BACK OFFICE HEROES: Why Financial Advisors Matter More During Recessions


By: Debbie Miller, Customer Care Support Team Manager | Docupace

The past months have been a whirlwind of market ups and downs (mostly downs). Unfortunately, it doesn’t appear that things are going to stabilize anytime soon. Rumbles of recession can spark fear for both investors and customers alike. Not knowing which way economic winds may blow can lead to client hesitation when it comes to making strategic financial investments and cause investors to be more risk avoidant than usual.

The good news is that financial advisors are a key resource for people interested in making wise financial decisions. Having an expert ear and skilled hands available in times of volatility assuages nerves and strengthens confidence in the decisions being made. Applying industry best practices to client portfolios helps advisors turn economic insecurity into financial stability for generations to come. Here’s a breakdown of why financial advisors are more important than ever in times of economic recession.

The Trouble with Recessions…is Markets Recede

According to a definition from the National Bureau of Economic Research (NBER), recessions are defined as “significant decline[s] in economic activity that is spread across the economy and that lasts more than a few months.” Sparked by international and domestic events, recessions have become increasingly global phenomena, which means that financial institutions and populations all over the world are typically impacted at the same time. Fears of economic uncertainty cause consumers to penny pinch and delay making big purchases, like cars and houses. The U.S. Bureau of Labor Statistics reports higher rates of unemployment as well as housing market values.

Recessions are nothing new to economies and markets. In fact, the first recorded recession in the United States occurred in 1797 when the newly created Treasury department first began increasing the printed currency in circulation and responding to rampant land speculation. Investment strategies became refined and adopted precisely because of recessions and their cyclical frequency throughout history. Similarly, the average person began viewing financial risk as a direct correlation with the likelihood of a recession occurring. Market forces trending upward meant that investing in new companies and ideas was probably a good idea. Downward growth lines indicated the opposite.

Within the past two years, the COVID-19 global pandemic has wreaked havoc on the ability of market experts to reliably predict how the economy might be impacted by external pressures. However, there are several key events and trends that affected the nation’s financial health and continue to carry repercussions for financial institutions:

  • In early 2020, fears of disease transmission led to mass lockdowns and closures of business.
  • Consumers saved money and decreased spending due to fear of economic uncertainty.
  • Pre-existing financial vulnerabilities increased the economic devastation heightened by COVID-19.
  • “The Great Resignation” resulted in historic numbers of white and blue collar workers leaving their existing jobs, an event that caused widespread worker shortages in a variety of industries.
  • Supply chain disruptions increased prices and led to rampant inflation across the world.

Although investment may seem like a luxury that only the wealthy can afford in times of economic recession, the reality remains that smart financial investments can have a significant impact on the welfare of individuals and their descendants. With the support of a financial advisor, clients can still come out of recessions with intact assets and, in some cases, even increase their earning potential. It’s the role of advisors to understand how to best help their clients in times of uncertainty and provide financial advice that can, quite literally, transform lives.

Strategies for Financial Advisors During Recessions

The old proverb “what goes up, must also come down” is true for many things, but fits the volatilities of the global economy to a tee. Recessions happen in cycles and tend to worsen in a series of frightening, but ultimately predictable domino effects. In most cases, the stock market falls, consumers panic, purchases stop, and unemployment rises.

Although these truths are never easy to bear — particularly by those most impacted by them — they can be planned for. Financial advisors can prepare both themselves and their customers for the worst tendrils of recession through strategic planning and a long-term perspective.

First, a reliance on automated technology solutions can help firms see the first signs of an impending recession and adjust investment strategies accordingly. Having a single source of truth for financial transactions and trading behavior can help aggregate and present data for trends forecasting. Getting to quantifiable and transparent business metrics can only come through accurate and consistent data collection, a benefit that only software platforms can provide in the twenty-first century. Being able to see the portfolios of all your firm’s advisors in one format can bring increased visibility to problems that might otherwise go ignored.

Similarly, having the ability to manage risk effectively (and catch risky behavior before it results in firm and customer loss) is a great advantage during times of economic instability. Outsourcing operational efficiency processes and risk management services had increased before the pandemic even reached its peak, and the importance of these third-party solutions hasn’t diminished in years since. Not only do firms save on manual employee hours, but they also can more effectively attract new talent and develop ethical internal cultures with risk management tech solutions. All of these benefits carry an outsized importance when turnover rates are high and a single bad transaction can result in millions of dollars in profit loss.

Firms need to set up their financial advisors for success, and investing in new technology is one way to accomplish that goal. By utilizing the insights provided by databases, automated software, and AI algorithms, advisors can effectively guide clients through the maelstroms of economic recession.

Building a Strong Advisor-Client Bond During Economic Recessions

New technology has enabled advisors to make smarter, more strategic investment decisions for their client portfolio. As any good advisor knows, though, automation and AI are not enough. True success in the investment realm requires strong relationships between clients and their advisors. This characteristic remains true regardless of whether a recession is occurring or not.

Perhaps one of the strongest pieces of evidence for how accurate this insight remains is the emergence of robo-advisors. Although this technology can help automate investing via algorithm and software, most customers have still shown a preference for placing their well-earned dollars in the hands of human consultants. The value that personalized financial recommendations can have for customers increases trust between firms and clients and improves customer confidence in eventual investment outcomes.

The role of an advisor is an active one and requires up-to-date knowledge on current market conditions, investment strategies, and technological skill sets. Even in times of economic recession, good advisors can forge new bonds and retain existing client relationships by dealing transparently and strategically with customer accounts.

Ultimately, recessions are reminders that even the healthiest economies can change rapidly and unexpectedly. Financial advisors need to be prepared ahead of time to help clients navigate uncertain financial markets and mitigate risk as much as possible.

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