Navigating financial plans during the pandemic

Shutterstock_184777091As news of the COVID-19 pandemic’s spread intensified early this year, the effect on the U.S. economy and American’s financial situations was unknown. We conducted the AICPA PFP Trends Survey in May to explore how CPA financial planners worked with clients during these uncertain times. The U.S. had experienced tens of millions of job losses, extreme stock market volatility and trillions of dollars in emergency federal programs to mitigate the economic fallout for businesses and individuals. The survey results provide an informative snapshot of how AICPA members on the financial frontlines helped their clients calmly navigate this extraordinary situation.

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Talking with clients early and often

When asked, a little more than three-fourths (76 percent) of CPA financial planners surveyed said they were speaking with their clients about COVID-19’s impact on their finances by the middle of March, with more than four-in-ten (42 percent) said their first COVID-related conversations with their clients happened by the end of February.

“As the headlines about the coronavirus were getting increasingly dramatic, it was difficult for most people to process where this was headed,” said Dave Stolz, CPA/PFS, chair of the AICPA’s PFS Credential Committee. “We saw the Dow start posting 900- and 1,000-point drops toward the end of February, and so the initial conversations I had with my clients were primarily around the market dropping. The tone from my clients was largely ‘maybe it is different this time.’ So, it was particularly important to stay in contact as the situation continued to develop.”

Frequent contact with clients during the pandemic was a theme for CPA planners. Three CPAs in four (75 percent) said they’ve been talking with their clients more regularly, including 45 percent who reported that contact was significantly more frequent than normal. These conversations largely helped ease their clients’ anxiety by making them more comfortable with their financial situation.

Eighty-one percent of respondents said clients had more stress about their financial plan than usual. Of those clients with heightened stress levels, 62 percent felt more confident in their financial situation after speaking with their CPA. Part of the reason, Stolz found, was that clients were reminded that they had proactively planned.

“The good thing about having a solid financial plan in place is that when things feel like they are falling apart in the world around you, you’re still starting from a position of strength,” Stolz said. “When clients are reminded that they have a baseline to adjust from if necessary, they understand that this allows them a little time to breathe and continue to monitor how things unfold, rather than making knee-jerk decisions they may come to regret.”

Proactive planning keeps COVID-19 changes minor

Nearly all financial planners surveyed (97 percent) reported making changes to at least one client’s financial plan. CPA financial planners reported on aggregate that three clients in 10 (30 percent) required plan changes. And the majority of those were minor changes (77 percent), compared with only 23 percent that were substantial.

Of the changes, the most frequently were investment allocation (62 percent) and spending decisions (59 percent). Rounding out the top five were changes to tax strategy (43 percent), retirement account, such as Roth, IRA, qualified plans, (41 percent) and retirement income drawdown (33 percent).     

Portfolio decisions during COVID-19 market uncertainty

When asked what changes they or their clients made to their investment portfolios during the pandemic, CPA financial planners most frequently (57 percent) rebalanced portfolios. Purchasing or increasing stake in equities (40 percent) was more popular than selling or reducing stake in equities (31 percent). Nearly four CPA financial planners in 10 (39 percent) took advantage of a down market to do tax loss harvesting, with more than one-in-three (35 percent) seeing an opportunity for Roth conversions. Forty-one percent made no investment changes.

“For some clients, the market dropping represented an opportunity to sell some underperforming assets for tax-loss harvesting. For others, it was the ideal time to reduce their tax liability by converting regular IRAs to Roth IRAs,” added Stolz. “While these moves won’t necessarily show up as positive investment performance in the traditional sense, they do maximize return in the long run. And during these times of uncertainty and continued market fluctuation — it’s important that clients remain focused on meeting their financial goals over a long-term horizon.”

The AICPA’s Advanced Personal Financial Planning Conference, part of AICPA and CIMA ENGAGE, will feature multiple sessions on how to help clients navigate the financial uncertainty of COVID-19.

Association Staff