdrawals to fund their lifestyle.
- The client knows that as a fiduciary we are guided by their interests and not our own.
- Individualized, timely service not found at larger investment firms.
Problem:
Trustees of a pension plan came to us with issues regarding the management of their employees’ pension. They had been managing the plan on their own and had never developed an appropriate investment policy guided by the needs and goals of the participants and one that followed ERISA guidelines (Prudent Expert Concept).
Our Solution:
- Determining what level of risk the pension plan had the ability to take.
- Identifying a reasonable return expectation based on the plans ability to take risk.
- Creating a detailed investment policy statement.
- Reducing the risk of the plan holdings by including many new asset categories in their policy.
- Targeting the payout of benefits to employees likely retirement dates.
The benefits to the client:
- Significant reduction of risk to the pension’s beneficiaries.
- Trustees now had an investment process that conformed to the ERISA Prudent Expert theory.
- Personal liability to the trustees was reduced.
- Employees could feel more confident that their pension values were invested appropriately.
Problem:
A retiree and his wife engaged us to help them decide how to invest the various 401(k)s and IRA's they owned. They had been hearing so many bad things about equity investments that they got out of the market and allocated their entire retirement savings to a money market fund. They were referred to Stonegate, and called us to develop a cohesive investment and financial plan. Their greatest financial fear was outliving their money.
Our Solution:
- Learning more about their goals, this included purchasing a second home, and creating an investment strategy that they would stick to through good and bad markets.
- Determining what rate of return they needed on their portfolio to avoid running out of money.
- Providing a detailed cash flow projection to help them understand how much they could afford to spend each year, without risking running out of money prematurely.
- Each month, we wired a set amount to their local bank, which they used to cover their living expenses.
The benefits to the client:
- Allowed them to stop worrying and second-guessing their investments decisions and, to focus on their grandchildren and other life interests.
- As a Stonegate client, they are able to meet, call, fax or e-mail from anywhere in the world and receive an answer to any financial question.
- Each quarter they receive a report providing a concise summary of the performance of their portfolio.
- The client clearly understands their financial life.
- We present our findings in a manner that is easy to understand.
