Insights
By: Matthew Brown
Complexity is the biggest wealth planning challenge for serial CEOs
Unpick pay structures and pensions before making plans – Matthew Brown
While not usually themselves the founder, a serial CEO is someone who takes the reins of an already established business for a few years – usually with a set of clearly defined objectives – and moves on to do the same at a number of successive companies. It can be a hugely rewarding career model. It can also bring with it certain unique wealth planning challenges, mostly due to the financial complexity this type of career can entail, in particular, remuneration structures and pensions.
The remuneration structures often include long-term incentive plans (LTIP) and other equity-related incentives. Some may pay out immediately and others may take a long period to come to fruition. It is important to establish how the equity based incentives fit into an individual’s over-arching plan. For example, they may be needed to secure an appropriate level of financial comfort in retirement. Equally, should they be in addition to personal needs, they can be earmarked for intergenerational wealth transfer. In this instance, structures may be considered to hold shares once the LTIP has vested.
The interplay between existing investments and incentives is another important consideration. For example, an individual may be taking on significant risk by holding a sizeable level of their personal wealth in the equity of a single company. Should they be taking a more conservative approach with their other investments and pensions until the incentives vest and can then be diversified and de-risked?
Pensions are the other main source of complexity for the serial CEO. Throughout the portfolio of their various roles up to and including their chief executive posts, they are likely to have picked up several pension arrangements. As well as being many in number, there may be added layers of complexity, such as one or other pension having an international element. A pension may also be ‘unapproved’, meaning that it does not share quite the same tax advantages as a conventional workplace pension scheme or that it is unfunded and simply a promise of future income in retirement
The crucial thing for a wealth planner is to understand how all the pensions come together, how they work against a given lifetime allowance and how future pensions remuneration might fit in. In other words, establishing what someone has in terms of their historic pensions and deciding when is the right time to take the pension in order to maximise tax efficiency.
As with any wealth planning project, the first thing to do is establish the short, medium and long-term needs and objectives of the individual and their family. Understanding that there is some work to do to unpick the complexity that a portfolio career can present is the first hurdle. Taking the time to work through it to achieve optimal outcomes, is the next.
Matthew Brown is a Director in Stonehage Fleming's Wealth Planning Team. To read more articles from him, click here.
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