What can you do now to protect your clients and the value of your practice?
- Articulate The Value of Your Value!
Transitional wealth planning is a mainstay in our group of planners. Like many advisors, we focus on the typical transitions that an advisor’s clients face. Retirement, relocation, sale of a home or business, change in marital status, and inheritance. We build a plan around the transitional event: if it is retirement, we employ strategies to make sure the client does not run out of money in retirement. During the next downturn in markets, your clients will need to be reminded that there is a “plan” and you (the client) need to stick to it! Of course, for this to work, you will need a plan – now is the time to develop one or reassess the validity of the current plan. It is critically important – to the extent possible – that you and your clients focus on the customized “plan” for his or her particular transitional event(s).
- Avoid Most Bonds or Bond Funds If You Can
The fed has already started a tightening cycle – that will create demand destruction in the bond space. Eventually the process of rising rates and the slowing of the economy will work, but there will be major financial damage along the way. While equities may tread water leaning into an inflationary cycle – bonds won’t. Most bond interest rates are “fixed” and a bond with a few years plus of duration will lose purchasing power – quickly! There are some exceptions such as: TIP’s or senior secured debt married with an increased distribution paired with an in indices such as LIBOR. Sprinkle into your clients’ portfolios alternative “income producing assets,” brokered CD’s, multifamily REIT’s, MLP’s, Intermediary Lenders, and commodity based STF’s that provide a yield. There is no perfect alternative to the general safety of a bond – but the premise of the 60/40 allocation model in a rising rate environment, is most likely a bond bear trap.
- Associate With Likeminded Planners
If you believe a planning first model will protect your clients and your practice, associate with planners! Many financial practitioners have not faced an inflation-based downturn cycle. It has been 40 years since the last real inflationary event. Even for the most senior advisers in the financial services industry it has been decades since the last protracted inflation fighting period. If you are on the “island” by yourself (perhaps) an assistant or a small ensemble, consider partnering up with a group. Yes, there is safety in numbers – most importantly, sharing ideas, efficient practice development, opportunities to buy practices (expect an uptick into and during the recession), and the general comfort of knowing you are with folks rowing in the same direction.
You have heard the saying, “Don’t fight the Fed,” and believe me they have been fanning the flames of inflation for the past three years… I will repeat, “don’t fight the Fed”, they have arrived to put the inflation fire out! Prepare your clients and your practice.
Written by Thomas Goodson, President/Founder of The AmeriFlex Group®. Mr. Goodson considers himself “the advisor’s advisor.” With over 30 years’ experience providing knowledge and expertise in Transitional Wealth Planning to businesses, non-profit organizations, families and individuals, Mr. Goodson brings industry-leading thought to his development of TAG, working tirelessly to help his partner advisors reach their business goals.