How trusted advisors can rise to the challenge of uncertain times
by Ryan Sullivan
Mr. Ryan is a principal and managing director with Rehmann Financial and is based in the Traverse City, Michigan office. He provides direction to all financial service divisions of Rehmann Financial. Ryan also serves as a member of the Rehmann Financial executive committee. Please visit rehmann.comWith news stories about the global COVID-19 pandemic dominating nearly every social and traditional media platform, it’s easy to experience information overload. Advisors face countless known and unknown challenges amidst these uncertain economic times. At the same time, it is critical advisors serve as trusted allies to their clients for the duration of the crisis.
With economic conditions evolving rapidly, clients have been forced to adapt to a new capacity for risk tolerance. Many are overwhelmed with the breaking news every hour and have struggled to separate fact from fiction. The anxiety they feel is understandable, but smart retirement planning is crucial, now more than ever. Uncontrollable factors can cause potential obstacles for advisors and clients alike, but advisors have an opportunity to be supportive of their clients and strengthen those relationships in this new landscape.
Take Heart in What You Know As An Advisor
In order for advisors to overcome their own anxieties and provide a sense of security, it’s critical to take a step back and determine what can be controlled. It is important to be proactive, and separate facts from emotions before making decisions. After clearing the early emotional hurdles, allow time for clients to process the situation at hand and find a sense of comfort. Provide thoughtful, strategic advice by focusing on what is known.
These are unprecedented times, but we have been through economic challenges before. Try to remove the emotion from the situation and think about it in financial terms. We have seen market volatility before, and the market has always recovered. Right now, many people can’t see or think beyond planning for tomorrow. Encourage your clients to look ahead by breaking down recommendations into specific timeframes. At a high level, think about how this crisis might impact short-, mid- and long-term plans.
Once past the wall of uncertainty, advisors can guide clients in a productive manner and provide meaningful recommendations. Stay the course and offer advice that’s appropriate, even if that means not making any changes today. This is an opportune time to build relationships with clients while providing significant value.
Separate Fact From Fiction
As more information becomes known, include it in your conversations with clients. They will look to you for guidance and direction. Stay ahead of the news curve and be proactive in client outreach, as appropriate.
Some of the most important new developments include recently passed legislation and regulations that impact many clients. Many federal, state and local stimulus relief packages offer support to both individuals and businesses. Take time to study and review the CARES Act, which provides significant relief for individuals, families, and businesses affected by the pandemic, and determine if your clients will be able to take advantage of any of its various provisions.
Think about what market information and context you can provide to your clients. Focus on providing known, factual information in a sea of conflicting, and often unhelpful, information. Don’t simply observe the news but help clients understand how it applies to them.
It is only human to feel nervous and anxious right now. As an advisor, try to help your clients drown out the noise and help them focus on what you can control together. In reality, many aspects of planning can be controlled, even amidst uncertain times.
Limit Risk Exposure
The current state of the market is causing significant anxiety and pressure among investors. The daily market volatility is intense. Take a look at the money clients currently have exposed to the stock or bond market, whether international or domestic. There is an opportunity to control the risk as well as the extent of the risk. If they do not have financial capacity to invest or are improperly investing, help clients make course corrections.
There is always a layer of risk involved, whether in the stock or bond market. However, not all stocks and bonds have the same types of risk. Identify what risks the client wants to take and manage those accordingly. Ensure the client knows where their investments lie and determine whether they are following an appropriate strategy balanced with their risk tolerance. Acknowledge that we will get a better sense of the true impact on investments as the economy eventually returns to normal.
Be Cognizant of Fees And Expenses
Remind your clients to be aware of all expenses and to know where their money is going. This time of uncertainty will create a cash flow crunch for many households and businesses. Remind clients to think twice about where they spend their money. Temporary decisions, like putting off a home project, and weekly budgeting can help individuals make ends meet.
Encourage individuals to hold onto cash—until the end of the crisis is in sight to cover unforeseen expenses or bridge a loss of income or revenue. High quality low interest credit is also more widely available now. If the client has a line of credit, encourage them to use it and hold onto cash instead of paying down debt early. They might not be able to get credit in the future the same way it is available today.
Managing expenses and fees to help with cash flow is a factor that can be controlled. Review the amount of cash a client has in comparison to the client’s low interest debt. This is a form of strategic control and a decision you can make with a client today.
Plan For Long Term Cash Flow Needs
Thinking ahead is difficult in times of uncertainty. Encourage clients to think 12 to 24 months out, rather than focusing only on the next few months. Ask the client how much cash they will need through a trusted income source to maintain their current lifestyle. Once that is determined, identify any expenses or fees paid on a monthly or regular basis. Individuals should set that money aside to continue on this path without much exposure to risk in the short term. Subsequently, this will provide an opportunity to make better long-term decisions.
Expand the client’s view and look beyond the next year. Remind them to focus only on what’s critical in terms of expenses.
Take Advantage of Tax Relief
In addition to personal planning strategies, many changes to the tax code will provide temporary relief to individuals and businesses. Be mindful in educating yourself on available tax planning opportunities for clients, and engage with other tax professionals to ensure you understand all IRS and tax legislation changes that may apply.
One significant change worth noting is the waiving of the required minimum distributions (RMDs) from IRAs and qualified plans in 2020. This will have a significant impact on many retirees. Those with RMDs due in 2020 can elect not to take them, significantly reducing tax bills for many. If your client is in a position where they are able to eliminate distributions for a year, it will eliminate accompanying taxes. This translates into a significant amount of taxes retirees will save by opting not to take the distribution.
Changes in tax laws and legislation are often glossed over amidst other breaking news. As an advisor, ensure you are aware of tax strategies that didn’t exist, or wouldn’t have been appropriate, one month ago.
Consider a Roth IRA
After the SECURE Act of 2019 was implemented, converting a traditional IRA to a Roth IRA made sense for many clients. Now, investment markets are dramatically lower than they were six months ago, meaning Roth IRA conversions will continue to be appropriate from an estate planning standpoint. Roth IRA conversions offer an opportunity to make the most of the market environment while increasing productivity in a controlled manner.
Be The Advisor Your Client Can Trust
Clients need a trusted relationship with an advisor now more than ever. Don’t limit your interactions to simple responses to calls and emails. The global crisis is a serious matter, and clients need and expect advisors to be educated and to bring forth proactive ideas. Though challenges will persist, now is an important time to establish and strengthen existing relationships.
Show you are thinking ahead and offer relevant advice. The role you choose to play in a crisis is entirely up to you. Focus on what you can control and help your clients navigate this uncertain environment.
Securities offered through Rehmann Financial Network, LLC, member FINRA/SIPC. Investment advisory services offered through Rehmann Financial, a Registered Investment Advisor.
