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Too Much Of A Good Thing
Wealthy clients with big single stock positions face big risks. Advisors can help.
By Michael Featherman
ONE OF THE MOST COMMON, AND challenging, problems faced by wealthy clients( and their advisors) is having a large part of their portfolio tied to one stock, say 30 % of their portfolio, which raises the obvious question of how their investments are going to be diversified. These concentrated holdings might come from a variety of sources— from their executive compensation, from inherited wealth or from the sale of their businesses.
If the problem isn’ t addressed, those concentrated holdings can increase a portfolio’ s volatility, make the clients vulnerable to tax issues and dampen the clients’ overall financial outcomes.
That poses risks to advisors as well, especially if they have multiple clients in the same boat, with millions or billions of dollars tied to only a small number of securities in a way that could compromise the advisor’ s entire book of business.
The Strategic Arsenal
Whatever the reason for the concentration, advisors have tools to help: hedging strategies and cutting-edge portfolio construction solutions that help protect clients and their practices, strategies designed to establish protections against downside risk without generating immediate taxable losses.
These tools and strategies were in the past too complicated to deploy at scale. The process was manual( and costly). But with the technology and investment and diversification strategies available today, advisors can efficiently identify concentrated holdings in portfolios much faster— and better control the risk over the long term.
The strategies do a number of things.
• They help an advisor rebalance risk across a client’ s portfolio without disrupting long-term investment goals, using portfoliolevel hedging solutions that offset single-stock risk through exposure to complementary investments.
• They include downside risk management strategies that let clients define possible securities losses while still participating in future upside. These approaches can help clients stay invested in their concentrated holdings while reducing volatility tied to one investment.
With a hedging strategy, clients won’ t necessarily have to sell their concentrated holdings, which sometimes come with sentimental attachments.
Who’ s Concentrated?
Sizable single-stock holdings most often show up in the portfolios of three types of clients— corporate executives, entrepreneurs, and inheritors of generational wealth.
Business owners and corporate executives usually hold onto the shares of the companies they either built or helped build for years, and holding those positions is very comforting for them. continued on page 58
MAY / JUNE 2026 | FINANCIAL ADVISOR MAGAZINE | 55