Amid the COVID-19 pandemic, there are several ways that advisors can help their clients stay on track with their retirement and other goals, according to Cathy Clauson, senior vice president of retirement services at AssetMark.
There have been a lot of changes thrown at advisors recently, she told ThinkAdvisor in a recent phone interview, as the Coronavirus Aid, Relief and Economic Security (CARES) Act came along when the ink was barely dry on the Setting Every Community Up for Retirement Enhancement (Secure) Act.
On top of that, advisors are “also dealing with a lot of people who all of a sudden maybe [are] out of work or having crises in their home life that they’re trying to deal with, as well as keeping their own businesses alive — and then” they also certainly have the Securities and Exchange Commission’s Regulation Best Interest rules that went into effect June 30 to deal with, she said.
“I’ve been in the advisory space for well over 20 years now,” and this is a lot of change in a short amount of time, she says.
“I think, from the advisor’s perspective,” there is a challenge in “connecting all of those dots because [the various issues] feel pretty disparate, but I think if you put them all together, they can make a decent story for the advisor” right now, she said.
Amid all this change, here are three things advisors should keep in mind right now.
1. Keep the communication lines open.
One thing that advisors should definitely not do right now is be afraid to contact their clients, Clauson said.
For one thing, “you don’t always know if you have 100% share of your client’s wallet” when it comes to their assets, she pointed out.
For example, the Internal Revenue Service announced June 23 that anyone who already took a required minimum distribution in 2020 from certain retirement accounts now had the opportunity to roll those funds back into a retirement account following the CARES Act RMD waiver for 2020, she noted.
Even if you are not managing a client’s RMDs, you can reach out and educate a client to make sure they know that if they don’t need the money they took out earlier this year, they can now put it back this year, she said.
Don’t assume that the advisor who deals with a client’s RMDs was aware of that change and, even if they did, that they then contacted the client to make sure they were aware of the change also, she noted. If you contact that client and it turns out he or she was not aware of the change, that client may decide to shift all their assets to you, she said.
“Many advisors get afraid to reach out to their clients,” she said, noting they often “don’t want to give bad news, but we find the more successful advisors [are] proactive” and contact clients to discuss their retirement goals and other issues during times like these.
The same goes for a potential client that an advisor may have spoken to a few months back who didn’t select that advisor, she said. Maybe they will select the advisor now if that advisor provides them with important information they can use that their own advisor did not, she noted. This is “a great opportunity for those advisors to follow back up” with such investors, she stressed, adding it is a good idea to reach out to clients with significant good or bad news.
This is also a great time to reach out to clients who may be confused about whether it makes sense for them to continue contributing to their retirement plans or hoard cash instead, she noted.
2. Don’t rule out a hardship withdrawal.
If clients are not working, they may be worried about taking money out of their retirement plan. And, despite typically stressing that their clients never take an early withdrawal from their IRAs or work retirement plan, advisors should definitely reconsider that advice this year depending on their clients’ specific situations, Clauson noted.
“What I love about the CARES Act is the fact that if you need the money to pay your rent, to feed your family, you should absolutely take it” now because there is no 10% early withdrawal penalty this year, she said.
“As much as every financial planner would tell you don’t touch that retirement [money] until you’re 59 and a half … if it truly is about having to feed your family” — or paying the mortgage — “of course you do that,” she said. Although you still have to pay the taxes on that withdrawal, “you get to spread the taxes over three years — and you can just put the money back within three years,” she pointed out, adding that, after all, “we hope that all of this will be behind us within three years, so it doesn’t have to completely delay your retirement plan.”
3. Urge your clients to build up their savings.
Advisors should also use this time to strongly urge their clients — including clients running their own businesses — to save as much as possible. The pandemic is “really bringing to light the need for that emergency savings plan,” Clauson says. Although few would have predicted a pandemic, there tends to historically be some major crisis of some sort every few years, she said, pointing to the “tech bubble,” 9/11 and the last recession as examples.
Without six months to a year of emergency savings, investors may indeed need money from their retirement to pay their mortgage or feed their family, she said. But it really should be a “last resort” to take money out of a retirement plan in most cases, she said.
Also, if your client is an employee that’s still working, this is a great time to make sure they are maxing out contributions to a tax-deferred retirement plan, she said.
Advisors should also not be afraid to discuss the ideas of learning a new skill, changing professions or moving to a different state, especially if a client has lost his or her job, she said.
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