The Interview Questions That Reveal Whether a Financial Advisor Actually Understands Your Equity Compensation

"I'd say 70-80% of my client base has equity comp as the primary driver of wealth accumulation. These are people where equity comp is at least 40% of their total annual compensation, and in many cases it's 60-70%. The other 20-30% are either earlier in their careers building up to that level, or they've already liquidated and diversified and we're managing the proceeds. I specifically built my practice around equity comp because the planning is so much more nuanced than traditional salary-based wealth building."

"Before I could even start to advise you, I'd need to understand: What's your current cash runway? Are you treating your salary as your real comp and the equity as upside, or do you need the equity to fund your lifestyle? What's your tax situation—are you in CA or a high-tax state? Do you have other concentrated positions or is this your only equity? What's your risk tolerance for concentration? And critically—do you believe in this company long-term or are you there for the comp package? Let me ask you those questions and then I can walk you through how I'd approach it..."

(Then they should actually walk through a methodology, not just ask questions and stop.)

"RSUs are straightforward but brutal from a tax perspective—they're taxed as ordinary income when they vest, just like salary, so you're paying your full marginal rate which could be 40-50% in high-tax states. There's no planning opportunity; the tax is automatic. ISOs are completely different. When you exercise ISOs, there's no ordinary income tax at exercise, but you do trigger AMT based on the spread between strike price and FMV. If you hold the shares for at least a year after exercise and two years after grant, you get long-term capital gains treatment on the full gain. That creates planning opportunities—we can optimize exercise timing to manage AMT, potentially save 20+ percentage points in taxes versus RSUs. But mess it up, and you can end up paying AMT without getting the long-term gains benefit."

"First, we'd calculate your AMT crossover point—basically, how much ISO spread you can have before triggering AMT. That depends on your other income, deductions, and exemption amounts, and it changes year to year. Then we'd model out multi-year exercise strategies. Maybe you exercise $100K of spread this year, stay just under AMT, then exercise another chunk next year. We'd also look at timing around other income events—if you're expecting a bonus or RSU vest, that affects the calculation. And critically, we'd track AMT credits you generate so we can utilize them in future years when you're back in regular tax. I usually build a 3-5 year tax model showing different exercise scenarios and their cumulative tax impact."

"A qualifying disposition means you hold ESPP shares for at least two years from the offering date AND at least one year from the purchase date. If you meet both requirements, part of your gain is taxed as ordinary income—the lesser of the actual gain or the discount you received—and the rest is long-term capital gains. If you don't meet the holding requirements, it's a disqualifying disposition, and more of the gain gets taxed as ordinary income. The tricky part is that qualifying dispositions can actually result in HIGHER taxes if the stock went way up, because you might be converting what would be capital losses into ordinary income. So it's not always better to hold for the qualifying period—we'd need to model your specific situation."

"An 83(b) election lets you choose to pay taxes NOW on unvested equity based on its current value, rather than paying taxes later as it vests based on future value. It's most valuable at very early-stage companies where current FMV is close to strike price—you pay minimal tax now, and all future appreciation is capital gains. The catch is you have to file within 30 days of grant, and if you leave before vesting, you don't get a refund on the taxes you paid. I've seen people save millions with 83(b) elections at companies that went on to IPO. I've also seen people pay $20K in taxes on equity that never vested. The decision comes down to: how much tax are you paying now, how confident are you in the company, and how stable is your employment? Miss the 30-day deadline and you can't do it—there are no extensions or second chances."

"There are several factors I'd analyze. First, I'd look at which grants have the lowest spread between strike price and current FMV—exercising those first minimizes AMT. But we'd also consider your AMT capacity each year, so we might exercise higher-spread grants if you have room. Second, I'd look at holding periods—if you've got grants that are almost at the one-year mark post-exercise, we might prioritize exercising newer grants to start their clocks ticking. Third, we'd consider expiration dates—ISOs that are close to their 10-year mark might get priority. Fourth, your belief in the company matters—if you think the stock is going to appreciate significantly, exercising lower strike price grants gives you more shares for the same dollar outlay. I'd build a spreadsheet modeling different exercise sequences and their tax/wealth outcomes over 2-3 years."

"This is one of the hardest trade-offs in equity comp planning because there's real tension between tax optimization and risk management. Here's how I'd approach it: First, we'd define your risk tolerance—what percentage of net worth in a single stock lets you sleep at night? Maybe that's 30-40%, not zero. Then we'd create a multi-year systematic diversification plan. For RSUs, we might sell a portion at each vest to fund diversification. For ISOs you're already holding, we'd weigh the tax benefit of waiting for long-term gains against the concentration risk—sometimes paying ordinary income on a disqualifying disposition is the right move if it prevents a market crash from wiping out 50% of your net worth. We'd also look at using options collars or other hedging strategies to reduce downside risk while maintaining holding periods. And critically, we'd model what happens in different market scenarios—what if the stock drops 30%? 50%? You need to be financially and emotionally prepared for that."

"I don't have a one-size-fits-all philosophy because it genuinely depends on the client's situation. Exercise-and-hold makes sense when: you have cash to exercise without straining your finances, you believe in the company long-term, you can tolerate the concentration risk, and you have the AMT capacity to make it work. Exercise-and-sell makes sense when: you don't have sufficient cash, the concentration risk is too high relative to your net worth, or you need to diversify immediately for life events like a home purchase. I'll say this: the tax tail shouldn't wag the dog. I've seen people pay AMT and hold ISOs to get long-term gains, then watch the stock crater and lose more in market value than they would've paid in extra taxes with a same-day sale. Risk management and cash flow planning matter as much as tax optimization."

"Equity comp planning has to be in service of your actual goals, not just tax minimization. Here's how I'd approach it: First, we'd map out your major financial goals with timelines—maybe it's buying a house in 2 years, funding college in 10 years, and retiring in 20 years. Then we'd build a liquidity plan around your equity vesting schedule. For example, if RSUs vest quarterly, we might earmark specific vests for specific goals: Q2 and Q4 vests go to building your home down payment, Q1 and Q3 go to diversified investments for long-term wealth. For ISOs, we'd look at exercise timing that aligns with when you need cash—maybe we exercise earlier if you need liquidity for a home purchase, even if it's not perfectly tax-optimal. The point is your equity comp should fund your life, not just optimize on a spreadsheet. We'd review this at least annually and adjust as your goals evolve."

"Yes, I help clients set up 10b5-1 plans regularly, and I coordinate with attorneys to make sure they're structured correctly. My philosophy is that they're incredibly useful tools when you're subject to blackout periods or have MNPI, but they need to be set up thoughtfully. We'd typically structure them to sell a predetermined amount or percentage of shares on specific dates or at specific price points. The key is setting this up during an open window when you don't have MNPI. I also recommend building in flexibility—some plans allow you to modify or terminate them under certain conditions. And critically, we'd make sure the selling schedule aligns with your cash flow needs and tax planning. I've had clients whose 10b5-1 plans forced them to sell at market lows because they set it up too rigidly. We avoid that by thinking through different market scenarios before committing to the plan."

"For clients with significant equity comp, I typically recommend quarterly check-ins, timed around major vesting events. We'd review what's vesting in the next quarter, make exercise/sell decisions, update tax projections, and adjust the strategy if needed. Beyond that, we'd have comprehensive annual reviews where we look at the full 3-5 year picture. As for off-cycle reviews, I'd want to connect whenever: your company is going through major changes (layoffs, acquisition talks, IPO), you have a major life event (marriage, home purchase, job change), you receive a new equity grant or refresh, tax laws change in ways that affect equity comp strategy, or the stock price moves more than 30-40% up or down from our planning assumptions. I'm also available for ad-hoc questions—if you're wondering whether to exercise ISOs before year-end, I don't want you waiting three months until our next scheduled meeting."

"I'm pretty obsessive about staying current on this. I'm part of a couple professional networks—I'm in a mastermind group with about 12 other advisors who specialize in equity comp, and we meet monthly to discuss complex cases and new strategies. I also subscribe to tax law update services that track changes affecting equity compensation specifically. I attend at least 2-3 conferences a year focused on stock comp and tax planning—the NASPP conference is particularly good for this. And I work closely with a few CPAs and tax attorneys who specialize in this area, so when something weird comes up, I have people to call. Recent example: when the IRS updated guidance on 83(b) elections last year, I immediately reviewed all my clients with pending grants to see if it affected their strategy."

(Note: The advisor should mention specific resources, not just generic "I stay current.")

"One that stands out: I had a client at a pre-IPO startup who had exercised about $200K worth of ISOs and held them for qualifying disposition. The company filed to IPO, and during the lockup period, the stock rocketed up 400%. She was sitting on about $1M in gains but couldn't sell due to lockup. The challenge was: the IPO triggered a massive AMT bill from the original exercise, but she had no liquidity to pay it until the lockup expired six months later. If the stock crashed during lockup, she'd still owe the AMT but wouldn't have the gains to cover it. We ended up working with her company's plan administrator to do a same-day exercise-and-sell of some unexercised ISOs during the lockup period to generate enough cash to pay the AMT bill. It required getting special approval and coordinating with her tax attorney, but it protected her from the worst-case scenario. Six months later, the stock had dropped 50%, so that planning literally saved her from financial disaster."

(The best answers are specific, show genuine problem-solving, and demonstrate they can coordinate across multiple stakeholders.)