PRACTICE MANAGEMENT: Unloading BP Stock As The Oil Gushes

9th Jul 2010 12:35

(This article was originally published Thursday.) By Michaela Cavallaro A DOW JONES NEWSWIRES COLUMN When adviser Tom Rogers set up an April 29 client meeting, his plan was to cover the couple's general investing strategy and asset allocations--but that plan changed quickly. Rogers, a certified financial planner who is a principal at Portland Financial Planning Group in Portland, Maine, had begun working with the couple just a few months earlier and was still getting to know them. It turned out they had a considerable stake in BP PLC (BP, BP.LN), and that meant a new meeting agenda. "We torpedoed the original plan and focused on BP," says Rogers. Nine days earlier, BP's Deepwater Horizon oil rig had exploded, killing 11 workers and unleashing a torrent of oil into the Gulf of Mexico. In fact, the couple's concentration in BP was part of the reason they'd engaged Rogers. The wife had inherited $1.5 million in BP stock several years earlier from a great-uncle, who accrued the stock during a 30-year career at Amoco, which was acquired by BP in 1998. In 2008, the couple sold half of their shares for risk-reduction purposes. But when they came to Rogers, their position was still significant: BP shares represented a quarter of their entire portfolio and fully half of their equity holdings. The couple was environmentally minded, and wanted to retain some shares in order to pursue shareholder activism related to BP's public commitment to alternative energy, which they felt the company wasn't honoring. They planned to work with Rogers to reduce the size of their BP stake considerably. The disaster sped up their timeframe dramatically. "One reason was risk reduction," says Rogers. "But the second was environmental. They were very upset about this catastrophic spill and weren't impressed with the way BP initially handled it." After taking the night to think it over, the couple faxed Rogers a request to sell a third of their shares the next morning. The stock price was volatile, which made the sale somewhat nerve-wracking: The couple owned the shares through a dividend reinvestment plan (DRIP), which meant that the sale wouldn't go through for several days and, when it did, there was no guarantee what price they would get. In this respect, at least, the couple lucked out: The sale went through at $49 a share, and they received proceeds of about $200,000. When they met with Rogers again on May 27, they'd decided to sell the rest of their shares. "It was a really emotional decision for the wife," says Rogers. "She teared up. She felt she was not honoring her great-uncle's legacy. But as we talked about it, she said she knew he would have been greatly upset by the spill and by BP's handling of it." Rogers issued a sell order, and the shares were sold at $45.30. Again, the couple's timing was fortuitous. "At that point, nothing was definitive but the top kill seemed to be working," says Rogers. "Everyone was cautiously optimistic, and we were fortunate to take advantage of it." Since then, of course, the top kill effort has proven fruitless, and BP shares have declined significantly. In early June, the clients sent a letter to BP management outlining the reasons for their divestment and noting that they would be donating a portion of the proceeds to cleanup efforts--both actions inspired by Rogers, who attributes his equanimity throughout the process largely to the experience he's gained during nearly 15 years as an adviser. "There's some potential liability for an adviser in this situation, whether you recommend selling the stock or keeping it," he says. "Ten years ago, I would have been more insistent about my point of view. Instead, I gave them educational information and made a presentation on the merits of diversification. But when it came time to decide how much to sell and when to sell it, I deferred to the clients as much as possible." (Practice Management is a column that looks at ways financial advisers can build and improve their business. Michaela Cavallaro can be reached at 212-416-2245.) (TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at [email protected]. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.) (END) Dow Jones Newswires July 09, 2010 07:35 ET (11:35 GMT)