Six ways to prepare your clients for recession

With the economy in a downturn, what part can you play in creating long-term confidence and a recession-proof strategy?  

Communication is key 

It sounds obvious, but communicating in an effective, timely way is the number one priority. A survey by Financial Adviser Magazine found that 72 per cent of clients who fired their financial adviser did so due to a lack of timely communication. You really need to make sure that you and your clients are on the same page.  

Ask them key questions about income sources, expenses and family members who may need support in the coming months. Find out if their plans and ambitions for the future have changed in any way.

Discuss landmarks such as retirement, large future purchases and even the viability of their employers. Don’t be afraid to ask the important personal questions; the answers could greatly influence your advice as recession looms.  

Be supportive, not pushy  

The whole idea of a recession can leave your clients feeling worried and exposed. Much of this is fuelled by the unknown, so there is opportunity for you to approach your clients with objective, clear information on the likely impact of the downturn on their portfolios.  

This is the time to discuss, analyse and project the effects of recession on their personal finances, and perhaps suggest any revisions or adjustments. In most cases, it will probably be best to take a longer-term view — in effect, weather it out. Impulsively selling assets could easily mean that a client misses out on significant future gains, or that they even jeopardise their plans. 

The key is transparency and reassurance — underpinned by your own knowledge and understanding. Many investors are becoming quite used to the ups and downs caused by political, financial and global economic factors — especially since the pandemic.

They understand that you need to look beyond the headlines and the scaremongering to what really matters. You can help them to do this with a greater degree of confidence. 

Look closely at living expenses 

What about everyday living expenses? As an adviser, you can help clients to review and optimise their spending patterns, to smoke out expenses that could be reduced or removed. It’s very easy to end up with a multitude of subscription services, mobile plans and wasteful spending patterns.

A little expert scrutiny could make all the difference. Encourage clients to understand exactly what it costs to run their lives sustainably — ideally with some contingency for the effects of a recession. 

A big part of optimising expenses is paying down debt. Encourage your clients to target outstanding debts, because they can really reduce financial flexibility and budgetary control. Even more mature investors still have mortgages and substantial consumer debts.

As an adviser it’s easy to look past this issue and focus on investments, tax and insurance strategies, but confronting debt — especially as you prepare clients for recession — is a good idea. 

Manage risk 

As recession approaches, you can prepare your clients by building portfolios with predetermined levels of growth, while at the same time preserving capital.

Always keep your client in the loop, discussing short, medium and long-term goals — together with how these goals are to be funded. You could suggest ring-fencing money into different areas — one for near-term or unexpected expenses, one for medium-term goals such as education expenses and a longer-term one for retirement.

In terms of risk level, the least risky investments would be kept for short-term use. This strategy brings a reassuring level of transparency, a clear timetable and carefully managed risk — different eggs for different baskets.  

Benefit from falling markets

With care, you can take advantage of lower stock prices to strengthen your client’s portfolio. Every investor knows the old maxim buy low, sell high, and it makes sense, but it can be tricky to take advantage of when markets are dropping.

Your clients may be hesitant to buy, feeling nervous about further price falls, and waiting for shares to hit rock bottom. But generally, if you buy quality investments at a lower price there will be healthy potential returns over time, and you don’t have to wait for the lowest point in the curve.

Naturally, you don’t want your client’s asset mix to be too weighted towards stocks at times like these — it’s about keeping the balance and spreading risk. 

Harness your experience 

Experience counts. Advisers who have worked through previous recessions will be better prepared for the impact of the current downturn. It’s a long time since we’ve endured inflation this high. We last hit double digits in February 1982. Even the 2008 crash is now passing into history.  

If you’re an adviser who has not worked through periods of recession and monthly inflation rises, seek out colleagues and fellow professionals who have experience. Take their advice, find out how they prepared their clients in the past and how they plan to now.  

For many advisers in the industry, this is a whole new world, and although you can research and adopt successful precedents, some real-life information from those that have been here before could prove priceless. 

As a modern financial adviser, you’re not just a source of financial know-how and hard data. More and more your role is also about consulting and supporting life’s important decisions. It’s a common view that money management is all about logic and numbers, but for clients, there is a significant emotive element too.

Today’s successful advisers understand and embrace this and will be best equipped to steer their clients through the roller coaster ride of recession.   

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