How Advisors Are Preparing for Possible Recession: Schwab Study

Financial Planning reports on the key findings from Charles Schwab’s Advisor Outlook Study, now in its 12th year, on how advisors are preparing for a possible recession.


Independent advisor Christopher Cooke is planning ahead for the next recession. He’s emphasizing his firm’s strategy for possible turmoil by speaking with clients and has hired assistance to handle marketing.


“We had a number of scares and during each one of those scares, we educate our clients about the bump,” he says. Cooke is the principal at his father’s 50-year-old firm, Cooke Financial Group, based in Indianapolis.

The 10 year bull market and volatile market conditions have both advisors and investors on edge. In case of a recession, independent advisors are reducing costs to operate, updating technology, and increasing sales and marketing efforts, according to a study by Charles Schwab Advisory Services.

Schwab also found that 40% of advisors aren’t preparing for a recession at all — though a spokesman said that many firms are designed for long-term strategies and are not likely to make adjustments for a downturn.

In addition, the study found that 23% percent of independent advisors are turning to marketing to help clients prepare for a recession.

“When we see a recession coming, we need to change the messaging with our clients,” Cooke says, adding that digital tools are essential in getting that across.

“Social media marketing is how clients are testing financial advisors,” he says.

Aite Group senior analyst Dennis Gallant suggests that advisors over-communicate to clients about the firm’s gameplan. He’s seen many advisors who thought they had great relationships with their clients — but when the market turned, they wound up overburdened with frantic calls.

In the past six months, 82% of advisors have had to reassure some of their client base about achieving investment goals, Schwab’s study found.

The digital tools at advisors’ disposal are unlike anything the industry saw 10 years ago, Gallant explains. Advisors can communicate with clients using blogs, posts, and text messages. In addition, they also have access to technology for streamlining operations like portfolio construction and risk management software programs.

As advisors invest in technology to grow, their reasons vary; some do it to scale and serve more clients while others aim to reduce manual work.

Schwab found that 58% of advisors plan to implement new technology in 2019.

While Cooke’s priority is communication, his firm is putting a strong emphasis on technology that would increase efficiency — such as TAMPS and platforms that specialize in model allocation.

“The other priority is good ol’ blocking and tackling,” Cooke says, The best solutions will come from investing in management practices and having advisors act as experts on undervalued assets.

But Gallant isn’t so sure. He thinks advisors should be more advice oriented. “If they’re purely focusing on investment management, their business is at risk,” he says.

Giving advice and focusing on all aspects of wealth management instead of beating the market drives a deeper relationship with clients where advisors have more touch points, according to Gallant.

But both agree that communication is key.

“The good advisors were very explicit about their process and their portfolio. But being prepared now doesn’t mean being prepared for what’s coming,” Gallant says.

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