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How to Advise Clients During an Election Year

Any change in the fiscal climate from this being an election year should not distract you or your clients from long-term financial planning goals.

As Election Day draws near, you may want to consider different strategies and methods of providing sound financial advice to your clients. While some approaches during non-election years are still appropriate, there are other ways you can better prepare your clients and their portfolios, whatever the subsequent results might be.

Election-Year Challenges

Although an election year might be perceived as a potential stumbling block for progress toward your clients’ financial goals, especially with such uncertainty looming and anxiety brewing, you need to reassure your clients that despite outside circumstances—from the COVID-19 pandemic to an economic recession or even a new policy that comes with the election, the central focus should still remain your clients’ goals. Your clients will find that if they stay focused on their primary financial goals, with some potential short-term adjustments, they can still remain on target to meet them.

However, do not discount how policy changes resulting from an election can lead to some unrest for your clients with regards to their financial planning. In particular, be vigilant about addressing and anticipating such major policy shifts as:

  • Tax Rates – Depending on how the tax rates change with new leadership in office, your clients might be affected by both the corporate and individual tax rates, which can have significant consequences for economic growth and personal income taxes as well as small business and capital gains taxes.
  • Trade – Based on a candidate-elect’s trade policies, your clients might need to deal with unstable job situations within targeted industries. Overall, if trade policies are harsh on specific industries, those companies might be more tempted to outsource, leaving a tighter job market in our economy. This could result in layoffs or relocations. 
  • Regulations – Yet again, the policies here can also affect employment opportunities for your clients. If regulations are obstructive to growth and expansion, these companies won’t offer as many job opportunities. On the other hand, if regulations are reduced too much, there could be costly legal risks associated with employee or product safety, for instance. All of this plays a role in your client’s professional life. Mostly, trade and regulation alike are central to an economy, unemployment rates, company growth opportunities, and employee wages.
  • Interest Rates – While this relates more to Federal Reserve policy, identifying how policies could impact interest rates and the cost of borrowing has an effect on a client’s ability to borrow for the new home, business or college education, for instance.
  • Other Newer Policies for 2020 A wide variety of other policies are on the table in 2020, such as student loan reduction/elimination, higher minimum wage, free child care, etc. Many issues are being considered this year that might not have been in serious consideration in the past, so you and your clients need to anticipate their potential enactment. 

As you anticipate these policy shifts, you can better prepare your clients for the most important steps in the process: confirming goals and revisiting expectations and strategies to achieve those goals.

Revisit Expectations

Your main focus initially should be to alleviate your clients’ fears and anxieties about the unknown with regards to the election and its results. This actually presents a great opportunity to add value to your client meetings and have a significant discussion about how each potential policy shift could impact the overall strategy of their plan.  Be prepared to offer solutions for both short- and long-term adjustments as needed or desired. 

For instance, currently mortgage interest rates are at all-time lows and the housing market has improved significantly in certain parts of the country. Perhaps now might be the right time to make the move to purchase that new home; but does that fit with their overall long-term plan? Could their career be impacted by a different administration?  If so, then maybe it’s best to wait until all the results are tallied.  Is your “close-to-retirement” client able to work remotely now, and does that accelerate their desired housing situation in retirement?  If it does, albeit a few years or so earlier than planned, then maybe it is time to take a closer look.

Encourage your clients to reflect back on March 2020: how were they feeling about their portfolio and overall investment strategy? Now that we’ve been fortunate enough to have recovered to pre-pandemic market levels, how do they feel about the pending uncertainty of the election and the continued COVID-19 economic impact?  Is it time to discuss reducing some of their investment risk, reallocating their investments, introducing hedging techniques for some of their portfolio or, introducing some down side “buffered” target outcome investments to the mix? Be prepared to offer them an overall “election protection” strategy that meets their tolerance for risk. There is no need to panic and disregard the financial plans already set in place; review and tweak them if necessary. The key is to be proactive and offer potential solutions. If your client does want to make adjustments for the election cycle, be sure to have a strategy to unwind those adjustments when appropriate. 

In addition, it is helpful to call on history and show your clients historical election results and the impacts of those results on the economy and financial markets over the longer term

Other Important Tips

There are a few other important topics to consider when helping your clients through financial planning during an election year:

  1. Be objective. Politics are divisive, particularly these days, so never show any bias or favoritism toward any political party. Simply project the hypotheticals of what would happen with the nation’s policies and subsequently your clients’ finances depending on who gets elected without any editorializing. Anything less would be inappropriate.
  2. Assess their appetite for risk. Given that the recent lows of the market are fresh in your client’s mind, get a true read of how they are feeling about the current risk of their portfolio.  How would they feel if it went back to March 2020 levels, and are they comfortable with that possibility?  If not, perhaps their appetite for risk has changed from what it was before and new options should be introduced and considered, if only for the short term.
  3. 3-6-12 Cash Need Analysis. Determine your clients’ cash needs for the next three, six, and 12 months. This 3-6-12 analysis may allow your client to make some smaller adjustment to their portfolio so they feel comfortable their cash needs will be met for the next year, no matter what happens in the market short term. This timeframe also allows markets to make adjustments to potential new policies and level out some of the potential shorter-term volatility. 
  4. Evaluate diversification. Are their assets diversified? If not, consider suggesting some diversification depending on the likelihood of certain policies continuing or taking effect in 2021.
  5. True Cost-Benefit Analysis. Make sure your clients consider the opportunity cost (what they are potentially giving up), the true cost of the change (buying or selling), tax consequences (whether they are locking in at high capital gains), and what strategy they will employ to re-enter the market if short-term changes are implemented.

Key Takeaways

While it is true that an election year presents financial advisors and their clients with a different set of circumstances and variables to consider, overall, this change in the fiscal climate should not distract you or your clients from long-term financial planning goals. It will require some fine tuning of the financial plan with some strategic tweaks here and there, and it is likely that expectations will need to be adjusted, but your clients should still be able to achieve their long-term goals with the proper guidance.

Faron Daugs, CFP is founder and CEO of Harrison Wallace Financial Group

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