In the wake of the Coronavirus pandemic, many financial advisory firm owners are facing tremendous uncertainty about the future of their businesses. And even those business owners who have planned ahead for cyclical downturns may still have to make hard choices about how best to navigate the current turmoil and ensure the long-term survival of the business.
In this guest post, Angie Herbers – Chief Executive and Senior Consultant at Herbers & Company, an independent management and growth consultancy for financial advisory firms – walks advisors through six steps of crisis management that they can use to cope with the unique crisis we are facing today. Because the truth is that even for experienced advisors who have been through market turmoil in the past, each crisis is different (posing unique challenges to firms at different stages in their growth), and in practice, the biggest risk to an effective crisis management response is one of “false equivalencies”, in which an advisory firm owner makes the assumption that the current crisis can be dealt with in the same manner as the last. In fact, while financial advisors may plan for aspirational growth, few businesses actually do the planning necessary to ensure they can maintain the stability of their business in the event a severe crisis turns into a protracted one.
Accordingly, there are certain steps an advisor can take to ensure their crisis management strategy is specifically tailored to the current situation at hand, and the risks that loom in the event that it does not recover quickly. The first step is an assessment of the specific crisis that needs to be addressed right now (which, in today’s environment, is the health pandemic crisis more so than it is the financial crisis) so that the advisor can focus their efforts on the right problem. This is followed by step #2, consisting of a SWOT analysis to identify the specific threats to their firm and its culture (without which, employees will leave after the pandemic passes, and just plunge the business into another crisis!) and how those threats might best be addressed. The third step is about continuity planning, and why flexible compensation and partnership pay structures are critical to maintaining resilience in times of extreme uncertainty. Next, engage in financial stress tests for the business, recognizing that stress tests that examine stability, focusing on capital allocation and cash flow instead of growth rates and profit margin, are more relevant than aspirational or functional stress tests during times of crisis. From there, it’s time to engage in strategic planning about what firms will do to fix (and prevent) the specific problems many firms are probably facing in today’s tumultuous environment. And the last step is implementation, in which strategies are implemented with a focus on the firm’s culture, clients, and long-term organizational stability.
Ultimately, the key point is that financial advisors, like many other business owners facing hard choices in light of the current crisis situation, can take a course of action to respond to their situation, and if the right choices are made with the intent to protect the culture of the business (as well as the employees entrenched in that culture) over everything else, chances are that the business will survive this crisis, and will be positioned to grow even stronger and better equipped to face the next crisis. But the starting point is to be ready and willing to make the hard choices necessary to ensure the business survives and has the opportunity to thrive in the long run!