Case Study

You've Built A Thriving Business. Are You Overinvested In It?

You’ve Built A Thriving Business. Are You Overinvested In It?

The co-founder of an emerging life science company helped grow the business into a highly successful pharmaceutical enterprise. He realized that his increasingly complex holdings called for sophisticated advisory services.

Moreover, the co-founder, while valuing his stock as it represented the successful culmination of his life’s work, had come to recognize that the high level of concentration of company stock in his portfolio was a risk that needed to be addressed. His wealth advisory team recommended building out a diversified portfolio across multiple asset classes to mitigate the risk of that concentration, allowing the co-founder to maintain a significant portion of his company’s stock to capture upside potential. This involved implementing a portfolio of investments with low correlation to the pharmaceutical industry to create a hedge should his specific company or sector experience a sudden or significant downturn. 

Implementing strategies to protect wealth

The wealth advisory team reviewed with the co-founder a series of forecasts about the performance of the investments they intended to build into his portfolio, and evaluated the risk/return tradeoffs of this diversification plan. They also considered advisory suggestions about a number of hedging strategies that had the potential to protect his current concentrated stock position, which had experienced substantial gains. These included option-based strategies that could provide for further appreciation while protecting against losses.

Transferring wealth tax efficiently

The co-founder also knew that he wanted to make the most of his business profits for his family, so he was keen to learn how he could take steps now to provide for his family’s future. The wealth advisory team walked him through the strategy of transferring shares of his company stock to a series of grantor retained annuity trusts (GRATs). This would allow him to move the future appreciation on the shares out of his estate free of gift and transfer taxes. 

The co-founder’s family shared an interest in giving back to their local community and supporting international causes. They took a special interest in improving childhood health and education. After consulting with his tax and legal advisors, the wealth advisory team helped the co-founder create a family foundation, and his family enjoyed becoming involved in making decisions about how funds would be distributed among various nonprofits.

This client and his family continue to seek thoughtful, appropriate financial advice as they look to transition more wealth within the family and consider additional philanthropic endeavors in their community.

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