Looking Forward

Financial Planning in a Post-Pandemic World

Investors are anxious… and in need of your help

by Craig Hawley

Mr. Hawley is Head of Annuity Distribution for Nationwide. Visit www.nationwide.com

We have been living with COVID-19 for months now, and uncertainty persists. Many Americans continue to face unemployment, and the labor market remains almost 13 million workers shy of its February peak. For those fortunate to have jobs, some worry about the potential health risks in their workplace, while others struggle with the challenges of working remotely.

The economy is fighting an uphill battle. Despite a $3 trillion stimulus package, gross domestic product (GDP) declined by a record 32.9% in the second quarter and could stall in the second half of the year if shelter in place type orders aren’t softened. While the stock market has completed “a remarkable round trip,” that started with the fastest 30% decline on record last March followed by a 100-day gain that hit an all-time high in August, top-heavy gains raise concerns about future returns.

Blindsided—And Seeking Advice

Investors are anxious. In fact, according to Nationwide Retirement Institute’s April COVID-19 survey, 40% of investors are worried about losing their life’s savings and more than one-third (34%) are concerned about being unable to pay bills or meet financial obligations due to COVID-19. Meanwhile, 85% say the pandemic has made them realize that they could do everything right and still be blindsided by outside events.

Post COVID-19, these scars could still run deep. We all know the studies showing that fear of loss looms larger than the desire for gains. Clients will need your help overcoming concerns and navigating what comes next. Effective financial planning will be about helping clients feel understood, prepared and protected. To give clients the confidence they need in a post-COVID world, consider these three things:

Be There for Your Clients—Even At A Distance

According to our NRI survey, more than half of investors say that during this pandemic, financial advisors (55%) top their list of trusted sources, far outpacing friends and family (26%), online investment management/financial planning tools (25%) and their employer sponsored retirement plan (24%). Building trust benefits you as well. Fostering and nurturing trusted relationships with your clients is the foundation for a thriving practice.

But it’s a challenge when you can’t meet face-to-face. According to a new LIMRA Study, not being able to meet in-person with their clients ranks as the biggest impact during the pandemic for 9 in 10 advisors and financial professionals. While virtual meetings—like FaceTime, Skype or Zoom—can help you maintain more personalized connection with some of your clients, we know this won’t work for all of your clients. And many advisors have told me about the tough job of prospecting for new clients and building new relationships in a virtual world.

One thing that we’ve learned, through a decade spent perfecting our own virtual wholesaling model, is that consistency matters, and it is more effective to educate than it is to sell. So maintain the right cadence of emails, phone calls and virtual meetings to help your clients feel informed and let them know that you’re there for them.

And don’t underestimate the importance of creating a real emotional connection. The Nationwide Retirement Institute has also been working on a new study, to uncover what leads clients to work with a financial professional. While cognitive trust (or “trust from the head”) is important, our study found that affective trust (or “emotional trust”) is a much larger predictor of what motivates an investor to work with an advisor or financial professional. Empathy is the biggest driver of affective trust. So take the time to listen, validate your client’s experience and help them feel understood, so they can move forward with their plan and toward their financial goals.

Prepare and Protect For What Comes Next

With fears about paying bills and meeting financial obligations top of mind, now is a good time to make sure clients are prepared with an adequate emergency fund. They should have three to six months’ worth of expenses saved in liquid assets. Help them prioritize essential and non-essential expenses, so they’re confident they have a plan, should they need to adjust their spending.

At times like these, short-term moves could lock in long-term losses. In fact, to help cover expenses related to the pandemic, 16% of investors said they would sell shares from their qualified plans and 16% also said they would sell shares from their investment portfolios, according to our recent NRI survey. Only 50% will stay the course and make no changes to their qualified plans, and just 42% will stay the course and make no changes to their investment portfolios. Discuss other strategies, perhaps setting up a line of credit or refinancing their mortgage while rates are low, so they can avoid selling shares from investment accounts to bridge the gap.

At times like these, short-term moves could lock in long-term losses. In fact, to help cover expenses related to the pandemic, 16% of investors said they would sell shares from their qualified plans and 16% also said they would sell shares from their investment portfolios...

Faced with a stalling economy and ongoing volatility, clients are also concerned about losing their life’s savings and seeking protection. It is vital to have a portfolio that is diversified across asset classes, for upside potential and downside protection. As our recent NRI survey revealed, over half of investors agree that the COVID-19 pandemic has made them recognize the need for annuities to protect their investments against market risk (51%) and to protect their retirement income (51%).

With Federal deficits on the rise, and the future of taxes unknown, clients’ investments should also be diversified across different types of taxation—taxable, tax-deferred and tax free—to control how much they pay in taxes, when those taxes are paid and to maximize the power of tax-deferred and tax-free compounded growth for the long-term.

Long-Term Protection For Clients and Loved Ones

For many clients, COVID-19 has been a wake-up call about the demands of caregiving and the importance of long-term care. As shown in our recent NRI survey, over four in ten investors are concerned that the COVID-19 pandemic will impact their ability to fulfill potential caregiving responsibilities for others due to financial strain (41%) or illness (40%). More than half of investors (57%) say that the pandemic has made them recognize the need for long-term care insurance for themselves and the people they care about.

All too often, long-term care is overlooked when it comes to financial planning. While health care costs and long-term care costs are the top two concerns in retirement, according to Nationwide Retirement Institute’s 2019 Health Care Survey, many clients avoid the conversation—and vastly underestimate the cost. In fact, more than 1 in 3 have said that they have failed to discuss long-term care insurance expenses with anyone.

When you discuss long-term care insurance with your clients, empathy becomes especially important. Investors’ top reasons for avoiding this discussion are because they prefer to discuss with their spouse (21%), they consider it a personal issue (19%) and they are concerned that they don’t know enough (15%). Be sensitive to their emotional cues, be sure to engage their spouse and other family members, and be sure to highlight the value not only to your clients, but also their loved ones.

The cost for health care in retirement can top $10,000 per year on average. But health insurance does not cover long-term care expenses, and Medicare and Medicaid will only cover some long-term care costs. Long-term care insurance can help clients bridge that gap to help ensure a more secure retirement.

Long-term care insurance can help clients pay for home health care, nursing home costs, adult day care and other qualifying services. Benefits are paid tax-free after qualifying conditions are met. There are also hybrid long-term care policies that are linked to a life insurance policy, for those individuals who fear paying premiums and receiving nothing in return. If clients do not need to use their long-term care, their beneficiaries will receive a death benefit, tax-free, that could be equal to or greater than premiums paid.

And at a time when health care costs are top of mind, health savings accounts (HSAs) are a triple-tax-advantaged savings account that clients can leverage. Contributions to HSAs are made with pre-tax dollars, so they’re tax-deductible, they grow tax-deferred and withdrawals for qualified health-care expenses are also tax-free—now and in the future. HSAs can be used for current deductibles and co-pays. In retirement, HSAs can be used for qualified medical expenses, including certain Medicare premiums and prescription drug coverage. HSAs may qualify for an employer match. And like 401(k)s, HSAs are fully portable, should clients change employers.

Ready For The Post-COVID World

Clients will continue to confront many unknowns in the months ahead. The good news? Investors who work with an advisor or financial professional are more likely to feel optimistic about the impact of COVID-19 on their personal finances than those without an advisor—and roughly half of investors are now relying on a financial professional more than ever. No matter how the future unfolds in a post-COVID world, clients who work with you to feel understood, prepared and protected will have more confidence to make a plan and stick with it to achieve their financial goals.