Close Close

Portfolio > ETFs > Broad Market

3 Steps AUM Advisors Should Take Ahead of the Next Market Downturn

Your article was successfully shared with the contacts you provided.

On March 6, 2009, in the wake of the 2008 market meltdown, the S&P 500 Index had fallen from its October 12, 2007 high of 1562 to 683: a loss of 879 points, or 56% of its value—devastating investors, and pulling the AUM revenue rug out from under independent advisory firms.

But by May 21, 2015, the S&P had climbed to an all-time high of 2131: a 212% gain—making more than whole investors who stayed the course, and fueling the biggest boom in independent advisory history.

Yet true to its form of correcting every seven years or so, the market has recently begun to stumble: falling 10% (209 points) since May, down to 1922 on Jan. 8 of this new year—including an 11.2% drop from August 17 to August 25th, and another 7.5% drop from Dec. 29 to Jan. 8. Whether this decline will continue to be followed by more minor adjustments, a major correction, or a recovery is, of course, anybody’s guess.

Yet we believe the likelihood of further significant market declines is sufficiently high that independent advisors whose revenues are tied to assets under management should begin to take steps to protect their businesses, if they haven’t already. To insulate your firm from turbulent markets, we recommend the following three goals for the New Year: Think of them as “fall back” positions, in case things get unstable. 

Step 1: Engage, Listen and Trust
At the top of our list is what we call “employee engagement,” that is, creating a culture that gets everybody in your firm together, working as a team. Successful owner-advisors already know that the success of their business largely depends on the efforts of their employees (and the larger their firm, the greater that dependence). In a down stock market, this dependence increases dramatically.

In worst-case scenarios, declining revenues can force owners to suspend annual bonuses, cut salaries, or even lay off some staff. But even less bearish markets can adversely affect employees’ working environment: including suspended raises, delayed promotions, and postponed expenditures for new computers, training, professional development, etc. At the same time, workload and time in the office often increases to meet a rising demand for client contact, information, and handholding.

Of course, we strongly believe that establishing good, supportive working relationships with employees is always a good idea. But during market downturns, these relationships are essential. The key is making sure that your employees know that you value them and their contribution to the success of the firm. Easier said than done, we usually suggest that owners start off by ensuring that their employees have the training, tools and resources to succeed at their jobs—nothing sends the message that an employee isn’t important louder than being set up to fail.

Next, and equally as important, listen to your employees. Usually employees are doing jobs that their firm owner has either never done, or hasn’t done in a while. And things change. What’s more, no one has a monopoly on good ideas: anyone can have one any time. So, open lines of communication with your employees. Ask them how they are doing, if they have everything they need to do a good job and whether they think things could be done better or more efficiently.

Then, and I can’t repeat this enough: listen to their answers.

Finally, trust your employees. When times get tough and you’re asking employees to do more with less, clock watching and micro managing really isn’t going to help. We find that if you give employees responsibility, they’ll act responsibly. So make sure they know what needs to be done—and why—and leave them alone to do it. This also applies to the financial situation of the firm: if you’re going to ask them to make personal and financial sacrifices, you need to trust them enough to let them know why it’s all necessary.

Step 2: Provide a Consistent Client Experience
It’s what ties your clients to your firm. Each service or product you offer should be exactly the same for every client and delivered to them in exactly the same way. This creates what’s called “consistency of client experience,” and it provides superior client service, every time. It also minimizes mistakes and allows firms to create cost-efficient processes for each service.

We find the best way to create a consistent client experience is to create a Client Experience Calendar: A statement of what a client can expect from you at the beginning of the relationship and throughout the year. This calendar sets the expectation of service a client will experience with your firm. It also clearly articulates the value you bring to the relationship and what makes your service different from everyone else.

Step 3: Manage Your Cash Flow
In a market downturn, cash is king. It will enable you to weather lower revenues, and provides the resources to take advantage of opportunities (such as marketing or increased client services). Now’s the time to start looking for any and all expenditures that could be postponed until better times—and it’s not the time to take on any new expenses.

Over the years, we’ve found that owner-advisors who ensure that these three things are in always place—employee engagement, a consistent client experience, and cash flow management—have businesses that prosper during up, and down, market cycles.


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.