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Strategies to manage your clients' concentrated stock

Whether a client has inherited a stock position, earned stock as part of their compensation, or simply purchased a stock that has rocketed in value over time, they can end up with an unexpected problem – holding too much of one stock in their portfolio.
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The good, the bad, and the ugly

While a select few stocks have had meteoric success, it can be difficult to sustain over long periods. Even in the best-case scenarios, many start to fade after their first successful 10 years. The worst-case scenario? A catastrophic loss. Regardless of your outlook on a stock, owning too much can expose your clients to unnecessary risk.

concentrated stock risk
Boom or bust: The surprising danger of concentrated stock Boom or bust: The surprising danger of concentrated stock

How to approach client with concentrated stock positions

Many clients feel like they have a binary choice, to hold or sell the concentrated position. However, liquidating is not the only alternative, and to determine the right solution, an advisor must take into account a few key factors.

3 key questions you need to ask your clients

Understanding your clients’ situation can help you focus on the optimal solution.
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If taxes weren’t a concern, where would you invest?
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How big is the position relative to your overall wealth?
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What are the barriers to selling?

Concentrated stock strategies

For many clients, selling all of their concentrated stock is a non-starter, leaving them stuck with a large position. BlackRock offers strategies that can help you manage the risk and taxes of concentrated stock positions and diversify over time with direct indexing, option overlays, or a combination of both.

Direct indexing Option overlays Direct indexing and option overlays
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How it works:

Direct indexing is an investment strategy that consists of a diversified portfolio of individual stocks that seeks to track the returns of an index with systematic tax-loss harvesting.

Fund direct indexing from cash

How it works for concentrated stock:

You can start with cash or sell a portion of a concentrated position to fund a direct indexing portfolio with the goal of systematically harvesting losses in order to offset gains from the sale of the concentrated position.

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:

  • Client response: “I’d sell the position and put it into stocks.”

  • Client response: “It’s small, I am not too worried about it”

  • Client response: “There are none, it’s done well for me and I’m comfortable parting ways with these shares.”

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.

How it works:

Option overlays sit on top of the stock, helping to manage risk without an immediate tax bill or the need to sell the stock.

Hedge your stock without the need to sell

Losses from option can offset gains or option premiums can help fund a tax bill.

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:

  • Client response: “I'd like to invest in a non-equity portfolio”

  • Client response: “It’s a lot of my wealth, I rely on its success”

  • Client response: “I don’t want to a pay a big tax bill to sell”

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.

How it works:

A BlackRock SMA can include both a direct indexing and option overlay strategy that can help hedge a concentrated position to balance risk reduction and tax-efficient diversification over time.

Use both strategies to hedge and harvest losses*

You can sell a portion of your concentrated stock position or use cash to fund a direct indexing portfolio, and then hedge the remainder of your concentrated position with an options strategy. You can then use tax-loss harvesting from both direct indexing and options strategy to offset gains from the sale of the concentrated position over time.

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:

  • Client response: “I’d diversify, but not all of it.”

  • Client response: “It’s about 25% of my net worth”

  • Client response: “I want to minimize taxes”

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.

Want to learn more about our SMA strategies for managing concentrated stock?

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Learn how we manage concentrated stock

BlackRock offers many solutions to help advisors protect their clients from the wide range of market risks and investment-specific, idiosyncratic risks that impact stocks.


To hear about possible solutions, watch this video from Eve Cout, Managing Director at BlackRock.

Ready to take the next step?

Want to speak to a specialist? Contact us by calling 1-800-ASK-BLK or send us an email at GroupOptionStrategists@blackrock.com

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