I believe I have an interesting take on the current financial imbroglio we find ourselves in. I am both a small business owner and a financial adviser. So, while the stock market has taken a significant whacking including the largest American bank (WaMu), insurance firm (AIG) and broker (Merrill Lynch) all having tanked, I am feeling the fallout from the current malaise two-fold. This blog post is based on my insights into helping a small financial advisory make it through the tough slog ahead but applies to any business.
Black Swan Contingency Planning
What’s the issue: There is an incredible amount of interdependency we’re witnessing across businesses, sectors and geographies. When a mortgage bank fails in the US, it has far-reaching consequences felt around the world. Little events are exacerbated and seemingly discrete events domino into global markets tanking. While banks like Merrill and Morgan looked as if they should weather this storm OK (albeit with some lumps), Lehman’s demise called into question these firms’ viability overnight.
What to do:
Always have a “what if everything goes wrong” Black Swan contingency plan: I’m not talking about preparing for a nuclear war or a situation where all money loses its value — if that occurs, quit your business, hock everything and buy some ammo and head to the hills. I’m talking about that Black Swan type event that could impact your business so acutely that your business may not be the same for years in its wake. Financial partners have their funding means dry up. Customers push out purchasing decisions indefinitely. Distribution channels close. In fact, small businesses are much more nimble than large firms in dealing with these types of changes but lack the staying power that comes from being a larger company.
Is”safe” really safe?: During a black swan type event, things go wrong that we didn’t expect. Is your banking partner really solid? Ask him. What if one of your trading partners goes under? Can you continue buying/selling? In my business, core money market accounts are what clients use to park their money. We’ve read of a few of these types of fund cratering. What’s going with in your firm’s products?
Backup everything that can be backed up
You can’t be too conservative: Taking risks isn’t going to be rewarded in the short term. Cash is king in this market and it will pay to preserve your business capital and business processes so that you can take advantage of the situation when the markets rebound.
Assessing Partner Viability
What’s the issue: Partner demise can not only create a drag on your business, it can tank it. We’ve read various reports surfacing that JPMorgan played a role in Lehman’s demise. JPMorgan financed Lehman’s daily brokerage business and by freezing Lehman’s account, it looks like Lehman may have entered a death spiral. The point here is that given our various integrated relationships, it’s important to look at everything, from accountant to lawyer to bank to hosted CRM platform and test how dependent we are on our partners.
What to do:
Think Global, Act Local: Watching Lehman Brothers’ quick demise and its subsequent spillover to firms like Merrill Lynch and Morgan Stanley, it’s clear that what we’re dealing with is systemic. What may have begun as poor risk management of singular firms has become everyone’s problem given the financial communities various webs of interaction and influence. Instead of my clients asking “Hey, how’s my portfolio doing?” (they know NOT to ask), they are asking fundamental questions like “Are banks going to make me whole on my CDs?” and “Are my cash and securities safe if you or your financial custodian go under?” I’ve spent so much time on the FDIC’s website (a branch of the U.S. government called the Federal Deposit Insurance Corporation), that I’m thinking of making it my homepage. After the Depression, the federal government instituted a program to insure bank accounts up to $100k (this has been temporarily expanded to $250k in some cases) to support banks and help protect from future runs on banks.
I send clients here for a treasure-trove of information like a list of failed banks, what protection consumers really have, and what role the government is playing in bailouts of such massive banks like WaMu. What was taken for granted in times of plenty is being called into question. To extrapolate this further, times of crisis require talking to your trading partners and determining their solvency and their ability to weather the financial storm. If suspect, changes need to be made to protect your business and your customer base.
Bolster customer relations
What’s the issue: During chaotic times, customers frequently feel left out in the cold. Frequently, in the asset management business, it’s not their poor performance that creates customer dissatisfaction but rather how well they are treated by their adviser throughout this process. Customers understand that there are issues beyond the control of the service provider. What they really demand, though, is the guidance of the service provider during tough times.
Here is an interesting article about customer churn during tumultuous times in the asset management industry.
What to do:
Be proactive about working with customers/clients though the crisis: This is extremely germane to the financial advisory business. While many clients may not actually need to make changes to their portfolios, what clients frequently want to know is that their supplier/service provider is emotionally supportive throughout the crisis.
Call clients: Don’t rely on form letter communication. Get on the phone and listen. This simple rule is worth money.
Go out of your way to connect: This works with clients and prospects. Plan mini-seminars to discuss what’s going on. People have a lot of questions — become the go-to-guy in your field during times of trouble.
Summary
Crazy times call for crazy measures and require shoring up every aspect of your business. From customers to suppliers, small business owners must secure distribution and supply lines. While taking risks should be minimized, by doing good diligence, business owners should not only secure their current business but position themselves for increased business flows when things snap back. They always do.
