With so many Americans feeling uneasy about the economy and their finances right now, we decided to ask some of our financial advisors across the country to share their insights and advice for uncertain times.
Below, Sam Arthur, CFP®, a Northwestern Mutual Wealth Management Advisor based in Atlanta, explains why it’s important for small business owners to have a solid financial plan in place.
Your team does a lot of financial planning for small business owners. Once the pandemic hit, what was the first thing you did?
We work with attorneys who own their own law firms, physicians and dentists with private practices, several real estate entrepreneurs, restaurant owners and others in various industries. Most of them had to close and experienced negative financial impact because of the effects of social distancing.
Our team has a diverse client base, but the common theme among them was concern over how this uncertainty will impact their businesses and careers. The number one thing we did when this all started was be proactive about reaching out to them. We recognize that everyone’s situation is different, so it’s important to help each client identify what they need and strategies worth considering.
What specifically did they want help with?
Some of them needed assistance with organizing and preparing their paperwork so they could apply for government funds through the Paycheck Protection Program. In addition, wherever possible, we helped them consider other ways they could potentially get grants, loans and access to capital that didn’t necessarily exist before March. Most of our clients who were eligible did get PPP loans, and those have been saving graces — but they still have some concerns. Those funds will get them through a period of time, but what happens after that?
Our team had a lot of conversations helping them think through the options available to them. How can they create liquidity? How do they create buffer? Do they need to reinvest, or should they pivot what they’re doing? The business owners who adapt quickly and have multiple sources of funds to draw from will likely be the ones to come out of this in the best shape.
Did the crisis change how you work with clients?
I believe our team has never worked longer hours as we have been trying to make ourselves as available as possible whether that was via email, phone or text messaging. When the shelter-in-place directives came out, I created a file on my phone titled “2020 Recession” so I could continually track our team’s progress by focusing on three questions: What did we learn? What would we have done differently? What did we do well?
I felt the best approach we could take would be to continually monitor the situation and use it as an opportunity to become even better at our jobs. This pandemic has created a world of question marks and turmoil. Our goal is to be a light for clients and to help them plan for these challenges.
By the end of March, we had connected with most of our clients and, even if they didn’t have any pressing financial concerns, they let us know that they appreciated us listening to them and providing a voice of reason. We’ve been coaching our clients that storms are always going to come. The markets don’t always go up, so it’s incredibly important to have a portion of your money that is safe and not tied to the market. By having cash and emergency funds in their savings accounts, as well as permanent cash value life insurance, our clients have fared well in this storm.
What other strategies have you discussed with clients?
Where it was appropriate for our investment clients, we tax-loss harvested their accounts between March 13 and March 20 because the market had dropped about 30 percent at that point. We were able to save those clients a significant amount in future tax liability. We also recommended that several clients make contributions to an IRA, which we then immediately converted to a Roth IRA. That means those clients will never again owe tax on that money.
In addition, Ben Glassman, our director of investments and planning, pulled a list of our clients who had what we call “opportunity money” available in cash reserves and who also had a long-term time horizon. We encouraged them to invest opportunistically, and because we have built a long-term financial plan for these clients, which includes safer assets, they were comfortable being more aggressive.
We also stayed in contact with our clients and provided commentary about what was happening in the markets and how it was affecting their financial plans and situations.
Many of our clients had not truly experienced a financial crisis or recession. Therefore, it was really important for our team to be ready and able to act. We feel fortunate to be partnered with Northwestern Mutual, which provides us with great resources and tools for our clients. I also believe there is value in not being a solo practitioner, but really embracing a team philosophy. We’re here to keep people from jeopardizing their futures by not losing sight of their long-term goals and succumbing to their short-term fears.
All investments carry some level of risk. No investment strategy can guarantee a profit or protect against loss. This is for informational purposes and not investment advice.
This article is not intended as legal or tax advice. Northwestern Mutual and its financial representatives do not give legal or tax advice. Taxpayers should seek advice regarding their particular circumstances from an independent legal, accounting or tax adviser.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.