Strategies to manage your clients' concentrated stock

Client scenario:

A recent retiree owns a small cap stock that has low liquidity and a low-cost basis. They are now in a lower income tax bracket, allowing them to be more flexible with their capital gains budget. They are worried about the risk of their concentrated stock and want to sell a portion of it to diversify into the broader market.

Profiling questions and what to listen for:

How BlackRock can help:

If the position is small relative to your clients’ total wealth, and they are willing to sell, the portfolio could invest in a direct-indexing strategy and be funded with an upfront sale of the position, and harvest potential losses which may offset gains from further stock sales.

Client scenario:

An advisor is onboarding a new client who bought a tech stock 20 years ago. The stock has grown to be worth 35% of their portfolio, and they are concerned about the tax consequences of selling and the fact that it doesn’t pay a dividend. Ideally, they want to reduce risk and transition to a balanced portfolio.

Profiling questions and what to listen for:

How BlackRock can help:

This position is a large part of your client's wealth and may be costly to sell. As a result, you may want to use an option overlay strategy to hedge your concentrated risk, and then potentially use premium and losses to cover tax-efficient liquidation to fund a balanced portfolio.

Client scenario:

A client inherited a concentrated position from their grandparent four years ago and the stock has since doubled. They are a savvy investor who wants to protect their gains and are willing to sell shares within their capital gains budget.

Profiling questions and what to listen for:

How BlackRock can help:

Given the size of this position, a client may want to pursue immediate diversification while also limiting the tax impact. Therefore, you could consider a balanced approach in which your client pays a small tax bill from the sale of a portion of the stock to fund a direct indexing account, and then hedge the remaining position with an options strategy. This can help you hedge your client’s risk and potentially provide two loss harvesting strategies to offset gains from future sales.