By Christina Nelson
"Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices..."
President Obama, Inauguration Speech, Jan. 20
With a renewed call to responsibility-that all Americans help their nation through a potentially long and deep recession with fiscal prudence-the value of financial planning and the importance of smart budgeting are receiving heightened recognition. Financial planners assist clients will such matters, but as business owners themselves, many see their own incomes falling along with the markets and realize they are not immune to the changing economic times.
To address this reality, planners share here a few ideas they've employed to help their businesses regain stability through fiscal responsibility, as well as how they are using the severity of the economic downturn to hammer home the importance of financial planning and practical budgeting with their clients.
Trim Business and Personal Expenses
Financial magazines and Web sites have been awash these past few months with articles on ways to pinch pennies in a down economy (see "Dealing With a Cash Crunch" in the March/April issue of Practice Management Solutions for some useful tips). Recommendations run the gamut from greening your office to reduce energy expenses to bartering your services with other professionals to avoid retail markup. But what are planners doing and what is working?
Mario Yngerto, CFP®, with Genesis Wealth Management in Plano, Texas, has experienced a 25 percent to 30 percent decline in income at his fee-based business since the market drop last October. Yngerto suggests that small firms such as his (two RIAs and two attorneys) don't have as many hefty, discretionary expenses to trim as larger companies might. So in addition to cutting business costs, such as downsizing his office to half its former space and using voice over Internet protocol (VoIP) for long-distance phone service, he is also finding ways to eliminate personal expenses, such as membership fees for social clubs.
"Nothing is off the table at this moment when the future, at least the next three to six months, is so uncertain," says Yngerto. He adds that most planners are still reacting and making adjustments to new budgeting realities.
Bringing in new assets is another way to balance out current expenses, and according to Yngerto, business is picking up.
Run a Lean Operation
Rich Colarossi, CFP®, with Colarossi & Williams in Islandia, N.Y., says the 20 percent to 25 percent drop in his firm's income has not taken the toll it might have in other businesses.
"I come from an accounting background and am conscious of running an efficient practice, a lean operation," says Colarossi, whose firm operates with low overhead and a small staff of one full-time and one part-time employee. Colarossi is in the office five days a week, and if the phone rings three times he'll answer it. When clients ask why, he explains that it's his business and he's ultimately responsible for it.
"Always service the client!" he asserts.
Colarossi hasn't cut typical business expenses that his firm believes are necessary to preserving a positive customer experience, but he has delayed taking on new expenses that don't seem to pay off when other, more cost-effective methods are available. Prospecting for new clients, including expensive mailings and seminars that have shown little yield in this economy, have been scrapped to focus more on the personal touch of reaching out to existing clients for referrals.
"Sometimes you don't have to look any further than your book of business," says Colarossi. "It's actually been working."
He finds that in this environment, where the public is growing more skeptical of some big-name companies, people appreciate a friend's recommendation for a face-to-face relationship with a local, small business owner. Colarossi's firm has been hosting town hall meetings and webinars, and he finds that adapting to the new consumer environment has resulted in more satisfied clients and additional referrals.
Translate the Pinch to Clients
Many planners are using the extreme nature of the recession to educate clients on what this downturn will require of them in terms of fiscal responsibility.
"We've gone through such an age of prosperity that we've gotten away from the basics," says Yngerto. He's created a four-point bullet list to remind clients of those basics:
- Spend less
- Save more
- Consider needs versus wants
- Realize that life is different now and we're all going to have to make adjustments
Colarossi agrees that people have gotten used to depending on credit.
"But living way beyond your means is the way it was," he says.
He usually communicates with clients each January, seeking to schedule time to review financial plans. In previous years, he found that some clients were content with the status quo and reluctant to take the time to come in. This year, however, clients are more eager to discuss variations in their investment portfolios and how these changes should affect decisions within their personal budgets.
"Clients are more willing to talk than ever before," says Colarossi, who recommends that planners use this opportunity to engage clients and build relationships. "We are the rock" in this time of uncertainty, he says.
Don't Spend What You Don't Have
It all comes back to smart budgeting. Yngerto believes businesses, as well as clients, need to appreciate that creating a realistic budget today is "at the essence of everything we are going through-that we can't spend what we don't have."
Colarossi strives for conscientious accounting in any economic climate, but particularly in tight times, when a close line-item budget review can reveal redundancies that may save a company significant money. He recommends getting rid of duplicate technology, for example, which can save a company a couple thousand dollars a year.
"We found several of our software programs were doing the same thing-and we weren't even using some of them but maybe once a year," he says.
Yngerto reiterates his focus on fundamental, sound money management with an analogy of the success a back-to-basics approach brought his beloved Miami Dolphins football team. The worst team in the NFL in 2007 with a record of 1-15, the Dolphins bounced back in 2008 to finish the regular season at 11-5.
"[Head coach] Bill Parcells got us back to the basics of blocking and tackling-Football 101," says Yngerto. "Businesses, consumers and the federal government could use a healthy dose of Financial Planning 101."
Christina Nelson, associate editor at FPA, hopes her Washington Redskins get back to 1980s-style football basics. Contact her at Christina.Nelson@FPAnet.org.
Do Your Clients Need Help Budgeting?
Help educate clients on creating a personal or household budget with FPA's PowerPoint presentation, "Budgeting 101." This customizable client presentation includes how-to guides, tips and a brochure on "Overcoming the Credit Barrier—Clearing the Way to Your Financial Goals."