AssetMark: 8 Lessons Learned From the 2008 Recession That Are Applicable Today

No two recessions are alike, yet many repercussions for employers, investors, and financial advisors are similar:

  • During a recession, advisors may experience a decline in the value of their clients' portfolios, leading to decreased confidence and trust from clients.
  • Forecasts for a potential downturn in markets may cause clients to reduce their investment contributions or withdraw funds, resulting in declining revenue for your firm.
  • The economic uncertainty of a recession can also result in increased demand for financial advice, which can put pressure on advisors to provide accurate and effective guidance at a higher volume than usual.

With recession talk looming large in the U.S. today, it's important to be well-prepared for the unknowns ahead. Get a plan in place to help your clients navigate challenging economic conditions.

As the saying goes, history has a way of repeating itself, and looking to the past for guidance on future obstacles can make all the difference in your preparedness for the road ahead. Let’s explore how lessons from the last recession can help financial advisors prepare for today’s challenges.

How Did the Last Recession Impact Financial Advisors?

The 2007 – 2009 global financial crisis had far-reaching consequences for individuals and financial advisors alike. During the Great Recession, financial advisors learned several valuable lessons on how they could serve clients better and navigate financial markets more effectively. 

A few overarching themes stand out when we consider how the last recession impacted financial advisors:

  • Advisors experienced the value of diversification. The recession was fueled by the collapse of the housing market and the failure of financial institutions that were heavily invested in mortgage-backed securities. Financial advisors that were relying too heavily on a single asset class or investment strategy faced significant losses.
  • A volatile market highlighted the importance of logical strategies and long-term vision. During the recession, many investors panicked and sold their investments at the bottom of the market, only to miss out on the subsequent recovery and economic growth. Financial advisors learned that it is essential to have a well-thought-out investment plan and help clients stick to it, even during difficult times when emotions are running high.
  • Clients needed proactive communication and responsiveness. During the crisis, many investors felt uninformed and uncertain about the state of their investments, adding to their heightened state of stress. From this crisis, we learned that it’s always best for financial advisors to keep clients informed and provide them with a clear understanding of what is happening in their portfolios and why—even when the discussions are difficult, and the outcome is unclear.
  • Advisors realized the benefit of preparation. The last U.S. recession underscored the importance of being prepared for unexpected events. Financial advisors learned that they must be proactive in developing high-quality contingency plans and helping their clients prepare for a range of possible outcomes, including economic downturns and market volatility.

Long story short, the 2007-2009 recession was a wake-up call for the financial industry. Financial advisors should view this recent recession as a valuable learning experience they can build on to offer more effective financial guidance to clients navigating the current market.

Common Challenges Financial Advisors Face in a Recession

What hurdles do advisors face during a downturned market? Financial advisors and strategists typically face several challenges during a recession:

Decreased client confidence: During a recession, clients may be concerned about the value of their investments and the state of the economy. This decrease in investment performance can lead to decreased confidence in their financial advisor and pressure to make changes to their portfolios.

Increased demand for advice: Many clients may seek guidance during a recession considering the uncertainty that comes with it. Financial advisors may need to spend more time answering questions, providing reassurance, managing budgets, and developing new investment strategies to help their clients. You also may find your clients have an increased desire for services you aren't currently offering, like tax filing support or retirement planning. 

Market volatility: Recessions are often characterized by heightened market volatility, which can be difficult for financial advisors to navigate. Advisors must be able to manage clients' expectations, offer sound investment advice, and help them make informed decisions during periods of heightened risk.

Reduced revenue: A recession can result in a decline in the value of clients' portfolios and a reduction in their investment contributions. This drop in contributions can have a significant impact on financial advisors' revenue and profitability. For fee-based advisors, clients in the midst of a recession may want to cut spending and reduce some of the services they were previously paying for on a regular basis. Advisors offering in-demand services may consider rate hikes to help make up for some of their lost revenue.

Difficulty in predicting market conditions: During a recession, the strength of the economy and financial markets may be more difficult to predict, making it challenging for financial advisors to develop effective investment strategies for their clients. The nature of a volatile market means there isn't much warning before a drop or a recovery. Nervous clients may want to jump into a sell-off to avoid further losses, only to find the market improves soon after they accepted the loss.

These challenges highlight the importance of having a resilient strategy, an agile business, and a deep understanding of financial markets as a financial advisor. By being proactive and transparent with your clients, you can help support them and provide valued guidance during uncertain times.

8 Things Advisors Learned in 2007 – 2009 That Still Apply Today

It’s been said that all economic and market downturns are different in terms of cause, length, severity, and impact. The one thing they always have in common? They are great teachers.

The financial crisis of 2007 – 2009 was notable for a number of reasons, and it left its mark on financial advisors and investors alike. So, what were some of the lessons learned? 

We spoke to four financial advisors to see how their experiences during those years shaped their response to current economic and market difficulties. Here’s what they had to say.

1. “Have your liquidity planning correct.”

Keeping three to five years of liquid assets in a short-term vehicle is important for flexibility during a downturned market. Liquid assets don’t generate much in the way of returns, but having several years’ worth of money available that is not exposed to risk can protect clients from selling positions at a loss. 

2. “Transform a downturn into an opportunity to strengthen your business model.”

A market downturn offers financial advisors a timely opportunity to refine their business model. For non-qualified accounts, capital gains aren’t the factor they can be in up markets, so a discussion about moving client assets onto a third-party platform that offers more defensive or tactical asset managersis an organic conversation that could happen as a result of poor market conditions. 

Market downturns also offer advisors an opportunity to move clients from commission-based to fee-based advisory; the long-term planning benefit appeals to clients, while the more predictable revenue flow strengthens the advisor’s business. Several advisors we spoke to moved to fee-based approaches during the financial crisis, with no attrition as a result.

An increased demand for certain financial services could mean an opportunity to expand your offerings. For example, you may discover clients want budgeting or tax strategies you didn't focus on before the recession.

3. “Don’t over-correct.”

Financial advisors who moved too quickly to conservative allocations in the early days of the 2007 – 2009 recession found portfolios had limited growth potential, and they missed out on the relatively quick recovery. 

Now, instead of trying to preserve assets over the short term, the same advisors are much more likely to make minor adjustments. Stick with your logical strategy over gut feelings and hunches.

4. “Be on the offense when it comes to prospecting for new clients.”

The math is the math: in a market downturn, your AUM-based fees are decreasing too. Your revenue from Q4 2021 assets is likely much higher than your Q4 2022 revenue. You’ve got to bring on new clients to make up for that loss of income. 

Look to diversify your revenue stream by adding fee-for-service or hourly fee options, such as divorce planning, debt management, budgeting, insurance, or employer benefits (e.g., stock options, deferred compensation). By charging a minimum account management fee, you can open your business up to clients you might not have had before while managing that account profitably. 

As clients see their year-end statements for 2022, some will move on from their financial advisors. Take advantage of that. Ask existing clients for referrals and check in with your Centers of Influence for referrals.

5. “Don’t underestimate the value of service.”

Today’s financial advisors need to be available. As one advisor said, “When’s the last time you wanted to be ignored?” Clients need to know you are standing by and ready to support as needed.

Avoid staff reductions that make it hard to keep up with client needs and services. If you can, add to your staff to handle the increase in client outreach. Remember, financial advisors must be proactive and responsive during times of volatility. 

Communications are more email-centric now versus a phone call, which works to an advisor’s advantage. Email is less time intensive—you can reach dozens of people with the push of a button, and you can prepare your communications in advance. Plus, people often prefer email.

Enact a standard review calendar and set up your clients’ next appointment at their current one. It helps with communication flow because clients know when they’ll be seeing their advisor next.

6. “Move the conversation away from the numbers and toward the financial plan.”

If all you talk about is investments, you live and die by returns — something you really can’t control. Don’t focus on the market downturn but, rather, how it affects clients in the short- and long-term. Recognize that inflation in the short term affects your clients, especially small business owners and retirees who feel it every day. 

Instead, focus on what you can control: conveying your expertise and emphasizing goals. Discuss estate and retirement planning or cash flow modeling instead. If you’ve done a good job with planning up front, there’s no need to talk numbers or projections.

The more you can talk about the financial plan, the more your clients will understand why the current downturn isn’t as impactful as they fear.

7. “Education is key. Especially now, when there’s a lot of noise out there.”

Provocative news isn’t a new problem, but it has certainly been on the rise in the last 15 years. Your clients are bombarded with “news” and opinions everywhere they turn: social media, cable news, podcasters, etc. The most sensational stories tend to get around the fastest—even if they aren't helpful or completely true.

It’s important that your clients know they can turn to you for answers. But don’t wait to be asked. Instead, be proactive. Share insights you’ve come across via email or share reliable information on your Facebook or LinkedIn page.

The conflicting ideas your clients hear often fuel a lot of questions. You can help keep them calm and focused, but it will take some effort on your part.

8. “Have a communication plan in place before you need it.”

The markets can quickly take a turn for the worse. Proactively getting a communication strategy in place helps reassure clients, frees you up to focus on other responsibilities, and saves a lot of stress for your employees. Create a library of pre-approved communications ready to send out as needed based on how the market shifts.

If you don’t have the time or expertise to create these communications, leverage a marketing platform, such as AssetMark Marketing Advantage to help create and distribute the content. 

3 Trends That Impact Your Business

So, how can you move forward in a strategic way? Here are three trends financial advisors can leverage to build a stronger business during uncertain times.

1. Changing Client Needs

Communicating with clients—but not overcommunicating—is imperative. Make sure clients know you are available for questions or just to talk so they feel a personal connection. 

That being said, don't inundate clients with updates too frequently because this could cause anxiety. Balance the need for information with keeping clients assured that it is business as usual. 

2. Increased Fear and Hype Media

The impact of social media, pundits, political/social divisiveness, and the 24/7 news cycle is greater than ever. As news outlets and podcasters search for an attentive audience and social media sites rely on click-throughs, fear-based headlines have become more prevalent. Understand that the current media strategies stoke fear in investors and make it more difficult for financial advisors to do their jobs. 

As digital algorithms reinforce confirmation biases, it’s getting more and more problematic for investors to access objective information. Become the reliable rock your clients need to ease their fears and offer strategic, long-term solutions.

3. Better Solutions to Support Your Firm

Your clients expect you to be a steady presence in uncertain times. But you certainly don't have to do this alone. Each of our advisors noted the importance of working with the right third-party asset management firm. 

One explained, “I don’t have to be the expert. I just need to go to the expert as the client advocate, and my team at AssetMark will help me find the right solutions for the client.” Another added, “AssetMark gives you so much support, way beyond investment solutions.”

What’s Next? Recession Planning: 2023 and Beyond

A recession can be especially challenging for financial advisors, and being unprepared could lead to harming your reputation, losing clients' trust, and stunting long-term success. In challenging economic conditions, firms that are responsive, available, invested, and proactive have an opportunity to stand out from the crowd and win the respect (and loyalty) of clients.

Keep your practice strong in the face of economic uncertainty and market volatility. You can prepare for potential disruptions and protect your professional reputation by working with a turnkey solutions provider like AssetMark.

You need industry-leading tools and resources that help you sustain operations and deliver value to clients. AssetMark can help you build sustainable growth, even during a volatile market. Our solutions make it possible to balance the challenges of running a business and provide guidance to clients during uncertain times.

For more information on how AssetMark can support you during difficult economic times—and beyond—download our new guide, Recession Proof Your Business.


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