The Flow Financial founder talks about supporting women in the tech industry, IPOs and restricted stock, and what it means to be a financial life planner.
Our guest on the podcast today is financial advisor Meg Bartelt. She started Flow Financial Planning, a fee-only practice, geared toward providing financial guidance for women in the technology sector in 2016. Prior to starting Flow Financial, Meg worked for a fee-only Registered Investment Advisor in Virginia and was a technical writer for 10 years in the San Francisco Bay Area. She received her master's degree in financial planning from Golden Gate University, and her Bachelor of Arts in economics from Wellesley College. She is also a certified financial planner.
Background
“How to Prepare for the Surprising Costs of Motherhood,” by Stacy Rapacon, money.usnews.com, Nov. 5, 2018.
Niche Marketing and Life Planning
“The Who, What, and Why of Hiring a Business Coach,” by Meg Bartelt, xyplanningnetwork.com, Dec. 15, 2016.
“The Efficiency Benefits of Niching From the Start to Launch an Advisory Firm,” by Michael Kitces, Kitces.com, July 23, 2018.
“My Takeaways From #GHC18. And Yes They’re All About Money,” by Meg Bartelt, flowfp.com, Oct. 2, 2018.
“What Can You Negotiate For? Pretty Much Anything. What SHOULD You Negotiate For?” by Meg Bartelt, flowfp.com, Jan. 20, 2021.
EVOKE: A Life Planning Methodology
“George Kinder: A Financial Plan Needs to Be a Life Plan,” The Long View Podcast, Morningstar.com, Jan. 20, 2021.
Investments and Financial Planning
“If You Work in Tech Your 401(k) Is Probably Not Enough,” by Meg Bartelt, you.women2.com, June 22, 2017.
“Pay Attention to Your Employee Benefits,” by Meg Bartelt, you.women2.com, April 4, 2018.
“If you Have RSUs and Your Company Just Went Public, You Miiiight Want to Check Your Tax Situation,” by Meg Bartelt, flowfp.com, May 24, 2019.
“Lessons From Airbnb’s IPO,” by Meg Bartelt, flowfp.com, Dec. 21, 2020.
Christine Benz: Hi, and welcome to The Long View. I'm Christine Benz, director of personal finance for Morningstar.
Jeff Ptak: And I'm Jeff Ptak, chief ratings officer for Morningstar Research Services.
Benz: Our guest on the podcast today is financial advisor Meg Bartelt. She started Flow Financial Planning, a fee-only practice, geared toward providing financial guidance for women in the technology sector in 2016. Prior to starting Flow Financial, Meg worked for a fee-only Registered Investment Advisor in Virginia and was a technical writer for 10 years in the San Francisco Bay Area. She received her master's degree in financial planning from Golden Gate University, and her Bachelor of Arts in economics from Wellesley College. She is also a certified financial planner.
Meg, welcome to The Long View.
Meg Bartelt: Thank you.
Benz: Thanks for being here. We want to talk about your specific focus in your financial-planning practice. Many in the financial advice industry have embraced this trend toward specialization, especially given the evolution of financial advice into an all, sort of, digital virtual format. Can you talk about how you arrived at your firm's focus on women in the technology sector?
Bartelt: The most obvious origin of that niche is that I used to be a woman in the technology sector myself. Financial planning is my second career. So, when I launched my firm or in anticipation of launching my firm, I had fully drunk the pick-a-niche Kool-Aid. So, I knew I needed to pick one. And just from a perspective of affinity, what community do I already know? I already know members of that community. I already know who these people are, what are the challenges, what are the opportunities. So, women in tech was sort of a natural choice. I did, in fact, first choose to focus on working mothers in the tech industry, because I was also a working mother at that point. But that particular twist on it didn't really stick as one working mother in tech eventually told me, “I'd love to work with you, Meg, I just don't have any time.” So, I did transition actually to women in their early to mid-careers in the tech industry. I wanted to explicitly exclude people approaching retirement.
Ptak: What are the key commonalities from a personal financial standpoint among women in tech? What are the common problem spots in their financial plans if you had to pinpoint them?
Bartelt: Well, there's two aspects to that demographic. There's the in tech and there's the women part. In tech means that a lot of them are dealing with equity compensation, restricted stock units, employee stock purchase plans, stock options, which most people have never dealt with at all until they get into the tech industry. So, they have no context for understanding this complex form of compensation. Also, a lot of these people are making--at the age of 23, they start making more than their parents do. And so, they have no one--and I've had people say this to me, “I have no one in my life that I can go to to talk about this. It would be embarrassing for me to talk about the amount of money I make.” So, there's that sort of behavioral relationship aspect. And then, within the tech industry, there's also a lot of commonality in terms of how 401(k)s work and employee benefits packages. And these are hugely influential for people. I don’t know if it’s especially earlier in their career, but certainly earlier in their career making the right choices around 401(k)s and employee benefits can have huge financial impact on people.
The reason I targeted women, because, obviously, stock options work the same regardless of your gender identity, is because it is a challenging industry to be a woman in much like the financial-services industry. And so, I get to really honor that challenge and be focused on their career. And honestly, a lot of women don't see themselves in tech for the rest of their career. So, we're starting to have a lot of conversations with clients around leaving tech. And that seems to be a fairly common and growing focus among our women-in-tech clients.
Benz: Why is that happening?
Bartelt: Well, if I had to generalize, I would say the work-life balance is pretty rough in that there is no balance in the tech industry. Now, of course, quarantine has made that even worse--it doesn't matter what industry you're in, work-life balance has taken a hit from quarantine. But working in the tech industry is just really demanding hours-wise and a lot of our clients are just realizing that's not what they want for the rest of their lives. And especially if they've had an opportunity to build up a treasure chest, either just because they've saved a goodly amount out of their nice healthy income every year or they've had a windfall, like going through an IPO, they now have the choice or the flexibility to make a big change in their life, like changing careers and see what comes next without fear of, “Oh, God, I'm not going to be able to pay my bills.”
Ptak: I was just going to follow up to ask, where are they headed and what lessons do you think there are in that for the tech industry, so that it can do a better job of retaining talented women?
Bartelt: Oh, that second part of the question I feel might be above my paygrade. It'd be a wholesale cultural shift in the tech industry toward not expecting people to work more than the 40-hour workweek. But I don't know if that's realistic. Some of them are simply leaving. And because they have a nice financial cushion, they haven't decided what they're going to yet. A lot of them feel as if they don't have the mental bandwidth, the mental space to make a big decision about where they're going next until they can get out of the current grind. So, some people are just taking the first step to get out. Other people are deciding to go back to school to get a graduate degree in a new direction. Some of them want to become science teachers. A lot of them, I think, are interested in going into business on their own. Some of my clients have, in fact, started their own technology startups, but others are leaving with the idea of becoming consultants, so they have ultimate control over their own calendar, over their own schedule, and dial both the hours and the income up or down according to their own desires, not their corporate overlord.
Benz: So, one dimension of your practice is that you work with clients on their career development, because you are looking to help women who are earlier or in the middle stages of their careers. So, can you talk about how that sort of coaching works? How you would work with clients through a period like this, where they've decided they're burned out, they want to make a change? How do you help them?
Bartelt: There are a few things that come to mind with that. One, I am not a career coach and I don't pretend to be, but I have intentionally cultivated relationships with a handful of career coaches who work specifically with women in tech. So, when I hear a client, either explicitly or implicitly, express that they are struggling with what they want to do in their career, I will ask them, “Hey, have you ever thought about working with a career coach? Would you like me to connect you with one or give you some names to explore yourself?” So, one is just identifying the need for some career coaching. And then, I have these resources that I can send to them, in much the same way that if they need tax work, I would connect them with a CPA.
Another focus of our work together is to recognize that the younger--or rather, the earlier in your career you are--your biggest asset is your human capital or your ability to earn money for the rest of your life. So, instead of--I've had this conversation a lot of times--instead of socking away that extra $5,000 into an IRA every year, is there some way you can use that money to improve your career, improve your earning ability, make a career change? Can you get a degree? Can you take a class? Can you go to a conference? Do some sort of networking? It is eminently reasonable and even good to direct some of your savings capacity, in fact, to growing your career into something that will either be higher paying or more satisfying.
And thirdly, I would say that the desire to leave tech, it's a very specific desire, but it is just one more example of a giant transition in a client's life. And we deal with transitions of other sorts all the time. As far as I understand it, this industry is sort of predicated on the retirement transition. So, it really comes down to helping the client identify for themselves what is of core value to them. What does that ideal life look like to you? And what are the steps you think and what are the steps I think you need to take to help bring that to fruition? So, I don't have a checklist of, well, to leave tech you need to do steps one through 10. A lot of it is just exploring what this possible transition looks like for the client and then making sure that all the technical things are addressed, like what are you going to do about health insurance if you quit your job? Do you have proper cash flow to support yourself as you figure it out? Those sorts of things.
Benz: In your blog, you recently wrote about the levers that people have when negotiating for new positions. And at the top were quality of life and quality of work items that employees could negotiate for salary and employer stock were on your list, but below those quality of life and quality of work. So, can you talk about some of those things? I thought that was so interesting, some of the things that you urge your clients to go for, to ask for, if they're negotiating a new position, or maybe a new job within the same company?
Bartelt: The reason I put those quality of life and quality of work categories on top is because everyone defaults to more money. That's what you negotiate for. There's lots of research showing that more money does not make you happier. And ultimately, everyone's goal in life with whatever decision you're making is to be happier. And money has a limited ability to make you happier. And in the tech industry, for the most part, people are already making gobs of money, either salary or bonus or equity compensation. I don't want to be too broad in my statement. There are certainly people who need more money for one reason or another. But if you don't truly need it, then really think about: “What could I get out of my job that would actually make me happier?” And most of the time that is going to be things that improve your work-life balance, things that improve your ability to enjoy your job.
I certainly think in the FIRE community--the Financial Independence, Retire Early--one sense I get from that movement is that people want to become financially independent and be able to retire because they don't like their work. Well, what if you could negotiate something that would actually make you enjoy your work? Then it wouldn't be a sacrifice to go to work, you'd actually want to. So, what are those things? Having every Friday off or six-hour workdays or having a mentor assigned to you who can help you scale the corporate ladder? Whatever it is, I'm not a negotiation expert. I actually just culled together many of those suggestions from a bunch of colleagues. But I was hoping really to just expand people's thinking about what can you expect to get out of work? It's not just money.
Ptak: You've obtained the registered life planner designation. You wrote about how that brought a new dimension to your work. Can you talk about how that has worked in practice? For example, how your conversations with clients have changed?
Bartelt: So, I got the designation officially in October of last year or something. And I've been going through training for about a year prior to that. And to become an RLP there is a specific technique that you are taught, the EVOKE technique, and that is a series of meetings with a series of questions and exercises. And I certainly have taken many clients through that very specific technique to help them identify what is their ideal life and what are the steps they need to get there--not in five years, not in 10 years, but anywhere from three months to two years from now, so sometime in the very near future.
But I have found that, as helpful as that specific technique is, the biggest impact that training had on me and I think the biggest value I now bring more of to my clients is simply the way I show up in relationship to them. Two of my colleagues and friends who went through the training with me, we now have a tagline of empathy first. That is what we start all of our relationships with, all of our conversations with, is to put ourselves in our clients' shoes, no matter what's going on and to leave space--I mean, literally to be quiet while people are talking. And this results in a lot more people saying that it feels like therapy, not because I'm a therapist or present myself as one, but just because most people aren't accustomed to being listened to so attentively, so exclusively. And so, that's been the biggest impact, I think, is just how I communicate with clients, how I am silent and let them say their piece and how I really start with empathy.
And also, I've taken to literally starting every meeting with asking them to identify what are the three most essential elements of your ideal life. It can be a 30-second conversation, but ground every conversation, every technical decision in what's truly important for you to have in your life. OK, now, let's go talk about what you're going to do with all that company stock from the IPO.
Benz: You mentioned earlier on, Meg, that your original thought was to focus your business on working moms in tech. Can you talk about your experience helping clients navigate motherhood along with their careers and how your own experience as a mom has helped shape your approach there?
Bartelt: I would say my own experience as a mom, the biggest result there is, I tell women who are about to become mothers, “If two weeks into this, you find yourself banging your head against the wall at 2 a.m. because you are so exhausted and hopeless, just know that you have company. This is really hard.” But that's more from a personal perspective, and not because I'm equipped to comment officially, but becoming a mother is physically and psychologically really difficult. And so, I do like to honor that as women approach becoming a mother and then when the baby is officially there.
From a more technical or more official financial planning perspective, we do have checklists of things that we want to go through with clients when they decide they want to become a mom or become a parent, even if they're not a parent yet, things like life insurance. And when they are pregnant, and when they are approaching maternity leave, also a checklist of things like, let's explore your company's parental leave policy--how much time are you going to get off? What is paid? What is unpaid? What is your cash flow situation going to be like when you're taking parental leave? Thankfully, especially the big tech companies are for the United States quite generous in their parental leave policies. You can take three months paid leave, and then you can take another three months unpaid leave. So, cash flow is typically not too problematic for my clients.
I will say nowadays, it's really, in non-COVID times discussing childcare would have been a matter of, how much is that going to cost per month? With COVID around, it's a much less-certain discussion, because it's not “how are you going to afford that extra $2,000 a month in childcare?” It's, “are you even going to put your child in childcare?” And maybe you and your partner should stagger your parental leave so that you don't have to think about childcare until eight months after birth instead of three, or something like that. But that is a challenge that I don't have any good answers to, just as we don't have any good answers to most of the COVID-related challenges.
Ptak: I wanted to shift back to the story of how you built your firm. You've written candidly about just how challenging it was to get your firm up and running in your early years before you built critical mass. Can you talk about that period and the steps you took to build up your client base?
Bartelt: So, I have written candidly about that. Because the first year especially was just terrifying and stressful and I had no assurance that this was going to work. And thankfully, I had people in my life who were way more confident in my eventual success than I was, who kept me going. So, I either by marrying the right guy 13 years prior--or I guess at that point, it was probably like 11 years prior--or hiring the right business coach, or joining the XY Planning Network, I had surrounded myself with people who could give me the sort of encouragement I needed to just keep plugging, reassurance that this is going to work. It just takes time, especially if you're running an entirely virtual practice, as mine is and has been since the beginning. You can't go out and have coffee with people if you're running a virtual business, as I suppose lots of planners are finding this last year. And so, if you need to establish both presence and credibility online, it takes a while. People need to see your name over and over and over before you even register in their mind when they start thinking about finances. But I just plugged away. I had a weekly blog post and then I participated in Facebook forums dedicated to the women in tech community. And as Christine knows, I would apply to speak at the Grace Hopper conference, which is the world's largest conference for, I think they call it “women technologists.” So, just finding ways to go to where women in tech already were gathering and try to provide value there.
I've never considered myself a "salesperson." So, the way I did sales and still do sales is, “Here, let me just give you a bunch of value. And if you happen to perceive that that is valuable enough and want to work with me, great.” But it took me, I think maybe it was 10 months in when I got my first expression of interest from someone I didn't have at least a second degree social connection to. It was just someone who had seen a blog post. And at that point, I realized, “Oh, 10 months of nonstop content marketing has finally--like the flywheel has finally started to move.”
Benz: You mentioned XY Planning Network, Meg. Can you talk about what being part of that network entails?
Bartelt: I think it's evolved a lot, at least in the specifics since I joined. I joined a little over five years ago. I was member 100 something. And now they have 1,500 members, and a lot more structure and a lot more structured offerings to help people launch their own firms. But even when I joined, the reason I joined them is that I do not consider myself particularly an entrepreneur. I didn't feel as if I was able to figure this out on my own and the idea that I could join this professional organization who was going to take me by the figurative hand and say, “OK, now do this, and now do this, and now do this, and then, voila, you have your financial planning firm,” was so necessary for me. Helping me get initial registration, which was a complete black hole to me and then, helping me--they didn't help me find my website designer, but certainly made me realize how important it was to have a good website and how important it was to have a very targeted niche. And the community was also extremely helpful, just other people who are more or less in my same shoes, maybe a year or two ahead of me, but oftentimes, exactly where I was in terms of stage of launching. And it's continued to serve an equivalent purpose. The community is really why I stay. And they also offer discounts on tech solutions and that sort of thing. So, I think actually in a direct, return on investment dollar wise, it's actually gotten better over the years because I benefit from more of the technology that they offer or offer discounts on, but it was and still is the community that is the primary value I get from belonging to XYPN.
Ptak: You've taken part in the Grace Hopper conference on several occasions, which is a mega conference for women in tech. Can you talk about the conference, your experience at it, and how you hit on that as a potential way to attract clients to your firm?
Bartelt: I don't remember the initial aha moment of, “Oh, I should apply to speak there.” But I applied and I'm like, “There's no way I'm going to be accepted, because they're just going to see me as some sort of sleazy financial salesperson.” But, yeah, they did accept me. And I think my first presentation there was a 20-minute talk on stock options--try to compress everything you know about stock options in the 20 minutes. It was probably not the world's best presentation. But it was a fascinating experience to be in this gigantic conference. I think the first year I went, maybe it had 15,000 attendees. And then the second year was 18,000. And then the third year was 22,000. Just unbelievably large. And they were almost entirely women. You go to any professional--well, I won't say any--I've been to financial planning conferences and I've been to technical conferences. And typically, the line to the ladies' room is real short. So, it's just visually, I was kind of gobsmacked.
As a financial planner at a technology conference, I honestly did not attend that many sessions. I wasn't a normal conference attendee. The sessions I'd attend are more around career issues because that is something that, as we previously discussed, I know is very important to my clients, and something that I am not an expert in. But the reception I got and have gotten every year by people who attend my talk has been amazing. I'm swarmed by 20 women after the presentation who wanted to talk about their financial situation. And oftentimes I'll arrange to meet people at other times during the conference to talk with them about their financial situation.
So, it's been really great. I think I've maybe only directly gotten one client from it. And I've never seen it as a "prospecting effort." It was more of just a building credibility, building my platform, getting my name out there, building visibility. And I think it's definitely worked in that regard. But you go to Grace Hopper, and you keep your finger on the pulse of what it's like to be a woman in your early to mid-career in the tech industry, which is important for me to be aware of.
Benz: I want to delve into that a little more about the investments that your clients have. But before we get into that, I wanted to ask about your business model, because you use what's called a fixed-fee model. So, can you talk about how that works for clients who hire you on? How do they pay? How does that work?
Bartelt: The first notable thing is that I do not charge by percentage of assets under management, which is still the industry standard. And one of the primary reasons I do that is because of the kind of people I want to work with. I want to work with women in their early to mid-careers in the tech industry who have great incomes, but maybe not necessarily a bunch of assets. And also, their existing financial assets are often not the most influential part of their financial life. So, I really want to stay away from any messaging that would convey to them, “Oh, hey, your investment portfolio is the most important thing in your world, and you should be focused more on that than anything else.” So, both from a practical perspective of these people might not have assets and also even if they did, given their stage of life, I don't want to overemphasize its importance.
I have always charged a fixed fee. I started off by charging X dollars per month, which smacked more of what we might call a subscription fee. But now, I quote an annual fee. You come to me and I say “OK, based on your circumstances, your fee for the first 12 months will be $10,000.” And I like doing that. I feel good about quoting fees like that, because it gives people predictability. They know what they will be paying me every month for the next year. It will not vary, no matter what happens to them. I also feel good about how transparent it is.
It makes it harder. I actually just had a client who expressed some misgivings because her portfolio has grown so much in the last year that when I recalculated her fee at the end of 12 months, the dollar amount went up a bunch. Now, if I had been charging her just 1% and debiting it from her managed accounts, it's still 1%, but it turns out the dollar amount is way bigger. Right now, it is still very important to me when my clients see that they are paying me $10,000 a year or $800 a month, they get to do that value calculation on a regular basis inside their head--is my work with Meg still worth this much money? It makes it a little bit more difficult, because dollars are harder to swallow than percentages. But it's important to me. It's how I can feel good about the fees I do charge.
My first client was a young couple--they were 25 when they signed on, and they had a net worth of, I don't know, $30,000. But they had both just started working in the tech industry and between them were making $300,000. And so, having a fixed fee, a flat fee, I don't even know technically what it's called, but a fee that they could afford out of income as opposed to assets meant that we could be a good match--I could work with them, I could get paid for the value I'm providing. They could receive good value. The fixed fee is just a better match for the kind of people I want to work with.
Ptak: Maybe we'll shift and talk investments. One focus of yours, which you've already referenced, because of your connection to people working in the technology sector is employer stock. And so, maybe you can tell us what are the most common forms of employer equity that you see in your clients' portfolios these days? I think that you already alluded to a few of the common equity schemes, restricted stock options, but maybe you could elaborate a little bit on that.
Bartelt: I would say the most common I see is restricted stock units. Certainly, all the clients we work with in public companies, that is what stock compensation is. They might also have an employee stock purchase plan. That's not as common. And also, given the statutory limits of how much stock you can actually acquire in an ESPP, it's a much smaller part of their financial picture than RSUs can be. My clients can double their salaries in RSUs each year. The RSU vestings can be hugely valuable for my clients.
Clients at private companies, but well-established private companies… Like up until last December, we had a bunch of clients who worked at Airbnb, that was still a private company. But Airbnb had been issuing exclusively RSUs for several years. So, big private companies and public companies, RSU is by far the most common. And then, if you are working at smaller private companies, then it's going to be stock options. Like, really early stage, it's probably going to be incentive stock options, eventually that transitions into nonqualified stock options and then, the final stage before going public is issuing RSUs.
Benz: You've helped a number of your clients through the IPO process, including most recently you mentioned Airbnb. What have been some of the key takeaways from that experience of dealing with IPOs that your clients have?
Bartelt: Wow, yeah. One of them is just be prepared for chaos, especially the IPOs that are going on nowadays. It seems every company is doing an IPO a little bit different than any other company has ever done it in history. It used to be a company goes IPO, there is a six-month lockup after the IPO and if you're an employee, you can't do squat with your company stock until the end of that six-month lockup. Maybe that is frustrating to you, but it does mean that you have six months of preparation before you can actually push any buttons, pull any levers. And one of the ways that's really manifested itself in the opposite is when Airbnb went IPO, they allowed stockholders to sell 15% of their holdings in the first seven days of trading. Well, there's no price history at that point. Airbnb went out at $68, priced it at $68. I think it first started trading at $155. Most of my clients would have been happy to get $80, like $80 was their fantasy value. And then, the very first price that can sell out is damn near twice that.
So, the fact that these IPOs are being administered differently means that you just have to be really prepared to not know what's going to be happening and just adjust--it feels a bit like some sort of Karate Kid reference--just flow with whatever is happening there. Even in an administrative sense, because Fidelity administered Airbnb's IPO, and it was chaos the first seven days. Cost basis was being reported incorrectly, not all the tax lots were being reported. Their existence was not being reported all the time. Sometimes you can sell online, sometimes you had to call in and wait for hours on the phone to do things. Thankfully, having walked with a client through the Palantir direct listing in September, which was also an administrative nightmare, because clients actually could not access their accounts for about the first six hours, which was very stressful. I at least knew enough to warn our Airbnb clients to like, “I don't know what form it's going to take, but most likely, this is going to be a cluster. So, just prepare yourself for an administrative nightmare.” And it kind of was for a lot of our clients. I certainly had no idea what form it was going to take. But it did take some form. And we're now working with DoorDash and also with Squarespace, and who knows how that is going to act. At least DoorDash, I believe--we haven't really dug into it too much--is going to be a more traditional just six-month lockup. But at least knowing the price level when you start making hold and sell decisions is really helpful. People going into Airbnb's first seven-day trading window had no idea what the price was going to act like.
Ptak: I just wanted to ask about some of the clients you work with who aren't quite at that stage where their employer is going public, perhaps the firm is still public. And then, of course, one of the issues I'm sure you help them manage through is value in the absence of price discovery, I suppose you would say, where information might not be as readily available about what their ownership is worth. And so, how do you help your clients make smart decisions about those positions in situations like those?
Bartelt: And just to be clear, you're talking about making those decisions when the company is still private?
Ptak: Exactly.
Bartelt: This is a very common conversation we have with clients. One of the ways I initially frame it is actually a framing I got from Wealthfront's equity and IPO guide, which I really like, and I oftentimes refer people to it to learn more about how to think about equity. But it says there are two good times to exercise options. One, really early--the company is seed stage or done one round of fundraising after that, but basically, it's very cheap. The options are still priced cheaply, the value of the stock is still really cheap. So, you don't actually have to put much money at risk in order to exercise your options. On the flip side, most likely, you're going to end up losing this money because most startups go nowhere. So, it's high risk, but the amount of money you're putting at risk is low.
The other good time to exercise is really late in the game, when the risk of losing the money is lower, because the company has actually filed its S-1; it's going to go public. So, I'm actually going to be able to turn this stock into dollars soon. So, the risk is much lower, but the cost to exercise is much higher, because now the value of the stock is higher. So, maybe for nonqualified stock options, you're going to incur much more ordinary income tax or for ISOs you might owe alternative minimum tax. So, you're putting much more money at risk, but the risk you're putting it at is much lower. So, those are the two ideal times to exercise.
And then, there's this muddy middle, where it's kind of expensive and still kind of high risk. And that time period is a much harder decision to make, because everything's muddier. Everything's much less clear. And then, we have a discussion about, let's say you put x-thousand dollars toward exercising your company options. What will happen if you lose that money? What impact will that have on your life? Are there any goals you have that are going to be compromised because of that? How will you feel if you put $10,000 to exercise these options, and it just evaporates? How are you going to feel if that money just goes away? Because our clients have made a ton of money exercising options in companies that did well eventually. But I also know there's a bit of a survivorship bias there, that people who put a ton of money out for exercising options and lost it all because the company didn't do well, well, maybe they're not seeking out a financial advisor. And it's really easy for people to feel optimistic about the companies they work for. And also, just in this general, sort of tech environment and market environment we're in right now, where stocks always go up, obviously, and certainly tech companies, their stock always goes up. So, there's a little excess of optimism that I always try to address in these conversations. But I'm not a hardcore, like, “Oh no, don't put any money at risk.” I really try to just frame the discussion for the client so that they can make a decision that feels good to them in terms of the risk they're taking and what impact it could have on their lives.
Benz: Meg, you referenced this sort of excess optimism that could be out there right now. People who wind up with a lot of equity from their employees are often just plain lucky. Maybe they've been good at their jobs, but they also happen to be in the right place at the right time. So, how do you help your clients recognize that they've been lucky, but it might not always be so?
Bartelt: Thankfully, I don't have to come up against people who think that their $4 million windfall from that IPO is just due to the fact that they're awesome. That would be hard for me to stomach. So, our clients do recognize the role of luck in their windfalls from a psychological perspective. There is still a lot of optimism about the future of the stock, the future of the company, for companies like DoorDash and Airbnb and Squarespace, which I named just because those are companies we have clients in that have or will go IPO.
The first question I ask clients is, “What are you thinking about how you approach your company stock in terms of selling it, holding it or donating it?” I just want to figure out where is their mind right now. The second thing I ask them to think about, because I will calculate for them, “How much of their net worth is tied up in this one stock?” And it has been remarkable to me that I've had clients who come into that conversation with, “Oh, Airbnb, I am so optimistic about the future of Airbnb, I don't want to sell anything.” Then I'll say, “OK, 87% of your net worth is tied up in this one stock. How do you how do you feel about that?” And on a dime, some of them say, “Oh, yeah, I think I should probably diversify some of that.”
So, sometimes it is just I happen on the right framing of the analysis that seems to resonate with the client, that they will themselves decide that diversifying is the right thing to do. I have a couple of --I don't know if catchphrases is the right word or not--but again, a couple other ways of framing the discussion. One of them is the idea that concentration builds wealth and diversification protects wealth, and that they've done the concentration bit and boy, have they built that wealth. And maybe it's time--do you think it's time to start protecting at least some of that wealth? And by protecting I mean selling out of company stock and investing in a low-cost, broadly diversified portfolio. And that framing, again, seems to hit some clients really effectively.
And the third thing I was going to mention is that while as a financial planner we are typically trained that you don't want to have any more than 5% of your portfolio in a single asset, and that is sort of the holy grail of prudent investing. And I will bring out that rule of thumb for clients. But if they're at 90% concentration, and I mention the rule of thumb is 5%, if I can get them to 80%, that's an improvement, and I will celebrate that improvement. So, I'm not a stickler for perfection. If we can just get a little bit of movement here, a little bit of improvement; progress, not perfection sort of thing. And I find that generally, between all of those frameworks and attitudes, all of our clients have been willing to move the needle a little bit in terms of diversifying out of their company stock.
Ptak: There's been a lot of discussion over the years about how women invest differently than men, for example, that they're more goals-based than performance-based. Do you see that in your clients?
Bartelt: Yes, I do. It's hard for me to say it's a gender thing, because that's an attitude that I would screen for at the beginning of a client relationship, or when I'm going through the prospect process. I work best with, provide the most value to, and I enjoy most clients who have that goal-based or life-based framing for their money. And I'm very clear when I'm talking with prospective new clients, about my philosophy of investing and the role of money in your life. So, if you are someone who is a maximizer, who wants to squeeze every last dollar out of your portfolio, and the goal is to die with the most toys, the biggest bank account, we're just not going to be a match. You wouldn't hire me because I wouldn't be reflecting your values. So, yes, we do end up with a lot of people who are very focused on how can I use this money to live the life I want? And we certainly reinforce that philosophy. But that's just because that's the kind of people we attract with the way we talk and our other messaging.
Benz: You're interested in making the financial planning profession more diverse. How do you think the industry gets there? Or maybe to ground it a little bit, let's talk about the steps that you try to take in your own work to try to make the profession more inclusive.
Bartelt: Well, I think, like a lot of financial planners, and more broadly in the country, but in this specific profession, the last year has been a real sort of brick-upside-the head about racial inequality, and specifically in this profession, racial inequality in this profession. Certainly, from a gender perspective, the profession has also radically imbalanced but as a middle-aged white woman, I'm doing all right.
So, what I have tried to do: My first step was honestly to just try to expand the content I was consuming. Most of the people in this profession are white men. And that was most of the podcast I was listening to, it's most of the blog posts I was reading, most of the interviews I was watching. So, I just tried to consume podcasts, videos, and blog posts written by people who weren't older white men. And it was amazing. I truly believe I quickly became a financial planner because the perspectives that I was being introduced to were now all of a sudden so much more varied. And that just made my appreciation for the work and how we relate to clients and what clients might be going through, their backgrounds, it just made that so much richer. So, it's this very quick positive feedback for that change of just trying to consume a broader, more diverse set of content.
And one small step that I've taken is to recognize that I have a platform and I have a privilege being a white person, an affluent white person. How can I pass along or use my platform to give visibility or opportunities to people who maybe didn't have the privileges I have had my entire life of growing up affluent, being sent to an expensive elite liberal arts school and the career opportunities, I've gotten blah, blah, blah. And again, in a very small way, that is making sure that content that I'm consuming, then pushing it out on my platforms--my social media accounts. When a prospective client comes to me, and they're not a good fit or we are not taking on clients at that moment, I have made an intentional effort--I always like to refer, give other advisor names to people who are looking for one. I am sure to include a wide variety of advisors in terms of gender and ethnicity in those referrals. Again, I have this platform. We get far more interest from prospective clients than we have the capacity to accommodate. And so, when I pass them along, I want to make sure that other advisors who maybe don't have the visibility I have, are getting a chance to make their case for prospective clients.
And then, thirdly, trying to speak up more often when I see elements in this profession that I think are hurtful to either individual people or just to our hope of making it a more welcoming profession for a more diverse professional community. But again, I feel hugely inadequate in all of these, I haven't done anything major. But that is what I am doing now.
Benz: Well, Meg, this has been such a great discussion. We really appreciate you taking the time out of your schedule to be with us today.
Bartelt: Thank you. I enjoyed it also.
Ptak: Thanks so much.
Bartelt: Thank you.
Benz: Thanks for joining us on The Long View. If you liked what you heard, please subscribe to and rate The Long View from Morningstar on iTunes, Google Play, Spotify, or wherever you get your podcasts.
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Ptak: And at @Syouth1, which is, S-Y-O-U-T-H and the number 1.
Benz: George Castady is our engineer for the podcast and Kari Greczek produces the show notes each week.
Finally, we'd love to get your feedback. If you have a comment or a guest idea, please email us at TheLongView@Morningstar.com. Until next time, thanks for joining us.
(Disclaimer: This recording is for informational purposes only and should not be considered investment advice. Opinions expressed are as of the date of recording. Such opinions are subject to change. The views and opinions of guests on this program are not necessarily those of Morningstar, Inc. and its affiliates. Morningstar and its affiliates are not affiliated with this guest or his or her business affiliates unless otherwise stated. Morningstar does not guarantee the accuracy, or the completeness of the data presented herein. Jeff Ptak is an employee of Morningstar Research Services LLC. Morningstar Research Services is a subsidiary of Morningstar, Inc. and is registered with and governed by the U.S. Securities and Exchange Commission. Morningstar Research Services shall not be responsible for any trading decisions, damages or other losses resulting from or related to the information, data analysis or opinions or their use. Past performance is not a guarantee of future results. All investments are subject to investment risk, including possible loss of principal. Individuals should seriously consider if an investment is suitable for them by referencing their own financial position, investment objectives and risk profile before making any investment decision.)