At any pandemic situation the economy is the first to gets the hit. Moreover it is a panicking situation in the investor group. This is the time when financial advisor plays an important role. The investor will look to them for assurances. For them you are the saviour from the current situation in whatever role you play.
With a market decline of nearly 30% in just a few weeks as the corona virus pandemic expands and amidst eye-popping daily market volatility, most financial advisors today are simply trying to help clients to remain calm, stay the course, and not engage in panic-selling. Yet, in practice, following the advice to “do nothing” in the face of historic volatility is challenging, as it’s human nature to want to do something whether to fight or flee in the face of a dangerous threat.
However, just because advisors may be guiding clients to “do nothing” when it comes to selling out of their portfolio, it doesn’t mean that nothing can be done. Instead, recent market volatility does present a number of other financial and tax planning opportunities, from the more ‘obvious’ topics, like rebalancing and tax-loss harvesting, to other potentially necessary adjustments, and even opportunities, that might not be readily apparent mid-crisis.
As a starting point, advisors should re-run clients’ projections, which could mean communicating some not-so-pleasant news such as having to adjust the plans they’ve made for their retirements and/or even their current lifestyle. Advisors can also help clients effectively adjust their budgets as needed. While many have likely already changed some of their spending habits if only because they are constrained by social distancing from many of their usual activities, some will need to make longer-term adjustments. .
From another budgeting perspective, making contingency plans for next-in-line sources of cash, should a client deplete their emergency fund, is an important step. While such an event may not seem very likely at the moment, game planning for such an event can at least provide peace of mind.
Other potential planning opportunities include reducing loan payments to lenders, fixing “asset-location” problems that have been impractical from a tax perspective, and reviewing healthcare proxies, living wills, and advance directives to account for current travel restrictions and the healthcare implications, should a client contract COVID-19.
Ultimately, the key point is that financial advisors are uniquely positioned to help clients almost all of whom are under an unusually high amount of stress at the moment by making mid-course adjustments to their plans, staying focused on the bigger picture, creating contingency plans, and generally providing them with some peace of mind in these highly uncertain times. And more generally, doing something with respect to the financial plan can help clients feel like they are more in control. As with everything, this too shall pass, but the important thing is for clients to take steps to control those things that are in their power to control.
Disclaimer: All the views in the blog are personal of the author not attributing to anyone.
