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How to create an IPO wealth management plan after your company goes public

After a company goes public, its employees will need to reassess their financial goals. Here are four strategies for creating an IPO wealth management plan after a sudden influx of wealth. First, set your financial goals and priorities. Second, take appropriate risks and diversify. Next, get an estate plan. Finally, hire people to help you.



Many big-name companies have taken the plunge recently and gone public. The move to unroll an initial public offering or IPO, is often a lengthy decision process that follows years of hard work building up a brand. The fallout can be sudden, requiring its employees to create an IPO wealth management plan.

The dramatic shift of going public can wreak joy and havoc — and everything between — on your finances. Uber’s (NYSE: UBER) much-anticipated IPO, for example, left the company reeling from a $5.2 billion loss in its second quarter. On the other hand, plant-based meat substitute manufacturer Beyond Meat (NASDAQ: BYND), saw its stock soar 163% the day of its IPO.

This kind of post-IPO uncertainty can be scary for individual employees, whose financial futures now depend on whether the company sinks or swims.

Show me the money

Employees must reassess their financial goals after their IPO. Regardless of the outcome, your finances will change — which is why IPO wealth management is so important.

If all goes well, this can be an exciting time for employees. Their net worth can go from theoretical to real. An individual will want to adjust his or her financial plan — including retirement goals, tax and estate planning, and more — since new priorities and concerns emerge with new wealth.

Let’s say, for example, you exercise options as an early employee. Those shares may qualify for special tax treatment under Section 1202, which excludes capital gains from federal tax. Adjusting your financial plan to take advantage of this code could add up to hundreds of thousands of dollars in tax savings.

On the flip side, you may face IPO wealth risks. Employees can be left disappointed if the stock price goes public at a much lower value than planned. During the uncertain time post IPO, known as a “lock-up period,” internal stockholders are prevented from selling their shares for 90 to 180 days. Employees essentially are stuck in limbo, unable to do anything if they see the company succeed or fail.

It’s important for employees to start planning their IPO wealth management before and during this interim period, so they can turn uncertainty into a plan for the future.

The case of the Twitter millionaires

Let’s take Twitter’s (NYSE: TWTR) IPO as an example of what can happen to employees after a company goes public.

Twitter went public in 2013, asking $26 per share. These shares rose to almost $45 by the end of trading on the first day, making 1,600 or so Twitter employees millionaires. At the same time, those sudden millionaires accrued $479 million in taxes for the state of California alone.

The post-IPO equity had obvious advantages for its beneficiaries — especially since they were living and working in San Francisco, where the cost of living is high. Their new wealth also brought uncertainty; these millionaires now needed to protect their wealth, minimize their taxes, make decisions about buying property, plan for their estates, and so much more.

Plus, the share price fluctuated from about $14 to $70 after that first day. While Twitter’s employees made out well, it’s easy to imagine a different scenario. That’s why any employee planning to purchase stock in their company needs to be educated on the possible outcomes — and have an IPO wealth management plan in place. They have to be able to manage the risk by diversifying while staying in control of their personal finances.

Twitter went public in 2013 with an asking price of $26 per share. (Photo by DepositPhotos)

Reassessing your financial goals

New wealth is exciting, but IPO wealth risks need to be planned for. These four strategies will help secure your financial future after you IPO:

1. Set your financial goals and priorities.

Your well-laid plans can go out the window when sudden wealth arrives. It’s important to create an IPO wealth management plan to guide your finances into the future rather than letting the chips fall where they may.

When setting post-IPO goals, start by thinking about where you want to be in 20, 30, or even 40 years. You can then work backwards to see how your new wealth can help fund your vision. This is a much better approach than starting with your wealth and trying to allocate the pieces, which could lead to decisions based on short-term rewards rather than long-term returns.

2. Take appropriate risks and diversify.

You just hit a home run, and a part of you thinks that you won’t hit another one — at least not for quite some time. Separate yourself from that urgency and keep the clear, rational head that led you here by diversifying in ways that will help you meet your goals.

After your IPO, you’ll keep participating in the company’s success — if the stock price continues to rise — so there’s no need to put all your eggs in this one basket. Countless companies have gone from IPO to nothing in a matter of months, and you need to look after your own interests.

3. Get an estate plan.

You may not have given your estate much thought before, or you may have made a basic plan that doesn’t account for your new wealth — or any potential IPO wealth risks. After a successful IPO, it’s time to create an estate plan or review your existing one in light of your new circumstances.

A good estate plan opens up strategic opportunities for philanthropic giving. It also offers opportunities to plan ahead for tax savings if the estate is expected to be above tax exemption. It allows you to look after your future so you can focus on the present.

4. Hire people to help you.

After your IPO, you will need reliable financial advice. The more money you have, the bigger the mistakes you can make. A good financial team will answer any questions you have and ultimately help with your IPO wealth management.

You should hire a fiduciary financial planner that will advocate for you and your goals. In addition to helping with the tips above, a planner can also refer you to good accountants or estate attorneys and coordinate your financial team. You’ll also want to hire a good tax professional early on — it can save you from expensive trouble down the road.

Look to the future

If your company has undergone an organizational shift, your fortune has most likely been affected. It’s time to reassess your financial goals, moving to the next phase of your financial future well-armed, with a clear head, and ready to make the most of it.

(Featured image by DepositPhotos)

DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.

Daniel Lee CFA, CFP®, is a financial planner dedicated to helping busy people make intelligent financial decisions by providing clear, straightforward advice free from conflict of interest. He is currently the head of Plancorp’s San Francisco office. Plancorp, is a full-service wealth management company serving families in 44 states. Daniel is an award-winning instructor at UC Berkeley Extension and is a member of the CFA Society of San Francisco and the National Association of Personal Financial Advisors (NAPFA).