Corporate executives typically build their wealth through the accumulation of their employer’s stock. They are often compensated in the form of restricted stock shares or stock option grants, which give them the right to purchase shares. While many executives benefit financially from this build-up of employer stock, they are often extremely limited in their ability to sell the stock.
Companies normally implement a corporate trading policy that designates blackout periods, or specific time periods during which executives cannot sell their stock. These blackout periods can cover as much of nine months out of the year, leaving your client with limited windows to sell their stock.
A solution for corporate executives, or any corporate insider who is bound by corporate blackout periods, is an affiliate transaction plan. Affiliate transaction plans utilize SEC rule 10b5-1 which allows insiders to transact in their company shares at any time, not just during open trading windows. An affiliate transaction plan provides:
- An affirmative defense against insider trading as long as it is implemented during an open trading window and at a time when the insider is not in possession of any material non-public information.
- Outlines the number of shares be sold and defines the event that triggers the sale, such as a specific date or price target, as well as the length of time that the plan is in effect.
- When the triggering event that is defined in the plan occurs the stock can be sold at no consequence to the executive, regardless if it occurs during a blackout period or while he or she is in possession of material non-public information.
- Are flexible and can be tailored to meet your client’s liquidity needs. For example, the plan can be designed to sell stock to raise a specific dollar amount to cover his or her child’s college tuition at a precise time.
Affiliate transaction plans can also be used by company insiders to buy stock, exercise stock options, or facilitate other transactions including certain hedging and monetization strategies. Through my affiliation with Raymond James, I provide corporate clients with a template of affiliate transaction plan documents that can be modified to include your client’s specific objectives. The plan must be presented to their employer’s corporate counsel for approval before it can be implemented.
Feel free to call or write to me for more information. (Material prepared by Raymond James Wealth Solutions Department).
This information is not considered a recommendation to buy or sell any investment.
Written by
Mitchell E. Kauffman, MBA
Certified Financial PlannerTM
Masters of Science in Financial Planning
Mitchell Kauffman provides wealth management services to corporate executives, business owners, professionals, independent women, and the affluent. He is one of only five financial advisors from across the U.S. named to Research magazine’s prestigious Advisor Hall of Fame in 2010, and among a select list of 100 over the past 20 years.
Inductees into the Advisor Hall of Fame have passed a rigorous screening, served a minimum of 15 years in the industry, acquired substantial assets under management, demonstrate superior client service, and have earned recognition from their peers and the broader community.
Kauffman’s articles have appeared in national publications, and he is often quoted in the media. He is an Instructor of Financial Planning and Investment Management at the University of California at Santa Barbara, Santa Barbara Community College, and Pasadena City College.
For more information, visit www.kauffmanwealthservices.com or call (866) 467-8981. Kauffman Wealth Services is an independent Registered Investment Advisor and serves clients from two office locations: 140 South Lake Avenue, Pasadena, CA 91101 and 550 Periwinkle Lane, Santa Barbara, CA 93108. Securities offered through Raymond James Financial Services, Inc., member, FINRA/SIPC.
