Let me ask you, when was the last time you did a fire drill in your firm?

I’m not talking about preparing for an actual blaze. I’m talking about preparing for an emergency situation like the one that has emerged in light of coronavirus (COVID-19) – a major market downturn.

The pandemic has transformed the market into a bear market, and the unfolding uncertainty weighs heavily on many, including businesses, employees and investors.

It happened quickly. Were you prepared?

I want to help you get ahead of the chaos that could ensue the next time we see a slowdown and give you tips on what you can do right now to set yourself up for success. Just remember: Stop, Drop and Roll.

Stop and Take Stock

Your business is not only your livelihood, but also the livelihood of your employees – your team. Surviving a bear market is possible if you take an objective look at what you can improve before a significant downshift. Here are a few questions to ask yourself when fireproofing your firm.

Does your company have strong enough margins and financials?

We tell our clients to have three to six months of living expenses in the bank in case of a disaster. But, are you following that same rule with your business? Particularly in fee-based practices, profit margins can suffer greatly during a downturn.

One of the worst things you can then do is cut staff, ultimately affecting service. Building a cushion can prevent loss of valuable employees and clients.

Evaluate your margins and financials now. Do you have a cushion? If it’s not where you want it, brainstorm how you can improve it to be more prepared in the future.

Do all of your clients have a basic financial plan?

Without a financial plan, your relationship with clients becomes all about performance. This is a dangerous place to be in a bear market. By creating plans for each and every client, you can shift their focus from the short term to the long term and keep them concentrated on goals, rather than returns.

As COVID-19 increases fear in some people, make sure you’re communicating with your clients. Let them know what you’re doing to protect them – that, for example, you stress-test your plans for just this situation. This is an opportunity to demonstrate your value. Not only will communicating with confidence make them feel more at ease, but it will also grow their trust in you and the firm.

Are you sure your models will perform as advertised?

Whether you have created your own investment models or use a third party, examine the history of those models. Have they been through a down market? Do you know how they will respond, or is it theoretical at this point? This research may open your eyes to weaknesses that exist in certain strategies or allocations.

Are there any weaknesses in your current model? Take a look at how they’re currently doing and adjust your models if necessary.

Drop Hints in Client Conversations

A market downturn is just as much of a psychological jolt as it is a financial one for your clients. Proactively bringing up the potential for decline will provide two important outcomes.

First, it will help you gauge how comfortable a client is with risk. They may have said they are an aggressive investor, but when faced with reality, they might sing a much more conservative tune. Listen carefully to their thoughts, and then make adjustments if needed.

Second, frequent communications will help lessen the blow to clients’ mental state when the market turns. And, even though the market has taken a dip, with your transparency and consideration, they will be less likely to call with panic-stricken voices, having been mentally and emotionally equipped for such events.

The foundation of trust you’ve created makes them confident they can fight this fire and future fires with you beside them.

Roll Out a New Process

At Carson, we preach process. A defined process is the most effective way to react to any situation quickly and without error. Most advisors would say they have a loose idea on how to handle market downturn, but few have a written procedure in place.

Do you have a process? How is it handling the COVID-19  fallout? Do you need to update it?

The Upside to Downside

Waiting for the market to take a turn for the worse is a little like waiting for a single spark to ignite a series of explosions. There is anticipation marked by dread. But, like any good coach would do, I’ll put a positive spin on this somewhat discouraging topic.

If you run the drills, make necessary changes and execute at a high level, a bear market could actually lead to increased client retention and referrals. In fact, you could experience some record new clients and assets just by showing up when it truly counts.

Talk about rising from the ashes!

Say you didn’t run the drills before. The current situation is a good place to start. As always, please feel free to reach out if you have any questions or need some guidance at info@carsongroup.com. We can rise from these uncertain times together.

AUTHOR

Sarah M. Cain

Vice President, Coaching & Consulting
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