COVID-19, Financial Planning and Fiduciary

Rahm Emanuel’s famously said, “You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things that you think you could not do before.” We would change it slightly to “things you should have done before,” when it comes to your financial planning.

Coronavirus was the crisis to cause many of us to take action. We have learned that panicking, and selling, during a crisis is not a good idea: having an emergency, and opportunity fund, is valuable; creating a budget isn’t a waste of time and having an updated estate plan is not something to ignore. In a matter of a few, brief weeks the equity markets dropped an amazing 34% turning a robust economy into a recession, almost overnight.

Many investors, having remembered what happened in 2008-09, panicked, and sold stocks, which bottomed (at least at the time of print) on March 23rd. Those investors turned paper losses into real losses, and most have yet to return to the stock market, thus missing an equally dramatic upward movement in the market (at least for now).

Long-term investors should not make short term decisions as most of the time this does not create a positive result. The stock market is likely to remain volatile, for the foreseeable future, but it is also likely to be higher several years from now. If you were one who sold, then you must decide when to get back into the market. Consider using a dollar cost averaging approach where you: invest a set amount of money in a regular time period. In short “x” dollars each month, regardless of the movement of the market.

If it goes up, you will have at least a portion of the money invested and if it goes down you will be able to buy stocks at a cheaper price. If you didn’t sell, good for you. One of the basics of financial planning is having an emergency, and opportunity, fund equal to three to six months’ worth of expenses. According to Bankrate, the average liquid savings in 2019 for a household was only $8,863.

Hardly enough for perhaps a few months. Building this account is extremely important for any financial plan. However, in order to know how much you need to save, you need to know how much you spend. That is where a budget comes into play. Although a detailed budget is best, even having a broad idea of your fixed, and variable, expenses will be helpful. A good budgeting tool can be found at mint.com.

While many investors who had never used a financial planner before COVID called us, there was an equal number calling their estate planning attorney to update those documents. While most think of an estate plan as planning for death, it is equally about planning for incapacity and being ill.

If you have not updated your will, living trust, power of attorney, healthcare surrogate and living will documents within the past five years, call your attorney … now! On June 30, 2020 two important things happened. First, the Certified Financial Planner Board of Standards began enforcing its new Code of Ethics and Practice Standards.

The hallmark of this change is that a CFP® professional must now act at a fiduciary standard of care, when providing financial advice (which is always broadly defined). Failure to do so is so severe that punishment includes revocation of the designation. The second thing that happened was the SEC’s implementation of Regulation Best Interest (Reg BI).

While falling short of a fiduciary standard, it now requires all financial advisors to act in the client’s best interest. Further, each advisor now must give a prospective client, and in some cases an existing client, an explanation in layman’s language about compensation, conflicts of interest, etc. This is called a Client Relationship Summary (Form CRS). Be sure to read it carefully. We believe these two provisions will help protect investors in the future, but we wish the SEC required all advisors to adhere to a fiduciary standard, just as required for Registered Investment Advisors.

The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and are subject to change.

Investment Advisory Services may be offered through ProVise Management Group, LLC.

Ray Ferrara is Chair and CEO of ProVise Management Group, LLC and Paul Auslander is the Director of Financial Planning. Founded in 1986, ProVise is nationally recognized as a leading financial planning and investment management firm with assets of approximately $1.5 billion as of 12/31/19.

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