'No escaping this story': How to advise investors through the SVB fallout

Ever since Silicon Valley Bank collapsed last week, many retirement savers have been asking nervous questions. Will other banks fail? Are their cash savings safe? And as the stock market takes a hit, what will happen to their 401(k)s and individual retirement plans?

For wealth managers, the jitters add up to another key question: How can they reassure their clients?

"This is an important opportunity for advisors to reach out to clients proactively to assure them of the steps that have been taken to safeguard their savings," said Jeremy Bohne, a financial planner and the founder of Paceline Wealth Management in Boston.

When the California bank failed on March 10, it had $209 billion in assets, making it the second-largest bank failure in U.S. history. The implosion sparked fears of a domino effect, which appeared to be validated just two days later, when Signature Bank — a New York-based commercial bank with $110.4 billion in assets — crumbled as well.

Federal regulators  announced last Sunday that all deposits at both banks would be backed up by the Federal Deposit Insurance Corporation — an extraordinary and unusual lifeline that will backstop depositors over the agency's $250,000 limit. Still, panic spread to the stock market, and other banks, including JPMorgan and Goldman Sachs, saw their shares fall sharply. U.S. stocks in general took a hit, with the S&P 500 and Dow Jones both down 1% on Wednesday.

Amid the turmoil, it's understandable that retail investors are worried about their nest eggs — and calling up their advisors with questions.

"There's no escaping this story," said Tammy Wener, a certified financial planner at RW Financial Planning in Lincolnshire, Illinois. "I am meeting with clients all day tomorrow and likely into the evening."

The key to calming investors, according to wealth managers across the country, is to address three subjects: their bank deposits, their portfolios and their emotions.

If a client is worried their bank will fail and they'll lose their cash deposits, an advisor can quickly check whether this is a real danger. The first question is whether the bank is insured by the FDIC, and the second is how much money is in each deposit. If the bank is insured, the FDIC guarantees up to $250,000 for each deposit, or $500,000 for a married couple with a joint account. That's per deposit, per account, per bank, so if a customer's savings are spread across enough accounts, it can add up to a lot of cash that's safe and sound.

"We're telling our clients to be mindful of FDIC insurance," said Jeremy Keil, a certified financial planner at Keil Financial Partners in New Berlin, Wisconsin. "If they're married they can get $1 million in FDIC insurance easily, through setting up their bank accounts properly."

For an investor worried about bank runs, this kind of conversation can be a healthy reality check. If their deposits are already spread out, they can breathe a sigh of relief. If not, it's a good opportunity to fix things before the next banking crisis.

The next thing to discuss is investments. As the stock market reels from the SVB news, many retirement savers are worried about their portfolios. But if they've been following their wealth managers' advice all along, their investments are probably diverse enough to handle short-term volatility.

"This is why you have diversified investments, split between short-term funds and long-term funds, and focused on the level of risk someone is willing to take," Keil said. "If you do that you're really setting yourself up for the highest chance of success."

So what changes should clients make to their portfolios? Erik Baskin, the founder of Baskin Financial Planning in Dayton, Ohio, said he won't be recommending any.

"No adjustments are needed to a well-diversified portfolio that is properly allocated for a client's unique risk tolerance and goals," he said. "Retirement savings, assuming they are invested in stocks and bonds, are safe from this crisis in the sense of the fact that they are not in a bank — the investor actually owns an asset."

That brings us to the final issue advisors should address: the emotions of the moment. When Signature Bank failed right after Silicon Valley, some investors saw echoes of the 2007-2008 financial crisis, a global meltdown that sparked bankruptcies at Wall Street banks including Lehman Brothers and Washington Mutual. So older clients who lived through that era may be feeling a higher level of fear. Wealth managers can help reduce that anxiety by discussing the present crisis in plenty of detail, bringing it back down to reality and highlighting why this time is different.

Industry News

Post-collapse, here's what's next for Silicon Valley Bank's wealth management business

March 12, 2023 10:58 PM

"When we see headlines like this, we all have an immediate emotional reaction," said Ben Lies, the president of Delphi Advisers in Vancouver, Washington. "But when we put it into historical context and understand how and why these things happen, it removes the emotional aspect and gives us all context on the events at hand."

For extra reassurance, an advisor can show a client how their investments would fare under the worst possible market conditions.

"In cases like this, running updated financial modeling scenarios and helping them understand that their portfolios have been built to weather these types of storms … goes a long way," Lies said.

In many cases, the advisor's job may be less to recommend a course of action than to talk a client out of doing something rash, like panic-selling assets. When reacting to a crisis in the news, Baskin said, inaction may be better than action.

"As for 'what to do,' the answer is nothing. Stick to the plan," he said. "This is just the latest crisis and this too will pass."