Running a Financial Advisory Firm in a Recession

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The economic fallout of the coronavirus pandemic isn’t yet clear, nor is it clear when the financial markets will hit bottom. But given the hit to businesses and employment, most economists say a recession is all but assured. Financial advisory businesses are particularly vulnerable. Many principal-run independent firms have run their businesses only with the updraft of the past decade’s bull market.

These advisors grew their business during the Great Recession of 2008. We asked them for the business lessons they learned from that downturn, given it’s likely we are on the precipice of another.

Pat McClain, Co-Founder and Senior Partner at Allworth Financial

The last crisis we did have a hiring freeze and we went through the expense line of the whole business. If you think about our business, most advisors will work on a 30% to 40% margin and the assets under management comes right off the top, so the margins are compressed. We didn’t furlough anyone, but we pulled back on the marketing budget and tech spend and all capital improvements, and we are doing the same now. You want to make sure on the back side of it that you are healthy. The last thing you want to do is lay people off because there is going to be a recovery, and this is a service business that is built around good quality people.

If you do touch people, you don’t want them to be client facing because there needs to be that consistency in the client experience; your firm can’t look like it’s struggling. This is the fourth one I’ve been through—it is steeper and faster than the previous ones, but we learned what the recovery should look like.

David Barton, Vice Chairman of Mercer Advisors

In times of precipitous market decline, and thus revenue decline, you must pay attention to your own business health or risk losing it. I had direct experience of this as CEO of Mercer Advisors during the Great Recession that started in 2008—a deep recession that lasted five grueling years. 

My immediate plan of action was to temporarily suspend all new spending of any kind, whether capex, new hires, raises, etc., including all discretionary spending, like marketing events designed to win new clients. 

In time of crisis you focus on keeping the clients you have and put their needs first along with maintaining staff morale. In pulling together as a “team” we survived the storm, became a better and stronger company, and our esprit de corps, forged by fire, was born. I found out then, I was born for the storm.   

Peter Mallouk, CEO of Creative Planning

During the last one we hired people through the whole thing. We are interviewing people this week, and we made a commitment to our team that we would maintain everyone’s employment for years. That has given our team the freedom to move ahead with confidence. From our perspective we want to be an organization where people feel very confident that we care about them and want to do the right thing for them. We made sure that we have enough money set aside to cover our team as long as we wanted.

Paul Saganey, President and Founder of Integrated Financial Partners

We are actually actively hiring for operations, and CPA program support teammates. Otherwise no changes to personnel, or budgets. 

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Operationally, we learned how to use technology more effectively. Through webinars, email campaigns and video calls, we can communicate so much more efficiently during this period when compared to 2008. In fact, we built our own marketing company as a result of the obvious need to get information quickly into the hands of our advisors, our CPAs and, in turn, their clients. With 150 advisors and 127 CPAs on board and working to address client needs on a daily basis, the ability to streamline communications between them is vital.

The other big shift is the fact that we can all work so effectively from remote locations—this was not the case in 2008.  

https://www.wealthmanagement.com/industry/running-financial-advisory-firm-recession

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