Ever since Silicon Valley Bank collapsed last week, many retirement savers have been asking nervous questions. Will other banks fail? Are their cash savings safe? And as the stock market takes a hit, what will happen to their 401(k)s and individual retirement plans?
For wealth managers, the jitters add up to another key question: How can they reassure their clients?
"This is an important opportunity for advisors to reach out to clients proactively to assure them of the steps that have been taken to safeguard their savings," said Jeremy Bohne, a financial planner and the founder of
When the California bank failed on March 10, it had
Federal regulators announced last Sunday that all deposits at both banks would be backed up by the Federal Deposit Insurance Corporation —
Amid the turmoil, it's understandable that retail investors are worried about their nest eggs — and calling up their advisors with questions.
"There's no escaping this story," said Tammy Wener, a certified financial planner at
The key to calming investors, according to wealth managers across the country, is to address three subjects: their bank deposits, their portfolios and their emotions.
If a client is worried their bank will fail and they'll lose their cash deposits, an advisor can quickly check whether this is a real danger. The first question is whether the bank is insured by the FDIC, and the second is how much money is in each deposit. If the bank is insured, the FDIC guarantees
"We're telling our clients to be mindful of FDIC insurance," said Jeremy Keil, a certified financial planner at
For an investor worried about bank runs, this kind of conversation can be a healthy reality check. If their deposits are already spread out, they can breathe a sigh of relief. If not, it's a good opportunity to fix things before the next banking crisis.
The next thing to discuss is investments. As the stock market reels from the SVB news, many retirement savers are worried about their portfolios. But if they've been following their wealth managers' advice all along, their investments are probably diverse enough to handle short-term volatility.
"This is why you have diversified investments, split between short-term funds and long-term funds, and focused on the level of risk someone is willing to take," Keil said. "If you do that you're really setting yourself up for the highest chance of success."
So what changes should clients make to their portfolios? Erik Baskin, the founder of
"No adjustments are needed to a well-diversified portfolio that is properly allocated for a client's unique risk tolerance and goals," he said. "Retirement savings, assuming they are invested in stocks and bonds, are safe from this crisis in the sense of the fact that they are not in a bank — the investor actually owns an asset."
That brings us to the final issue advisors should address: the emotions of the moment. When Signature Bank failed right after Silicon Valley, some investors saw echoes of the 2007-2008 financial crisis, a global meltdown that sparked bankruptcies at Wall Street banks including Lehman Brothers and Washington Mutual. So older clients who lived through that era may be feeling a higher level of fear. Wealth managers can help reduce that anxiety by discussing the present crisis in plenty of detail, bringing it back down to reality and highlighting why this time is different.
"When we see headlines like this, we all have an immediate emotional reaction," said Ben Lies, the president of
For extra reassurance, an advisor can show a client how their investments would fare under the worst possible market conditions.
"In cases like this, running updated financial modeling scenarios and helping them understand that their portfolios have been built to weather these types of storms … goes a long way," Lies said.
In many cases, the advisor's job may be less to recommend a course of action than to talk a client out of doing something rash, like panic-selling assets. When reacting to a crisis in the news, Baskin said, inaction may be better than action.
"As for 'what to do,' the answer is nothing. Stick to the plan," he said. "This is just the latest crisis and this too will pass."