As Albert Einstein once said, "In the midst of every crisis lies great opportunity." This especially holds true within the registered investment advisor space. Crises are unique opportunities for RIAs to differentiate themselves from their wirehouse competitors. And today's crisis of confidence in the U.S. banking system is yet another opportunity for advisors to demonstrate the power of the independent model. Advisors who serve their clients well during this time, and follow up with appropriate engagement, will be rewarded with a surge of growth that nearly always follows a crisis.
The collapse of Silicon Valley Bank (SVB) and Signature Bank, and the fallout from challenges sprung on other midsized and regional banks, are affecting the RIA community on several fronts. As always, advisors will rise to the challenge of helping their clients understand the safety of their deposits. But in this case, many RIAs are also directly affected by the bank closures and threats of closure. RIAs are making decisions about their own business banking needs, helping some clients work through bank transitions, and supporting general client concerns about confidence in the banking system and related market volatility.
To effectively address the current crisis, advisors will need to navigate several areas that are beyond the typical market assessment and client hand-holding that have become part of our collective muscle memory. Advisors will need to take action in three key areas:
Action Item 1: Ensure you can make payroll
Many RIAs use specialty and regional banks for their own business and personal banking. And are directly being exposed to the banking drama. So, the first action item is to ensure your economics are sound. You can't support clients or staff, if your assets are frozen or wiped out. So, start with ensuring that your banking relationship is in a good place. And clearly the stress of whether you can fund payroll – or if your life savings have been wiped out – will not contribute for your providing confident guidance.
Action Item 2: Assess client portfolio exposure
Once the RIA's own bank accounts are (hopefully) safe, advisors could shift quickly to take care of clients. Advisors – especially those supporting ultra-high net worth clients – should proactively communicate with clients about their banking relationships. Advisors should assess which clients have personal or business assets at banks that are or could be affected by the crisis. Some clients are deeply affected by the collapse of banks. Even if their deposits are safe, advisors need to act quickly to support affected clients in shifting to a new banking institution. Some clients want to split their banking relationship to two or more organizations for the benefit of having fewer eggs in the same basket. Helping with this fluid and disconcerting situation is likely one of the most important engagements you will ever have with an affected client.
Other clients are concerned by the headline effects. They are calling their advisors in droves asking if they should withdraw their deposits from their banks and brokerage accounts. Advisors are faced again with turning their full attention to addressing client concerns, explaining how bank deposits are protected, and generally assuaging fear.
The crisis has had an overall effect on the stock market and portfolios. Another round of market volatility with wild spikes in both directions means advisors need to make investment decisions, calm nerves and educate clients about how their portfolios are being managed to mitigate risk. As we know, investors are their own worst enemies during cycles of fear. Advisors know this and need to persuade clients to not take the wrong action at the very worst time.
Action 3: Grow from the crisis
The RIA model absolutely shines in a crisis. The model, steeped in fiduciary duty, is simply the best option for U.S. investors. Providing strong support, guidance and care during times of crisis is rooted in the DNA of every advisor. And a benefit of this valuable work is referrals. Clients will tell their friends. And RIAs will soon be benefactors of another organic growth surge that follows a crisis of confidence. It's simple: Referrals rise when clients are happy and feel they have been taken care of by their advisors.
During any crisis, advisors work around the clock to take care of their clients. Portfolios are rebalanced, entire financial plans recast, and guidance delivered. RIA clients are well cared for during crises and they tell their friends and family. This goodwill turns into new clients who are dissatisfied with their current providers. The result: RIAs doing right by their existing clients experience a surge of new growth as client referrals go into overdrive.
RIAs that shift their energy toward streamlining prospect support activities will likely benefit during this strong organic growth period.
