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.
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.