FD wealth dented by holdings in own companies

According to wealth management adviser Heartwood, FTSE-100
FDs saw a huge loss on the value of shares they held in their own companies and
a further significant loss on equity-linked assets tied up in their employer,
such as options and Long-Term Incentive Plans (LTIPs).

Heartwood’s data suggests that of the £910,000 average loss, £402,000 comes
from the loss on shares held by FDs in their own companies, which worsened
sharply in the last two months of 2008 following the Lehmans collapse in October
and the subsequent dive in stock markets. All but ten of the FTSE-100
constituents saw their shares end on a serious loss last year.

Heartwood also says that 21% of the assets FDs hold in their own companies
are shares and 79% is split between LTIPs and options. This compares with CEOs
who typically hold 34% of that wealth in shares and 66% in share options and
LTIPs.

Heartwood suggests FDs can mitigate some of the risk of losing wealth to
assets linked to their employers’ equity by selling portions of their share
holdings at regular intervals ­ regulating the size of these sales so as to
avoid speculation around the motivation for the sale which can depress the share
price.

“It can be difficult to sell down [FDs’] personal stakes because it may send
the wrong message on the outlook for the company, but if they hold on they
suffer along with their shareholders,” says Simon Lough, chief executive of
Heartwood. “Set up a regular pattern of modest sales, as a matter of prudent
diversification, leaving still substantial exposure. The market can understand
and accept this approach, without attributing too much significance to each
move.”

See Financial Director’s chart on
falling
FTSE-100 share values in 2008