Alex Farman-Farmaian: Financial Advice for the Mega-IPO Era

The era of mega-IPOs is upon us. SpaceX went public on June 12, raising a record $75 billion. Anthropic plans to beat that by $25 billion when it goes public in November. All of this means lots of employees are getting very wealthy and very often making mistakes, according to Alex Farman-Farmaian, the co-founder and CEO of Compound Planning. One common error that IPO beneficiaries make is following their hearts rather than their heads when it comes to diversification, he says: “They pour their hearts and souls into making a company successful, and it’s hard for them to take a step back and make the right choices.”

Speaking with Barron’s Advisor, Farman-Farmaian explains that he became aware of the pitfalls around equity compensation long before Compound’s founding in 2022. As an executive at Carta, a software provider that helps businesses track ownership and manage equity compensation, he saw up close how much help employees needed navigating tax, diversification, and other equity-related considerations. Today that demographic figures prominently in the clientele of New York-based Compound, which oversees more than $5 billion of assets and some 100 employees, including more than 50 advisors. Farman-Farmaian offers his best advice to those with IPO wealth in their futures. He describes the proprietary technology his firm has built, and explains why running the business is like open-water swimming.

Alex Farman-Farmaian, co-founder and CEO of Compound Planning. Photo: Courtesy of Compound Planning

How did you get started in wealth management? I was an early employee at Carta and was there as the business scaled up tremendously. My last couple of years there I ran the tender-offer business, so I worked with a lot of large private companies in planning and executing liquidity events. Part of the work was employee education. Through that, I got to see that a lot of people miss some of the planning possibilities. For example, many plans allow for early exercise. A lot of folks didn’t realize that was even a decision they could make. They were missing out on things like understanding what their alternative minimum tax liability was going to be around an exercise. I saw people who didn’t realize they were sitting on a qualified-small-business-stock lot: They would sell the QSBS stock three years into the hold, not realizing they were selling a very tax-inefficient lot.

So all of that led me to partner with financial advisors to do employee education and provide one-on-one advice. As I spent time with advisors doing this planning I saw an opportunity to help the advisors serve their clients across a more complete balance sheet. Historically the wealth management industry has focused on retirement planning and portfolio construction. But there’s a lot more complexity to the modern client than there was in the past. People have things like equity compensation. They’re invested in alternatives, whether that be real estate, venture, private equity, or private credit. There are all these different ways people can invest, and their balance sheets have become quite complex. And nothing was really built to serve their complete balance sheet.

The firm was founded in 2022 by myself, Christian Haigh, and Gabe Krambs as Alternativ to enable financial advisors to serve a complete balance sheet for high-net-worth clients. In 2023, we completed a merger with a consumer fintech company, Compound Financial, and rebranded our existing [registered investment advisor] as Compound Planning.

Who are your clients? Our typical clients are high- and ultrahigh-net-worth individuals and families that are seeing complexity in their lives. We work with a lot of next gen with equity compensation, with attorneys who are partners or are navigating becoming a partner, and people in their postliquidity period who are getting into gifting and next-generation planning.

How are the next-gen clients different from earlier generations? Information is so much more accessible than it was previously. People have access to Claude, to ChatGPT, to Google of course, so new next-gen clients are showing up having run numbers. A lot of people might assume they can find answers to IPO strategy questions, for example, through all these resources, and that’s enough. But working with an advisor can help them ask the right questions to accelerate their progress to what they’re trying to accomplish.

What are the key services you provide? It’s not just portfolio construction. It’s not just generic tax planning. It’s taking the full balance sheet in context. So, what are someone’s goals? What are they trying to accomplish? Is the right tool there a more complex estate plan? Is it tax-aware investing? This all falls under a financial planning umbrella. But that definition of financial planning has really evolved in recent years. It used to mean just retirement planning. Today it means being deeply aware of what someone’s trying to do from a tax, estate, philanthropy perspective. Modern wealth management encompasses everything that touches someone’s money.

You’re obviously off to a successful start with $5 billion of assets under management. What do you feel gives you an edge as potential clients are shopping for advisors? We’re really good at drilling down and understanding what matters to that client quickly. We’ve built a lot of technology that helps us do that—making it easier for clients to share their balance sheet with us, to share their financial context. That ultimately means you meet the client where they’re at, versus following a strict older-school-like playbook where it takes months to onboard someone and months to build that context. We make the process much simpler for the client by cutting down the friction, which means we can show them much faster how we can help them.

Can you walk me through some of your proprietary technology? On the client-facing side we have what we call the Compound dashboard. Anyone can go sign up for this online; it’s not just for paying clients. It allows you to aggregate your full net worth and balance sheet in one place with a significant level of detail. For equity compensation, for example, we have all the vesting tranche-level details there, because that’s going to inform planning decisions. When it comes to private assets, it’s as detailed as, what are the capital calls you’ve made? What are the capital calls coming up? What are the distributions off those things?

We’ve also built a proprietary advisor platform, called Advisor HQ. It’s where the advisor accesses all the relevant context. It’s more than just the client’s profile; it’s the email history, the call note history and so on. If the advisor needs to make portfolio changes they do it from Advisor HQ. And then sitting on top of that we have Compound AI, which is our AI agent—really multiple agents. That takes all that context across the client profile and what we have in Advisor HQ, makes it super accessible and provides insights to our advisors. That ultimately means that a Compound advisor can deliver a really high level of service centered around proactivity and doing more for a client than they can with a traditional firm.

What is Compound’s growth strategy? We grow in a couple of different ways. One is people in different phases of their lives and careers are excited to have a Compound advisor manage their money. We work with a lot of people still accumulating, a lot of next-gen clients. We deliver great service and we get referrals, and these people will sometimes refer us into their companies, and then we start working with other employees at those companies and do sessions around things like liquidity events or annual benefits. So we have this direct model, and at the same time we’ve become a destination for great advisors.

Right, competition for good advisors is fierce. How do you attract them? We’re not out there doing roll-ups or buying a bunch of books. We’re not writing big checks. We’ve found a lot of success demonstrating how we can enable great client service. And we also do equity compensation in the right situations.

What’s the biggest business challenge on your plate right now? This may sound a little bit high level, but the world is changing quickly around us, and I think we’re well positioned to adapt. The challenge is finding the balance between keeping our heads down and executing, and keeping our heads up to make sure we’re aware of changes going on. Two or three years ago, AI was a very different thing than it is today. If we look two years ahead, it may look very different. ChatGPT came out almost four years ago now. And it wasn’t really that useful until more recently. So the pace of innovation in the frontier models dictates where the world is going, and we have to make sure we’re going in that direction while also continuing to execute.

So, keep your head up but also keep your head down? Yeah, it’s a tough one. It’s like open-water swimming: You need to look where you’re going, but if you look too much, you’ll go a lot slower.

SpaceX recently had an enormous IPO, and Anthropic is up next. In general, what advice would you offer a tech employee whose company has an IPO coming up? I think a lot of tech people start thinking about it way too late. There’s so much planning work you can do before the stock is fully liquid, and a lot of people wait to have that conversation. They might think about it on their own, but they don’t start talking with a professional until it’s more real.

I think part of that is because this industry has made it hard for those people to get good advice. The incentives are such that if you don’t have significant AUM you might not be getting the best advice. And as I mentioned earlier, people assume they can find all the answers with all the online resources out there. But again, they might not know all the questions to ask.

Then one psychological problem is that these employees understandably get sucked into their company’s hype and have a hard time being objective. They pour their hearts and souls into making a company successful, and it’s hard for them to take a step back and make the right choices. The right choice for most people is diversification. But a lot of people have a bias against that because that concentration is what built their wealth. Working with a professional helps them understand what those trade-offs are, both in a quantitative and a qualitative way.

What would you like to add? We’re built for this next generation of wealth and helping those people through their full life cycle. We’re in the business of delivering trust and confidence to people so they can be the builders they want to be, whether that’s building to gift to the next generation or to philanthropy, or just building for where they’re at in their lives right now. To do that effectively you have to meet people where they’re at in their lives and not get sucked into your own ego around what it means to provide financial advice.

Thanks, Alex.

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