Do Tech Employees Really Need a Financial Advisor?

Author: Adam Keesling

If you work in the technology industry, you’ve probably received a LinkedIn message from a financial advisor advertising their wealth management services. 

When I used to get those messages, I’d roll my eyes and think: 

“This is probably a scam. While I’m not an expert, I’ve been able to manage my personal finances well enough. I don’t believe in stock picking, and I can Google answers whenever I need them. I don’t want to think about retirement planning farther than ‘max out my 401(k)’. And an advisor sounds stodgy, like I’ll have to sit through a sales call. It’s not worth the headache.” 

On one hand, I was correct: if you work in tech, most financial advisors will not be particularly valuable for you. 

However, finance is a professional specialization just like anything else. It’s not impossible to learn, but proficiency at it requires time and patience. And for some people, an expert can be worth it. 

I wrote this essay to help you understand the benefits of having a financial advisor if you work in tech. 

Quick disclaimer—yes, I am biased. I wrote this article for Compound. We are a wealth management platform for tech founders and employees. We’re building Compound because we too were skeptical of working with traditional financial advisors… so we dedicated our lives to building the only wealth management firm designed for people who work in tech (like us). 

Why would anyone need a financial advisor?

As a starting point, there are reasons why anyone – not just those in tech – might need a financial advisor. We loved this piece from Nick Maggulli and want to expand on a few of his points. 

You’re tired of doing it yourself. Financial consumers broadly divide into three buckets: Delegators (outsource financial decisions), Validators (make your own financial decisions but want a second opinion) and Soloists (do it yourself). It’s fairly obvious how Delegators and Validators can leverage a financial advisor. But Soloists can grow tired too, at which point it might be time to get help. 

If you are a Soloist and still want to fully make your own decisions, Compound has a free net worth dashboard that automatically tracks your finances and integrates with thousands of cap table managers, banks, brokerages, real estate portfolios, crypto wallets, and exchanges. Check it out here. 

Your financial life is complex. If you have a complex financial life, it’s going to take up a lot of your time (and energy). Shouldn’t you leverage your financial resources to save yourself the headache? 

You feel the need to talk to someone about your money. Talking through an important decision can have massive benefits and give you peace of mind. For many important decisions – career, marriage, moving – you consult trusted friends or advisors. Why not for finances? While it can feel uncomfortable or ineffective to discuss finances with friends or loved ones, a financial advisor provides studied, tactical advice and is default confidential (they’re legally required to by the SEC). 

You know you need one. If you are hesitant to hire a financial advisor, you shouldn’t hire one. Your financial advisor won’t be thrilled about the engagement, and worse: you won’t be thrilled. A financial advisor can save you time, make you more money, and be a trusted resource for years (or decades) to come, so you should ensure it’s a long-term relationship you seek. Would you benefit from a long-term, personal CFO that sits in your corner and helps you achieve your goals? 

Why would a tech employee need a financial advisor?

In addition to the reasons why anyone would want a financial advisor, tech employees have many peculiarities that other consumers don’t. Most Americans have not received equity compensation, invested in startups, know what a 409A valuation is, or have sold cryptocurrency, yet most people in tech have. These unique behaviors (that have unique tax and legal implications) lead us to needing more help, not less. If you find yourself doing any of these things, consider hiring a financial advisor. 

You have illiquid equity. Illiquid equity is complex and often misunderstood. First, there’s the alphabet soup of terms – ISOs, QSBS, AMT. Even if you can decipher those acronyms, you still need to figure out what they mean and how they apply to you. 

Your equity could become highly valuable, increasing the importance that you get it right. If you work at a startup, you’re probably forgoing a higher cash salary for the chance that your equity is worth a lot more. 

However, the system is rigged against inaction: unless you make the right choices early on, you could end up in very tough situations having to pay hundreds of thousands of dollars in taxes or lose the equity you earned. On the flip side, over-exuberance in exercising your options can take away valuable cash that could be used on other purchases like a home. Even if you don’t hire a financial advisor, it’s worthwhile to study up. 

You spend too much time optimizing your finances. The financial system has a lot of loopholes. The financial system including startup equity has even more loopholes (and potholes). Qualified small business stock (QSBS), early exercising, tax deductions, donor-advised funds, grantor retained annuity trusts (GRATs), pledged-asset lines, borrowing against your assets… the list goes on and on. 

You could spend dozens of hours learning about this on your own. Or, you could specialize in your own skillset and hire a financial advisor to optimize on your behalf. Oftentimes, the benefit of these loopholes more than pays for the financial advisor fees. As an anecdote, our team at Compound has saved millions of dollars for multiple clients through covered calls and early-exercise strategies. Of course, these are examples, but they’re not infrequent. 

Your financial life is (uniquely) complex. In addition to Nick’s specifics, these traits can make finances particularly challenging for tech employees: 

If you work at a tech startup, your assets are likely housed all over the place. You may have an angel investment on AngelList, bitcoin on Coinbase, stocks in Robinhood, company equity on Carta, etc. It’s a lot to keep track of. If you’re an accredited investor, you also need to consider alternative investments – should you invest in them, how much should you allocate to them, how should you source them, etc. 

Another shameless plug for our net worth tracking dashboard here. It’s totally free (and we don’t sell your data). 

You’re excited by a large liquidity event. Most Americans outside of tech – even those who are wealthy – don’t experience large liquidity events. They don’t go from $50k in liquid net worth to $1.5M in liquid net worth in a day. Yet, if you work at a tech company, this is a realistic, potential outcome for you. 

How should you plan for that possibility? What should you do with that money when it arrives? Your default answer might be: “put it in ETFs”. This might be the right answer for you, but it also might be insufficiently diversified or sub-optimal for your future level of wealth.

How should you consider private markets for an increased return on a small portion of your portfolio? How much of your liquidity should you invest in different asset classes? How should you plan your cash flow to purchase a house, fund your general spending, invest to preserve/grow your wealth, and donate to the causes you care about? You could figure this out on your own but an advisor already has the background knowledge and experience. 

As a final note – if you don’t know whether you need a financial advisor, learn about them. And if you know what they can offer and you still aren’t sure, really: don’t pay for one. 

But there are many circumstances where an advisor can help you grow your wealth and focus your time on the things that matter to you.