As the pandemic rolls on, advisors and their clients are rethinking the way they conduct their financial planning, especially their saving and spending strategies, according to Christine Benz, director of personal finance at Morningstar.
“One of the few upsides to the pandemic is that people are spending less and they have the opportunity to put a plan in place for a higher savings rate,” Benz said in an interview. “Advisors can work with clients on budgeting at this time.”
Now that people are saving, they can think about their liquid assets, and there are options other than cash: things such as non-retirement brokerage accounts, which can be the simplest holding place for short-term cash needs, or a Roth IRA, which can be an effective multitasking vehicle for younger investors, Benz said.
In fact, advisors should be rethinking their approach to the entire client relationship, she added.
“Advisors often have specialty areas, so they may need to delve into new areas now that they usually did not consider.”
For instance, clients may have more flexibility about where they live since many are now working remotely—and may continue working off-site after the pandemic passes. The current circumstances “may give some clients the opportunity to move to a lower cost area or an area with a better quality of life,” she said.
“The pandemic has given people an opportunity to think in bigger terms and re-evaluate their lives. This gives advisors a chance to be life coaches. Advisors who are so inclined are undertaking training in these areas. This is the next real wave for advisors.”
Clients are also going to have to rethink their emergency funds, a problem brought into stark relief during the pandemic. So advisors should be tailoring strategies on liquid emergency monies suitable for different clients and their circumstances. Benz said the lack of short-term thinking here is a problem across all income levels.
Advisors also now have the opportunity to delve into their clients’ health-care costs. “Health care spending on average has actually declined in recent months, and people are seeing the drawbacks to having health-care insurance tied to employment,” she said.
For those who can afford it, high deductible plans combined with health savings accounts hold advantages. “Money can be put into a health savings account tax-free and withdrawn for health-care expenses tax-free,” she said. “Or a health savings account can be used like a Roth IRA and money can be withdrawn for other expenses by paying the taxes.”
The current retirement landscape is complicated by the low interest rate environment the Federal Reserve has put in place to stimulate the economy.
“Yield for bonds was a big part of retirement income in the past, Benz said. “That is over now because yields are so low. The value an advisor can add is that he or she can determine whether to sell some equity assets for the client to live on.
“Annuities are also going to increase in use in the future,” she added. Advisors can help early-retiree clients by mapping out a plan for their cash flow during retirement, including maximizing non-portfolio income sources like Social Security and making decisions about pensions, Benz said.