Since the beginning of COVID-19, low-wage employees have suffered the blunt of economic setbacks with the middle class also beginning to feel the pressure. A 2016 report by the Employee Benefit Research Institute showed that a family making over $98,018 in pre-tax income still owed an average of $92,000 in non-housing debt. The monthly interest payments owed on this consumer debt on top of the steady layoffs that have been occurring makes this a very troublesome situation. Financial planners and advisors have been jumping into the chaos to instill confidence in their clients but they’re now receiving more inquiries than ever before. This massive influx is from many new customers who have never dealt with a financial advisor but were eager to schedule a meeting when their 401ks began to vanish. On top of dealing with highly emotional investors who are severely impacted by COVID-19, financial planners are also navigating volatile markets that could alter the investing strategies for future clients. But will these new strategies flourish in a post-COVID landscape where more businesses have collapsed and more layoffs have occurred? I’ve reached out to Samantha Frommer, a DFW financial planner, on how financial planners have been adapting to COVID-19.
An April 2020 pulse survey created by the Certified Financial Planner Board of Standards showed 78% of financial planners experienced an increase in client inquiries and 34% experienced an increase in prospective client inquiries. How has your client interaction changed during COVID-19 and where do you find the balance between remaining sympathetic to heightened emotions and also pragmatically explaining the budgets at hand?
Sadly, when markets are doing well and unemployment is low, there’s little incentive for many people on setting up financial portfolios or emergency funds. Sometimes people don’t think of the worst-case scenario until it actually happens. Over the past few months, the market has really changed and people are becoming more aware of needing financial security in an uncertain climate. Financial planners have dealt with economic downturns in the past, but this might be a new situation with health concerns and the intense emotional grief many struggle with across the country. If a family is already worried about their health, the last thing I want them to be concerned over is their financials. This is what makes me motivated to set a solid portfolio that can give a family the peace of mind they want.
Finances can really play a huge role in peoples’ emotions and it can have an effect on the other aspects of your life. Financial Planners still must think practically and not be afraid of telling the truth to clients. Individuals shouldn’t have to feel guilty over circumstances they had no control over so it’s a part of our job to reassure them that financial downturns will happen but they have a portfolio that will get through it.
You have many financial figures endorse the 3-6 month emergency fund with Dave Ramsey stating “the riskier your life is, the closer you should have to the six-month range”. Considering we’re around the 6 month mark of COVID-19, what is the usual game plan for when the emergency fund dries up and has this pandemic changed your opinion on the priority or scope of an emergency fund?
That is such a great question! Emergency funds are such a huge part of our portfolios and the risk-management is the most important piece in my role. There’s many reasons for the need of an emergency fund like preparation for a job loss, being hit by an economic downturn, or waiting on benefits to kick in over a certain period of time in the event of a disability. People still have bills to pay if they’re not having a paycheck come in and an emergency fund gives them the safety net to deal with any complications that might pop up. I don’t think anyone would have predicted COVID-19 lasting this long but we still produce options that take long-term downturns into account. We have plans in the scenario of an emergency fund drying up which provide additional liquidity for the client. Emergency funds have always been a top priority for me so I don’t think this pandemic has changed my opinion on it. COVID-19 has definitely highlighted why risk-management is an important factor in any investment portfolio and you have to be prepared for the worst possible situation.
Hanna Horvath, a data analyst at Policygenius, has stated that there will be more cash hoarding, conservative investing, and tighter budgeting post-COVID. How do you think investor portfolios will change after this pandemic?
I would agree that people will begin to take a more conservative route when it comes to investing for a long-period after this pandemic. This definitely highlights the importance of diversification in your investments but also the need to diversity your income-producing accounts. I’m not sure if I can predict how much people will tighten their budgets but I definitely feel that there will be a significant change in what people are comfortable investing in. We create investment portfolios that take many financial aspects into account, so the average client doesn’t feel the heightened need to start cash hoarding in this environment. Diversification and long-term investing saves us from the need of repeatedly changing the investment strategy after every small financial hiccup.
The March 2020 U.S. Bank Women and Wealth Insights Study reported that 47% of the women interviewed associate negative words with financial planning, but only 31% of men interviewed did the same thing. You also hear many stories of husbands who would keep their wife out of financial conversations. Have you dealt with any scenarios like this and do you think COVID-19 might change the conversation amongst married couples?
This is something we deal with a lot and I strongly prefer bringing in both spouses into the financial conversation. They both don’t have to be equally invested mentally on the finances but I still want both spouses to be aware of the situation. It gives them clear insight on their budgeting and makes transparent communication. I’m also a huge advocate on involving young people in financial conversations. I work with a lot of young clients, some who aren’t married or have any children, who are still very eager to get their financials on track and learn new concepts like 401Ks and Roth IRAs. It can sometimes be a struggle to market to younger clients but I have gained conviction to do it through my work with older clients. Many older clients have stated things like “I wish someone gave me this financial advice when I was in my 20s”, which has made me determined to help younger generations on setting solid investing portfolios for themselves. It’s definitely a lot cheaper to start investing young but I’m not going to pressure anyone into diving into the idea.
