It is nearly impossible to feel good about practice management unless you feel good about your staff. When a bear market strikes and the usual noise about economic issues like job losses turns into the amplified blaring of a death metal band, it is easy to have staff members become worried for their jobs. Newer employees can be especially concerned. Worried people are not as focused, productive or clearheaded.

One of the first things we did at our firm as markets got wild was reassure our staff that we were committed to them. We believe we have only “A” players on our team and thought they needed to hear that from us. We reinforced that message by going over our firm’s finances with them and looking at the game plan in case conditions got worse. We made it clear that we owners were committed to lowering our own incomes to protect theirs. This seemed to help as the market dropped further toward its low.

What made me the happiest was when I saw team members helping one another cope with the inconveniences of working from home. Our office buildings shut down in March (operating only for specified activities). When the buildings reopened, we made coming to the office completely voluntary.

Some have come in every day. Some came in for a time, then stayed home. A couple of people have scarcely been seen in the office at all. (One person’s spouse had a co-worker who tested positive for Covid-19, others have small kids.)

Still, there are some people who just don’t like working from home. Thus far, the team members have done an impressive job of working with one another despite differing circumstances.

It’s a cliché these days to say you want to develop and nurture a good “company culture,” but like many things that can induce eye rolls, there is great truth in the idea. I shudder to think about how a staff that wasn’t loaded with team players would have performed in the current crisis. First, it is likely some things would have fallen through the proverbial cracks, upsetting clients at exactly the time they needed to stay calm. We would have had to deal with the added stress from those failures.

It is not all sunshine and roses, of course. It’s stressful to have spouses working where the infection has appeared. It’s also stressful to have kids at home as the school year nears. But it is clear we can get the work done regardless of where we’re working. We knew that before the pandemic because almost everyone on our staff has worked from home at some point.

The situation has forced me to ponder a few questions. In the past, it has been easy to think someone who works from home isn’t really “working.” In the post-Covid era, will these arrangements keep their old stigma or will accommodating work from home become part of our culture?

Yes, some people can handle their duties remotely, but many client-facing duties are better performed in person. (That is why we call them “client facing” roles.) I once met with a client whose husband had passed away from cancer. There is no way we could have had a meaningful conversation over Zoom. There are many things about being in the presence of other humans that is lost over the internet. Body language, the look in one’s eyes, and what a person does with their hands are all things that can be missed when they are not physically present. This also goes for more routine tasks that facilitate communication with clients and help you maintain your relationships with them.

So how much is working from home appropriate for our lead advisors and client service managers? How can our up-and-coming advisors learn to communicate effectively if they are not exposed to interactions with the team and clients as often? Everyone is getting proficient with remote interactions, even comfortable, but does that truly mean it is preferred by staff and clients?

Does AUM Mean We’re In This Together?
Our clients do not wish us ill, but I noticed that some who are charged based on assets were comforted knowing that lower asset values meant they were also paying lower fees to us. One told me in the middle of the chaos that it was “awesome” he didn’t have to bring up the idea of a discount—because it was automatic.

“Awesome” is not the word I would use to describe the reduction in fees, but it made me smile when I heard it, nonetheless. We eat our own cooking around here. My personal assets are invested using the same philosophy and techniques I use for clients. So when they say things like this, clearly they know we are committed to our methods.

Still, the reduction in fees came at exactly the same time our workload increased dramatically, something that happens during bear markets. This disconnect is often cited in criticisms of AUM billing. I agree. That stinks.

However, I also hear people touting annual fee or subscription fee practices as being immune from those revenue declines. From what I’ve seen, the degree of immunity depends on the types of clients and the planner’s communications.

In fact, many non-AUM planners I’ve had conversations with are seeing revenue declines too—their clients have lost jobs, experienced pay cuts (or fear pay cuts), and thus are asking for discounts or not renewing. Some of these clients said that since asset values were down, their fees should be lower.

One guy I’m familiar with who runs a planning-only, flat-fee practice and outsources to a prominent robo-advisor was confronted by a client who said, “You recommended them, and I have lost a ton of money, so I want my money back.” The client proceeded to question the advisor’s due diligence, asking whether he really knew what was happening with the portfolio. Ouch!

I’m not suggesting that one billing method is better than another. Each method has pros and cons; some are better matches for clients than others. But in any case, I think clients who are laid off are more likely to make better decisions when they keep a good planner, regardless of how the planner charges. The attitudes of the unhappy clients simply show how important it is to have clear communications with them and manage their expectations.

One last observation. We have been approached a few times over the years by big outfits wanting to “partner” with us. The names of these groups would be familiar to all who read this publication. There are different philosophical approaches to partnering, but the typical financial arrangement is one in which a new partner buys some portion of your earnings before owner compensation (EBOC).

I think of a firm that has taken such an offer recently and the scary situation it was looking at. After the coronacrash, the original owners of this firm would have seen either little or no profits because their new partners would have been paid their share first out of the reduced EBOC. If this were the 2008-2009 period, those original owners would be looking at further pay cuts and would possibly have to raid the proceeds from the sale they’d just closed. Double ouch!

Those deals work for a lot of firms. That’s why there have been so many done. But it is also likely that some were done because the owners couldn’t find other outside buyers or couldn’t develop buyers internally.

Regardless, it strengthens my resolve to keep evolving our succession plan so that it can better withstand the inevitable swings in financial markets, especially if things go poorly at the most vulnerable time.     

Dan Moisand, CFP, has been featured as one of America’s top independent financial planners by Financial Advisor, Financial Planning, Investment Advisor, Investment News, Journal of Financial Planning, Accounting Today, Research, Wealth Manager and Worth magazines. He practices in Melbourne, Fla. You can reach him at [email protected].