The ClientWise Blog

Moving the Right Financial Levers

Posted by Ray Sclafani on Jun 4, 2020 11:31:20 AM

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Moving the Right Financial Levers

Avoid permanent outcomes to temporary problems

Unlike countless retail, manufacturing and hospitality businesses, financial advisors should likely emerge from the COVID-19 lockdown in comparatively decent financial shape. Certainly, some clients may become more judicious as to how they utilize your services. Conversely, though, many self-directed investors who’ve enjoyed more than a decade of steadily rising markets may now begin gravitating to professional advisors.Nevertheless, this is an uncertain environment where you still need to work and pay the bills. You’ll certainly want to explore the numerous financial stimulus options such as PPP and EID loans as well as the various tax credits and employee retention credits available to you under the CARES Act and subsequent legislative action. But as a professional services firm, it’s vital to always keep in mind that your greatest asset is the intellectual capital of the professionals working on your team.

Managing your balance sheet and your human capital

Any potential measure to preserve the financial stability of your practice needs to always be viewed through the lens of protecting your existing human capital. Short of layoffs, there are a host of financial levers (in addition to stimulus aid) at your disposal to help weather any short-term economic disruptions, including:

  • Accessing existing or available credit facilities
  • Deferring 2020 owner/partner distributions
  • Implementing temporary salary reductions for senior staff
  • Delaying bonuses; and
  • Temporarily suspending matching 401k contributions

Nearly as important as protecting jobs is the challenge of protecting the well-being and engagement of your team. You’ve already taken the essential step of protecting their physical health by working from home. But how do you sustain team productivity when working remotely? How do you continue to effectively mentor and develop the next generation of owners and leaders from a distance?

These are the new challenges that all of us as business leaders will need to grapple with over the coming weeks or possibly months. Any decisions you make about protecting the short-term financial health of your business need to be carefully weighed against your ability to maintain a level of client engagement and service that is at least equal to (if not superior to) what your clients have come to expect from the firm. What’s more, you’ll ideally also want to ensure you have enough excess capacity to meet expected future demand when we ultimately return to whatever our new “normal” may look like.

With this in mind, try to avoid one of the solutions that many firms latch onto of scaling back on technology investment. At present, none of us can accurately predict when we’ll be able to return to our offices, or whether a relaxing of social distancing requirements will result in a resurgence of the virus that requires subsequent future shutdowns. As a result, your reliance on technology and your ability to digitally deliver financial advice and solutions over the next couple of years may become a key driver of both retention and growth. And with more business being conducted online, you’ll also want to make sure you’re employing state-of-the-art data integrity and cybersecurity capabilities.

In these exceptional and unprecedented times, the tendency (based on individual behavioral biases) to either overreact or underreact is common. But it’s the leaders who strike a thoughtful balance between short-term needs and long-term vision who will find themselves best positioned when the dust finally settles.

Coaching Questions from this article:

  1. Assuming that social distancing remains the de facto “new normal” for the foreseeable future, how do you feel about the ongoing financial health of your business?
  2. If necessary, which financial levers would you consider dialing back to strengthen the firm’s financial sustainability?
  3. What steps have you taken to enhance your team’s productivity while working remotely? Are there additional strategies you could employ?
  4. How are you working to mentor next generation leaders in this current environment?

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ClientWise is the premier financial advisor coach focused on business development and management best practices for financial advisors.

Topics: Crisis, financial stimulus, employee retention