When the coronavirus came to the U.S. shores and the economy was suddenly forcibly shut down in March, Americans came to grips with a number of philosophical questions: What are your goals in life, really, when your life might suddenly be taken from you, or your loved ones? What does money mean to you—what are your true goals for it?

Financial advisors took a hit in many ways that were likely as emotional as they were financial. Suddenly, work colleagues were robbed of the daily camaraderie that keep people engaged, focused and sane. Financial planning is a people business that allows you to meet with clients, look them in the eye, determine their fears, show empathy, give counsel, discover a person’s psychology. What does it mean to do that over a computer monitor? If that feels alienating to you, 2020 likely felt more like 2001: A Space Odyssey.

“People in financial planning did not come into this business because of bottom lines or money,” says Elissa Buie, the president and CEO of Yeske Buie in Vienna, Va., and San Francisco. “They came into this because they like math, they like financial planning and they like human beings.”

Still, RIAs have faced practical fears this year. When the markets plunged, their asset-based revenues were threatened. That meant the firm owners hoping to sell their businesses in a few years were suddenly worth much less on paper. Bosses had to weigh the possibility of laying off staff, getting rid of team members who were supposed to help them grow or eventually take over the firms.

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Some RIAs suffered flashbacks. “When we came into this pandemic, I had some serious post-traumatic stress syndrome reactions from the 2008-2009 time frame,” Buie says. “Someone asked me, ‘Do you really need to keep doing this?’ Not financially I don’t. But I love my clients and there’s no way I’m leaving them in the middle of this.” She thinks many other planners felt the same way.

The market rebounded, of course, mooting a lot of the valuation discussions. But the questions the pandemic raised persist: What business margins did you need to have to avoid calamity? Was your firm overvalued? How do you find new clients remotely? Were you reinvesting in your firm or savoring a high-margin lifestyle practice? Did you already have the technology ready to go to work from home, interacting with both your clients and staff through either Zoom or Microsoft Teams? (Yeske Buie bought 15 laptops for staff to work from home, Buie says.)

Scott Hanson, the founding principal of Allworth, says his firm has 230 employees in 17 offices and, in a 10-day period in March, was forced to make sure all these people were working remotely. “It certainly tested our IT department,” Hanson says. For six weeks, he says, nobody wanted to talk about money at all. Allworth had to cancel its live events, workshops, seminars and symposiums. “We really had to pivot on our marketing. Roughly 35% of our new clients came through live digital events.”

Hanson says that the RIA business model is robust enough to get through a sudden market swoon. “While there [was] margin compression, we weren’t suddenly trying to figure out where’s cash flow coming from. And we all have reoccurring revenues,” he continues. “The quarterly fee happens in good times and in bad times. It’s not like you’re having to go out and resell a bunch of clients every quarter or sell new products or services every quarter.”

But others say that firms without healthy margins, perhaps those that had taken on a lot of cheap debt in the low-interest-rate era, were likely caught with their pants down during the pandemic.

“If you’re a $500 million RIA with no debt, what was there to worry about this year? Big deal,” says Peter Mallouk, president of Creative Planning in Overland Park, Kan. “If you were a $5 billion RIA where you’ve got $100 million of debt and a PE backer and all that, well you’ve got a problem. You can’t make your debt payments if the market stays down 40% for two years. Fortunately, the market did come back.”

Inevitably, some firms will struggle. “What we have seen is that companies that were not healthy financially are really, really struggling,” says Wilson Hoyle, leader of the Advisor Group at CAPTRUST in Raleigh, N.C. “They are laying off people, they are borrowing money. They are doing what they can to survive. And that goes for large RIAs and small.”

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