RIA profits for the second quarter may be cut nearly in half because of the economic fallout from the coronavirus pandemic, according to David DeVoe, founder and managing director of the DeVoe & Company, a consulting organization for independent financial services firms.

Overall revenues could be down as much as 13% for the quarter, while profitability could be down 46% because of the market declines, he said during a webinar, “Navigating Your Business through the Storm," held yesterday.

“Each dollar lost in revenue has a significant effect on profits,” DeVoe said. “These numbers show the magnitude of what we are facing.” The current economic crisis “is a magnitude of levels above what we saw in 2008-2009.”

Advisors now are busy recalculating their clients’ portfolios and “holding their hands” through this crisis and they should be doing the same for their businesses and their staff, he said. Like investors, “staff members are afraid; they are afraid of what might happen to the firm. This crisis should prompt firm owners to think about the people side of the equation” for both staff and clients.

In order to do strategic planning for the firm, owners need to think through what scenario they think will play out for Covid-19, DeVoe added. If the disease fades during the summer and business comes back, it will put owners “in a position to think through their business plans,” he said.

In the mid-term, compensation may need to be cut or staff may have to be reduced, but any move should be done in a thoughtful way, based on the available data and on how owners think the virus will play out, DeVoe said. “Hopefully, this crisis will drive more advisors to think about succession planning. Valuations could go down and it might be a good time for generation two to buy into the business.”

If an RIA applies for any of the loans now available through the federal $2.2 trillion stimulus package, that fact should potentially be relayed to staff and clients, he said. “It is critical for staff and clients to have confidence in the firm,” he added. “This is particularly important for younger staff and clients, who have not lived through a recession.”

DeVoe said owners should revisit the goals and objectives for their firms. “Make all decisions on the basis of the firm’s mission statement. Look at everything through that lens.”

DeVoe predicted a surge in mergers and acquisitions after the situation calms down.