How to Help Clients Recover From ‘Financial Shock’

By Brian O'Connell

Financial advisors should pretty much depend on their clients experiencing a financial shock, be it job loss, illness, injury, or worse.

Sixty percent of U.S. households will experience one this year, according to a new Pew Research Center report, and “over half of them struggled to make ends meet after the most expensive event.”

Pew also reported that an emergency fund comes in handy – but only to a point.

“Having savings in 2014 reduced families’ risk in 2015 of being financially destabilized—that is, struggling to make ends meet after their most expensive shocks—but even many with ample resources faced financial hardships,” Pew said in a statement.

Regardless of income, half of the survey respondents who had adequate resources to cover the cost of a typical family’s most expensive shock ($2,000) still experienced financial difficulty after a shock, Pew reported.

“Even among households that had $4,000 available, 43 percent struggled after their most expensive shock,” the statement added.

'A Financial Hiccup'

When even deeper-pocketed clients suffer from household financial jolts, advisors know it’s time to step up their game, and step in to counsel their clients on handling costly setbacks.

“I must have a divorcee, a recently released high-net-worth individual, or a burned risk taker get referred to my office daily, and all have gone through a financial hiccup,” said Joshua Scheinker, founder of Scheinker Investment Partners in Baltimore.

Some of Scheinker’s clients have to start over from scratch, and others have to figure out how to make their existing portfolio work for them. His take? Advisors need to take over and implement a solid, shock-recuperative battle plan.

“To me, though, the answer is simple in all cases – you need a good blueprint,” he said. “If you want to succeed and get back on your feet, you have to follow that plan, whether it’s enhancing an emergency fund, transforming a growth portfolio into an income producing portfolio, or helping a client live within their means and selling that beach house.”

Another big key in helping clients bounce back from financial shock, while keeping their long-term savings plan on a good path, is to implement a step-by-step approach to the issue, experts say.

“First, you need to assess where you truly are at (and) you may discover your client actually has breathing room,” said Brett Anderson, a financial planner with St. Croix Advisors in Hudson, Wis.

Secondly, the client has to re-evaluate his or her financial priorities.

“Things change, and sometimes we have to rebuild. It can be done, and it’s probably not easy,” Anderson said. “If you just lost your entire net worth, you built it one time, so you know you get to do it again. But in some cases, you may never recover at the level you were at financially.”

Tough Decisions Needed

The next step is for the client to be prepared for a “new normal,” he warned. “Sometimes compasses need to be reset. That’s life, and it’s not always fair.”

Lastly, both the advisor and the client should be prepared to make even harder decisions about the client’s financial matters, needs, wants and how both envision the future.

Guiding a client through a financial storm, and steering them toward sunshine and safety, is increasingly becoming yet another job responsibility for financial advisors.

But it’s a responsibility advisors can’t shirk – there’s too much riding on a positive client outcome following a financial jolt, and clients will need all the help they can get.

Brian O'Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC's Guide to Creating Wealth. He's a regular contributor to major media business platforms, including CBS News, The Street.com, and Bloomberg. Brian may be contacted at [email protected].