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CARES Act Creates Make-or-Break Moment for Advisory Firms

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The COVID-19 pandemic has created a two-headed client management monster for wealth management firms. First, there is the unprecedented market volatility and panic-stricken investors that need to be encouraged not to make bad long-term decisions based on short-term emotions. Then, there is the CARES Act.

Most advisors have weathered the storm of other market disruptions, such as the 2008 financial crisis and the flash crash, so will have lots of experience dealing with the former, though they now lack the ability to use face-to-face interaction to help calm fears.

The latter presents an entirely new set of challenges. Among them, managing an influx of calls from confused clients who want to understand more about what the various provisions of the new law mean for them, a potentially significant hit to assets under management and a flood of noise and misinformation about the details of the legislation.

For those who get the client management side of the equation right, this crisis presents a once-in-a-lifetime opportunity to build trust, gain market share and grow the bottom line. For those who miss the mark, this could be one of the biggest attrition catalysts we’ve ever seen.

The root of the challenge is the newly enacted Coronavirus Aid, Relief and Economic Security (CARES) Act, which includes a host of safety nets designed to help Americans weather the financial storm created by COVID-19. Among them are specific provisions related to retirement accounts. These include waving the required minimum distribution for retirement accounts and beneficiary accounts, and the ability to take up to $100,000 from a retirement account while spreading the tax hit over three years.

Both of these are great news for retirement account investors. For those facing immediate financial hardship as a result of the pandemic, the ability to quickly access retirement savings without major tax hit could provide a critical lifeline. And, for those not immediately impacted, the ability to skip minimum distributions means not having to take huge losses while markets are at their lowest point in the last decade.

As helpful as both may be, neither will necessarily be intuitive for investors. And that means they will be calling their advisory firms.

Dialing In

According to our soon-to-be-published Retirement Plan Participant Satisfaction Study, many of them will be using the phone. Upwards of 50% of retiree investors say their first stop when they have a question about their account is the phone. Just 25% say they have used online and mobile channels.

That’s a potentially big issue at a time like this when huge volumes of customers are flooding phone support lines all at once. Add the fact that advisory firms themselves are dealing with phone support capacity issues as they mobilize remote workforces and the challenge becomes even more pronounced.

Then there are the details which make it hard to apply a one-size-fits all solution for all retirement investors. Questions about changing age thresholds for minimum distributions, individual tax impacts of early withdrawals and overall impact on individual portfolio decisions will all play into each investor’s individual CARES Act strategy.

It’s all the nuances that will make this such a challenging client management exercise for wealth management firms. It will be difficult to provide blanket advice and guidance that applies to every single use case. Wealth management firms will need to tailor their messages to individuals and stay mindful of the potential impacts to assets under management that could result.

The key will be effective engagement. Firms need to act now to create landing pages, detailed self-service tools and proactive communications that help retirees quickly understand how these new laws will affect them.

According to our data, although a relative minority of retiree investors actively use mobile and web-based self-service tools, those that do use them have incredibly high levels of customer satisfaction. In fact, overall satisfaction scores for those who used an advisory firm’s website or mobile app to manage their account are 820 (on a 1,000-point scale). That’s 20 points higher than those who use phone-based support.

Also of note, a large portion of retiree investors (45%) say their preferred means of receiving communication from their wealth management firm is email. Yet, the majority of messages (59%) are still sent from wealth management firms via mail.

In this current environment, with details changing daily, clients of all ages spending more time online than ever before and most folks generally aware of the long customer support hold times that are affecting companies in every industry, the time is ripe for proactive digital communications that hit consumers squarely where they are focused.

The current environment ­— both from a markets and a management perspective — is not easy for any of us. But it does create a make-or-break moment for wealth management firms to truly build trust and advocacy by putting themselves in the shoes of their customers, and giving them actionable information they can use to get through this crisis. Those firms that get that formula right will be positioned for the biggest upside once we start to turn the corner to the post COVID-19 recovery.

Craig Martin is Managing Director, Wealth and Lending Intelligence at J.D. Power.