As the thunder rolls and threatening storm clouds hover over us, it is clear we are in the eye of the storm. Myriad people are losing their jobs as the market continues to search for the bottom. Filings for bankruptcy protection in 2008 have topped 1 million — a 33 percent increase since 2007. On March 5, 2009, the Dow dropped 4.09 percent to 6594.44, reaching its lowest level since the mini-crash of 1997, when the Asian markets collapsed. Wall Street giants AIG and Lehman Brothers have crumbled, 8,384 banks failed in 2008 alone, and still others are on the verge of bankruptcy.
Many parallels have been drawn between our current financial circumstances and past downturns, most notably the fourth quarter of 1929, when the market collapsed and the Dow Jones Industrial Average lost one-third of its value, thrusting us into the dismal era known as the Great Depression. It was during this period of 1933-34 that Congress took action to increase financial regulation in the hopes of preventing further damage, founding the Exchange Act of 1933, the Securities Exchange Act of 1934, and the Glass-Steagall Act (which has since been repealed).
Increased regulation today is inevitable, but the disastrous state of the capital markets and fiscal system failures have created a sense of urgency and made reform a priority. As the specifics unfold, changes could have a drastic impact on insurance agents, whether through an optional federal charter, commission disclosures, or a systematic risk regulator.
Like a heavy fog, the pressure to clean up the financial industry and establish balance in our nation’s economy hangs thick over Washington. The crushing economic downturn has President Obama and his team of advisors intently focused on extensive financial changes akin to that of health, energy, and education reforms. Shattered investor confidence and a lack of market rebounds that were highly anticipated after Obama’s inauguration are only part of the dilemma.
Such corruption as the Bernard Madoff scandal and the AIG CEO’s lavish retreat a mere week after receiving an $85 billion bailout from the federal government has shed light on possible discrepancies in the way over which our system is presided.
The SEC, along with various other regulatory institutions, is under intense scrutiny and review, but to some extent, this is an issue of a deficiency of personal responsibility. The president and his team have ambitious goals to not only stop the economic decline, but to restore confidence, rejuvenate the markets, and have an overall positive effect on the world economy. It’s important to keep in mind that just as deregulation can be detrimental to society, over-regulation could have equally hazardous effects. While the methods used by previous presidents may have been less than ideal, the current administration’s belief that increased government control is the save-all solution to our problem could put us even further off course. We are taking steps, but are they in the right direction?
Increased transparency and consumer protection will be key goals. The Financial Planning Coalition, an alliance composed of principal national organizations dedicated to the improvement of the financial planning profession, is preparing legislation that could include a self-regulatory organization, implement a fiduciary standard, and impose a one-designation monopoly on the entire industry. This would certainly be devastating for financial planners who offer additional services.
The nationalization of advisor registration could be a welcome change, as it would simplify and combine the registration and renewal process, fees, and continued education requirements.
However, if overseen by FINRA or a new legislative body created specifically to supervise the financial services industry, we could face considerable complexities, increased cost, and decreased profitability. At this time, education is key, and the fact that the majority of Congress and lobbyists are unfamiliar with the financial planning industry is of utmost concern. We fear the lack of understanding and Congress’ tendency to overreact in times of crisis may result in unforeseen adverse consequences. It is easy to get caught up in analyzing the situation and trying to guess what’s coming next, but truth be told, nobody really knows. The question then becomes, what can we do to have an impact?
There are two things we do know for certain: 1) Congress will make changes, they will happen quickly, and they will affect you and your clients, and 2) Clients are concerned, and the only way to comfort them is through constant communication.
I understand this can be difficult for many agents thanks to the uncertainty of our circumstances. This is not the time, however, to be making promises such as, “Everything will be fantastic. By this time next year, you will be using your portfolio gains to cruise the Mediterranean.” This is, however, the time to call your clients to talk to them about what’s going on, assure them that you are closely monitoring the situation and consistently reviewing their portfolios, and set realistic goals and expectations. Implementing your own self-regulatory standards in your practice is vital to your self-protection from both clients and regulators and will offer increased credibility to your business. Times are hard, and it can be difficult to find the right words, but if you are not communicating with your clients, it’s going to get a lot worse.
One suggestion I have is to separate your clients into tiers. Make it a goal to call all the Tier 1 clients on a weekly basis and the Tier 2 and 3 clients biweekly. Block out a few hours a week to just sit and plug away at your list, making very brief calls to touch base. Another great way to reach more clients is to set up a conference call and have your clients call in at a specific time.
Spend the first half-hour talking with your clients about the current legislative environment and how they may be affected by the changes taking place, and close with a half-hour of Q&A. Limit the time you spend on the calls, but regardless of how busy you are, every agent has a few spare hours a week to dedicate to saving their practice.
Much of the information your clients hear from others could be inaccurate, so making sure they hear the truth from you will go a long way toward building trust in your relationship. You may even want to send a letter after the conference takes place to recap the call, making sure to include a couple of business cards. You could then close the letter with a paragraph encouraging your client to pass along your contact information to any friends and colleagues who seem to be struggling and could benefit from a discussion with you — a great way to generate some new business in these tough economic times. Riding out the storm is always difficult, but it’s up to every agent to promote awareness and maintain constant communication with clients to help provide shelter from the hurricane taking place in the financial planning sector.
Brittny McKinney is a registered representative with Lincoln Financial Advisors. She can be reached at 703-287-1563 or [email protected].