Reading your 10b5-1 plan like an advisor

If you're an executive, a director, or just someone whose company thinks you might know things before the market does, you've probably been handed a 10b5-1 plan to sign. And if you're like most people, you signed it the way you sign a rental car agreement — quickly, trusting that someone else read it.

Here's the problem: that document controls when your shares sell, at what prices, for years at a time. It deserves twenty real minutes of your attention. Let me walk you through what I look at, in plain English.

What the plan actually is

Rule 10b5-1 is the SEC's deal with insiders: commit to a written selling schedule at a time when you don't have material nonpublic information, follow the schedule mechanically, and the trades get an affirmative defense against insider-trading claims — even if you happen to know something by the time a scheduled trade fires. The schedule is the shield. That's the whole idea.

The rules got a lot stricter in December 2022, when the SEC adopted amendments aimed at the games people had been playing. If your mental model of these plans predates 2023, it's out of date.

The five things to actually read

• The cooling-off period. Your plan can't start trading immediately. For officers and directors, the first trade can't happen until the later of 90 days after adoption or two business days after the next 10-Q or 10-K, capped at 120 days; for everyone else it's 30 days. (The specifics are laid out in the final rule and summarized well by Greenberg Traurig.) Practical consequence: if you want sales flowing by a certain date — say, before a big tax year ends — you have to adopt the plan a full quarter earlier. People miss this constantly.
• The schedule and the limit prices. How many shares, on what dates, above what price? A limit set 40 percent above the current price isn't a plan — it's a lottery ticket that reports as a plan. If the honest goal is diversification, most of your scheduled sales should execute in ordinary markets, not just euphoric ones.
• The modification terms. Here's the one that bites: under the amended rule, modifying the amount, price, or timing of a plan restarts the cooling-off clock, as if you'd adopted a new plan. A "quick tweak" can silently freeze your selling for another quarter. Treat modifications as expensive. Design the plan right the first time.
• Overlap and one-and-done limits. The amendments generally prohibit overlapping plans, and single-trade plans are limited to one per 12-month period. If you were imagining a nimble collection of little plans, that era is over.
• The certification you're signing. Officers and directors now personally certify they hold no material nonpublic information and are adopting the plan in good faith — and the good faith requirement runs for the life of the plan. This is your signature, not your company's. Adopting a plan the week before great news you knew about is exactly what the 2022 amendments were written to catch.

The quiet mistakes, ranked by cost

In rough order of the damage I've seen:

• Limit prices doing the deciding. The plan technically exists, nothing ever executes, and three years later the position is bigger and the person is older. The plan was supposed to remove discretion; the limits smuggled it back in.
• Terminating a plan mid-flight. Cancelling isn't illegal, but a pattern of adopting and cancelling shreds the good-faith story the defense depends on — and it usually means selling stopped, which was the actual point.
• Plans sized for optics, not outcomes. Selling 2 percent of your position per quarter looks diligent and does nothing. Size the plan against your target concentration and a real end date.
• Forgetting the plan is public-ish. Companies now disclose plan adoptions and terminations by officers and directors in their quarterly filings. Assume anyone who cares can see the outline of what you're doing. Design accordingly, and never count on outsmarting your own disclosure.

Bottom line

A 10b5-1 plan is the single best tool an insider has for getting un-concentrated without legal risk and without waking up every morning to decide whether today's the day. But it only works if the document matches your actual goals — the target, the timeline, the tax year boundaries. Read the five sections above in your own plan this week. If something doesn't line up with what you're actually trying to do, that's a conversation worth having before the next window, not after.

And if you'd like a second set of eyes on yours — I read these for a living, and I'm happy to.

This article is for informational and educational purposes only and is not investment, legal, or tax advice. Nothing here is a recommendation for your specific situation — talk to your advisor and your CPA before acting on anything you read. Fathom Wealth is the private wealth practice of Cameron Hunt, conducted through Savvy Advisors, Inc., an SEC-registered investment adviser. Tax figures cited reflect rules in effect for the year noted and can change.