Why don’t corporate executives pay enough attention to their personal financial affairs?

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It’s a strange but very true phenomenon in the corporate world that top executives often spend their lives steering their company and its financial fortunes to excellence but pay scant attention to their own personal financial plan.

While they study their company’s balance sheet almost daily, their own lies tucked away somewhere in a drawer as a bundle of documents, share certificates and notes, to be retrieved only upon retirement when often an unpleasant shock awaits them.

Running a major public company and satisfying its shareholders is a demanding job that leaves executives, who are inevitably high net worth individuals, with little time or the energy to work on their own financial future. It’s a bit like a mechanic who makes sure his customer’s car is in top condition while driving a broken old wreck himself. Yet, as in the case of their companies, their ‘shareholders’ – being themselves and their dependents – rely on it for their future financial security and wellbeing.

Tied to the company’s fortunes

Often an executive’s financial ‘investment’ is tied largely to illiquid assets and concentrated positions in their companies in the form of share options and a pension scheme. Share-option schemes are widely used as strategies for executive retention or performance-based remuneration for the benefit of the company and its stakeholders.

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Often executives also use their annual and/or performance bonuses to purchase more shares with a view to their retirement. But shares can go up and down, even plummet in certain circumstances. Executives who are heavily invested in the company are exposed to such risk, as it could happen to any company. In such an event, they could lose a significant part of their wealth which puts their retirement income at risk. This is particularly worrying if their shares lose substantial value close to retirement age, as there may not be enough time for recovery.

Since their personal wealth is inextricably attached to the good performance of the companies these executives run, their sense of loyalty to and confidence in their companies may also prevent them from creating an integrated and diversified personal financial plan.

The underlying rationale is: if I as the executive in charge ensures the success of my company, my own financial future is secure. But as any seasoned investor will tell you: having all your eggs in one basket is very risky.

Warren Buffett

Warren Buffett warned, “It takes 20 years to build a reputation and five minutes to ruin it”. The same could happen to the company in which its executives are so heavily invested. Studies by firms such as Deloitte’s and Lieberman Research confirm this risky reliance on share-based remuneration. They also found a strong need for assisting executives with their personal financial planning to ensure their future wealth is protected and growing, and that they will be able to maintain their lifestyles upon retirement.

Just as any successful business is founded on a solid business plan with clear strategies for growth that are regularly reviewed, every executive should also personally have an integrated financial plan and diversified portfolio that is treated with the same reverence. If not, how will they know whether their wealth is growing and protected, whether their retirement savings will be adequate, whether they are sufficiently protected against risk, or whether their dependents will be financially secure if they die unexpectedly?

It is for this reason that utilising the services of an experienced, independent and trusted financial adviser is highly recommended.

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A professional wealth specialist will create an integrated financial plan and personal growth strategy for you based on a thorough needs analysis and determination of your future income expectations. It will incorporate, according to your personal requirements, sufficient diversification of your assets across local and offshore jurisdictions, hard currencies, asset classes, investment vehicles and products, structured for maximum tax efficiency, hedged against risk, and will include planning of your estate.  Your integrated financial plan should be regularly reviewed and updated if necessary to ensure your wealth is always protected, growing and preserved.

If this sounds like you and you need expert assistance, contact Carrick Wealth at [email protected] for one of our Wealth Specialists to get in touch with you.

  • Carrick Wealth is a registered South African financial services provider specialising in South African and international financial planning and integrated wealth management solutions. Carrick is also licensed in Zimbabwe, Botswana and Malawi, and holds three global licences in Mauritius. Carrick at all times maintains its independence with regard to product providers and asset managers, providing bespoke risk assessment, financial planning and other services to high net worth individuals (HNWI). Through our own qualified and experienced wealth specialists, as well as through partnerships with industry leaders in the fields of foreign exchange, tax, international property, offshore bank accounts, trusts, wills and estate planning, Carrick is able to provide the highest levels of service for your financial planning and investment requirements, both offshore and domestic. This communication is intended solely for information purposes for the use of designated recipients and is not an offer, recommendation or solicitation to transact. While it is based on information available to the public and from sources believed to be reliable, Carrick makes no representation that it is accurate or complete or that any returns indicated will be achieved.
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