It is abundantly clear that most of us have little understanding how the coronavirus will impact our financial lives (let alone our actual lives and those of our family and friends). How far will the market drop? When will it recover? How many jobs will be furloughed or lost? Which industries will suffer significant and long-lasting downturns? What permanent changes will be embedded within the global and local landscape? Will people stop going to public or even private events or restaurants? What of the airline, cruise and hotel industries? How long will it take for our economy to recover, and in a time of trillions of dollars of debt, where and how will the U.S. government get the necessary capital to operate, let alone meet its existing debt obligations without initiating inflationary measures? These are just a tiny fraction of the questions permeating the minds of wealth distributors on Wall Street.
We just don’t know what we don’t know.
It is precisely because we cannot predict what will happen that financial advisors need to focus on protecting their clients’ wealth. While market risk in the time of coronavirus is unknown and traditional financial modeling is being tossed out the window, there is one thing that clients with means can do in 2020; reduce taxes on their wealth and taxable income and bank their savings in tax protected structures or through tax-efficient strategies.
Cost savings, including tax reduction, is one of the few common-sense solutions that nearly every wealth holder can and should put into action today.
There are many views on what types of planning work best. While some advocate for maximizing qualified plans and IRAs, others are concerned that these are the first and easiest assets for the government to confiscate if it needs additional tax revenue. Clients with more meaningful levels of income and affluence may look toward advanced life insurance planning, including private placement life insurance, and shifting their current ownership and operating structures to those that are notably more tax efficient.
Whatever the methodology, what's most important for advisors is to find the appropriate path for each client and take action. Clients need advisors who can lead them through these troubled times.
I have a family member who is in his 80s with a mid-eight-figure net worth. One would think that his advisory team, ensconced in the New York offices of a global wealth management firm, would reach out to him personally with thoughtful advice. Instead, he received a mass-marketed email advising clients that they should “not be overly-concerned.”
Envision my relative, staring at his computer screen wondering where the leadership was in this time of crisis. And if wealth holders with tens of millions of dollars in brokerage accounts get this level of advice from their high-dollar advisors, envision what the average investor in America is experiencing.
In this crisis, as with those that have come before and those that have yet to come, advisors who evidence strong leadership and help their clients take action to protect their wealth are the leaders who are most needed. Seize the day and help your clients while you can. Reach out to them proactively with fresh ideas that can make a difference regardless of market conditions. As with life’s other lessons, you don’t want to learn this one the hard way.
Brad Barros is president and CEO of Private Risk Capital Development Advisors LLC