How to Prepare Your Firm for a Market Downturn or Recession

The last bull market, which ended in 2020, lasted 3,999 days. That means if you have been a financial advisor for less than a decade, you are now experiencing the first protracted market downturn of your professional career—and it’s stressful. Like parenthood, no matter how much you’ve studied and heard about it from those who’ve been through it before, downturns can catch you off-guard.

If you are an Office of Supervisory Jurisdiction (OSJ) or Manager with advisors reporting to you, you probably have a good number of downlines who need extra encouragement, context, and guidance. So, you’ve got both clients and employees who need your calm assurance and counsel.

If you are an independent fee-based advisor, then current conditions are not only affecting your clients, your employees, and possibly your sleep, but odds are your bottom line is feeling some impact as well. Your revenue is a function of AUM that is declining thanks to market performance.

However, the news isn’t all bad: a market downturn can lead to opportunities. Investors often realize the need for financial advice during volatile times and your firm could be a beneficiary of that realization. Sixty-two percent of Americans say their financial planning needs improvement, yet only a third seek the help of a financial advisor. That remaining two-thirds represents a lot of investors who might soon be looking for professional financial advice.

Read “7 Tips to Prepare Your Clients for a Market Downturn”.

Additionally, uncertain times present you with an opportunity to showcase your value to existing clients. But it can be a challenge to do this effectively if you are distracted by the demands of business ownership.

What’s Your Plan for a Downturn? And, Yes, You Need One.

Market downturns require advisors to move beyond the standard business plan and delve into the demanding world of making lemonade out of lemons…when you don’t know how many lemons are coming your way, or for how long. Ideally, your aspiration is to thrive in a downturn of any duration and magnitude. Your goal is at least to get through it. Let’s look at both scenarios.

Thriving in a Market Downturn

The best challenges are those that can be transformed into opportunities. To paraphrase Louis Pasteur, fortune favors the prepared. So, how do you get ready for a market downturn? As with any crisis, you need a plan AND the resources to execute the plan. For example, what’s the point of keeping a flashlight handy if you don’t have batteries?

Similarly, to meet the challenges of a market downturn head-on, it’s best to have a plan in place prior to needing it. And that plan, at a minimum, should cover the “Five W’s” of both practice management and business growth.

Practice Management

As you manage the financials and emotions of your clients, you may find you’ll be doing the same for staff. How you communicate with these stakeholders during tough times is a determining factor in their level of confidence in your leadership.

• Who? Take a look at your staff structure. Cross-train employees to ensure coverage in the event of staffing gaps or potential future layoffs.
• What? Get your books and reports in order. Understand your financial bottom line and cash flow so you can make wise choices.
• Where? Analyze where your firm is spending. Prioritize where budget cuts can be made, if financially necessary.
• When? When do you need to make changes? Create a timeline to implement cost-cutting steps.
• Why? Clarify the firm’s strategy. Communicate with employees on a regular basis, so they understand the “why” behind your decisions.

Business Growth

Historically, “companies that have bounced back most strongly from previous recessions usually did not cut their marketing spend, and in many cases actually increased it." However, they did change how they focused their marketing energy.

• Who? Establish your target audience (prospects, as well as clients and their families) for marketing efforts and engagement.
• What? Develop low-cost engagement methods (think digital) and establish a library of pre-approved client communications you can leverage quickly and easily; here are some examples of high-impact, white-labeled communications that put you in front of clients and answer their questions:
  • Midterms & Markets
  • Confused About the Economy? It’s OK
  • Not All Recessions Are Created Equal
• Where? Prioritize discussions based on where clients are in their financial journey. Retirees, pre-retirees, and others with shorter time horizons should be among the first you engage; next up are clients with low risk tolerance.
• When? Plan your outreach cadence to clients and prospects…and keep it up.
• Why? Be prepared to explain to clients why their portfolios are positioned well for both the downturn and recovery.

While every market downturn and recession share similarities, each is unique. Even the most comprehensive, well-thought-out plan may need tweaking. Moving beyond your plan and being agile is key to emerging stronger than before. In any and all situations, one rule reigns supreme: Clients. First. Always.

OK, We’re in a Downturn, and You Don’t Have a Plan. Now What?

If you’re not in a position to maximize potential opportunities arising from market uncertainty and economic volatility, you can weather the storm. The intangibles that you and your team bring to the table haven’t disappeared. The relationships you’ve nurtured with your clients still exist…and will more than likely deepen as you help them navigate rough investing waters.

In terms of seeing your business through the downturn, there are some best practices to adhere to:

• Have a sit down with your CPA or CFO.
  Know exactly the financial strength of your practice. If you don’t have credit lined up, now may be the time. Having access to cash–for today or in the future–is always a good idea.
• Avoid layoffs.
  It’s demoralizing, and once the recovery hits, you want to be fully staffed with high-quality employees instead of searching for replacements.
• If you must let people go….
  Do your best to retain client-facing employees. Clients want to work with people they know, and if they are suddenly gone, clients may see this as a sign that you are struggling.
• Assess wants vs. needs.
  If upgraded technology can wait, let it. Large bonuses and big-ticket performance rewards are always welcome, but not always expected. You can give due recognition now and financial rewards when things normalize. In short, stop discretionary spending for a time.
• Cut expenses, not corners.
  Rethink your marketing. Hire an intern from a local college and leverage their digital abilities to re-do your website. Why buy ad time or space when a well-conceived (and FREE) social media campaign can be just as effective? Consider other options to stay in front of your clients at low-to-no cost and reinforce yourself as an expert:
  • Offer to speak at community events.
  • Serve as a guest expert on local radio or television programs.
  • Teach a course or give a lecture at the community college.
  • Join forces with other Centers of Influence (COIs) and host an event covering financial planning or another relevant topic.
  • Reach out to the press as an investment expert and get yourself quoted in a news story.
• Stay focused.
  While the entrepreneur in you may want to continue to prospect for clients, you may not have the resources–human or financial–to dedicate toward it. Your existing clients need you now and are the priority. Don’t forget: happy clients generate referrals, so a great client experience creates buzz on its own.

Clients are the lifeblood of every financial advisor’s business. During stressful and confusing times, they will rely on you to offer objectivity and informed guidance. Market downturns and/or recessions are certainly not considered business as usual, but it’s important to maintain your service offering–especially your quarterly client reviews. While each client’s unique situation will drive the discussions, use the schedule below as a starting point for setting the agenda.

• Q1 Meeting: Taxes
  In a market downturn, tax management/tax loss harvesting may lessen the negative impact of market losses.
• Q2 Meeting: Investments
  Go beyond the numbers and encourage clients to discuss how the downturn makes them feel; use the meeting to discuss their current notions on risk and return; talk about their time horizon and any potential re-allocations that might be needed.
• Q3 Meeting: Insurance
  Life, long-term care, and other protection strategies often get overlooked when the focus is on the markets; review their coverage and discuss updates–and don’t forget a beneficiary review.
• Q4 Meeting: Estate Planning
  With family visiting for the holidays, it’s a great time to meet your clients’ children and include them in the conversation.

Whether you are prepared for volatility or not, lean into the situation. You can’t control the economy or the markets, but you can control your reaction. You also possess a valuable superpower: you have the ability to ease your clients’ anxiety. Be present for them. Pivot without compromising your core value proposition and standards. When the dust clears, your clients will be grateful for your steadfast support, your employees will be better prepared for next time (yes, there will be a next time…), and you’ll stand out among your competitors.

To maximize your efforts, be sure to ask your outsourcing provider for materials to support you and your clients.

If you’re working with AssetMark, ask about our Market Volatility Tool Kit, which provides educational materials that can help your staff stay informed and that you can send to your clients—from email and video templates to white-labeled resources that you can add your logo to and share with your clients.

If you’d like to learn more about these AssetMark services, as well as other support capabilities available from AssetMark, talk to your AssetMark consultant.