Crisis proof planning

Marketing / Strategy / Practice Management / Business Growth / Client Value Proposition / Fintech / 22 June 2020

David Haintz - Crisis proof planning
David Haintz - Crisis proof planning

It was a dozen years ago and the whole world seemed to be falling apart. The Lehman collapse had blown a large hole in many people’s retirement hopes and dreams. Yet only a handful of our clients at the time went to cash. What made the difference?

Back in 2008, we had only just created Shadforth Financial Group – via a merger of 14 specialist boutique wealth management and advisory firms, my firm among them. Anyone who has been at the centre of a M&A of that kind knows there are lots of moving parts. But throw a global financial crisis into the mix and you can imagine the complexities.

We had a combined eight thousand or so clients at the time. Broadly, these clients were predominantly in 60/40 or 70/30 asset allocations, with portfolios down from peak to trough about 23 per cent and 28 per cent respectively. Of course, many were on the brink of capitulation and wanted to shift everything to cash.

Yet, only a handful of clients did so. And the lessons from that experience have remained with me ever since, particularly now as the world goes through another crisis – one that combines significant threats to people’s health, wealth and livelihoods as well as to the broad economy.

You don’t have to look very far to find bad news – unemployment soaring back to double figures, GDP contracting for at least two quarters and maybe more, investment shrinking and much of the economy coming to a screeching halt. And this is on top of the actual pandemic.

Is it any wonder clients are asking you: “Is it really different this time? Are we going to survive this? I’m not sure anything will ever be the same.”

The anxiety is understandable, the stress completely forgivable. But the key to keeping people in their seats is to retain their focus, not on all the detail of their investments, but on the plan you made for them and on the goals they set in the first place.

Volatile markets are going to happen from time to time. While the temptation inevitably is make wholesale portfolio changes, the role of the adviser is to talk the client off the ledge and back to all the things they can control, like portfolio rebalancing and tax-loss harvesting.

For retiree clients there is the option of using cash reserves to cover spending requirements through the pandemic, instead of the knee-jerk response of making portfolio withdrawals. Of course, this backstop might have seemed an unnecessary drag to clients when the market was going gangbusters last year, but no-one will be questioning it now.

That’s all very well, I hear you say. We know what to do. The big question is how do you do it? How do you get yourself and your client into the position where these quite logical options come clearly into focus and where the client feels they will be OK?

The answer is a combination of evidence-based investing and life-first financial planning. The first of these – an investment philosophy that you and your client can rely on – is the foundation stone for your business and is what you can call on at times like these.

By being clear in what you believe about the drivers of long-term investment returns and how to achieve them, you can deal with other questions with greater confidence. By having evidence on your side and being able to point to it, you can move the discussion on to more meaningful areas that relate to the client’s life experience.

The second of these tools is lifelong cashflow modelling that shows the client they’ll be OK within a range of scenarios, that change periodically by the way, and continually gets them laser focused on their goals and outcomes.

I am talking about a digital easy-to-use, unbiased and holistic solution, allowing end-users to take better financial decisions impacting their life. This gives back to consumers the confidence to act, and reach their goals, or stay in their seat through a crisis.

Life is full of tough choices. People can’t have it all. More of one thing usually means less of something else. At the end of the day, life is the sum of all their choices. Shouldn’t they be making them wisely? Having conversations is one thing, but showing them visually is another.

Of course, when it comes to modelling, there are dozens of single-purpose calculators out there that look at specific issues, but we are now starting to see much more sophisticated, interactive life-planning platforms that take a holistic approach on any range of scenarios.

Ultimately, this combination of a strong evidence-based investment philosophy as a foundation, and planning tools that collaborate with and engage clients to focus on goals rather than investments can help hundreds, and thousands of real people and families to lead their best possible life, and in doing so, free up advice businesses to generate strong sustainable growth.

This happens because you end up spending less time putting out fires and talking about investment products and market performance and more time inspiring your clients and empowering your business – which is what we all want, isn’t it?

Like a car accident or roadblock showing up on Google Maps, unpredictable events like pandemics and financial meltdowns no-one can control. But that is precisely why clients come to you. They need a plan that can get them through whatever happens, that shows them the inevitable trade-offs that life requires, but that brings them back to the goal that inspired them in the first place.

That’s what proper financial planning advice is for. Let’s redefine what real advice is.

Make it your mission to help people make better decisions and as a result lead a better and more fulfilling life.

Looking for next steps? How to implement?

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