Guiding clients through change and uncertainty

By Tracy Stewart, CPA/PFS/CFF

The coronavirus pandemic has turned lives upside down. School, work, medical care, travel, birthday celebrations — everything has changed, including people's financial circumstances. Many Americans have seen their incomes drop and, at certain points, their investment account balances plummet.

These dramatic changes are reflected in household budgets and financial plans. Many younger families have delayed the purchase of a home or reduced saving for their child's college education because of the income interruption. For those close to retirement, the pandemic may have pushed back their timeline, keeping them at work for a few extra years. Finally, for those already in retirement, the economic impact of COVID-19 may have required a change in spending habits.

The good news is that CPA financial planners have an opportunity to step up and deliver client value on a different scale. Here are some conversations to consider having with clients as the nation begins to emerge from the pandemic.

ENCOURAGE CLIENTS TO REVISIT THEIR GOALS

Remember how, in the pre-COVID-19 days of travel, the helpful airline staff would remind you to open the overhead compartments slowly in case luggage had shifted during the flight? Your clients' financial lives have experienced similar turbulence, and some of the details may have to be reconsidered and rearranged.

Those clients who have previously been through a planning conversation will likely be grateful for an update. After all, whether the news is good or bad, there is psychological benefit to knowing where you stand.

For the clients who are new to financial planning, it may be helpful to begin by asking specific questions. Can they still retire on schedule — or has the pandemic set them back? If there is a setback, how significant is it? Do they still want to retire in place, or has a mandatory stay-at-home order pointed out that perhaps a different location may serve them better? What are their children's college plans now, and what resources are available to help cover the expenses?

REVIEW SAVINGS (ESPECIALLY EMERGENCY SAVINGS)

The pandemic has demonstrated that a financial safety net is not a luxury. It is a real necessity. Moreover, the traditional advice to maintain three to six months' worth of household expenses in an emergency savings account may have fallen short. Some families have been facing unemployment and income cuts for more than six months, and there is no telling how much longer they must tread water.

For clients who have been fortunate enough to maintain a steady income, this is a good time to revisit the savings plan. One side effect of the pandemic has been a forced decrease in certain types of spending. Shifting those "extra" funds into savings can help clients face the uncertain future with a bit more confidence.

Some of your clients may feel that there is nothing they can do to improve their savings rate. This is a chance to remind them that small steps are always possible. Research has demonstrated that small-but-permanent spending cuts can be more effective in the long run than larger-but-temporary measures (see Tharp, "Dynamic Retirement Spending Adjustments: Small-But-Permanent vs. Large-But-Temporary," Kitces.com (June 7, 2017)). So, encourage them to look for those less painful budget opportunities.

MANY UNKNOWNS AHEAD

With perseverance, vaccines, and treatment protocols in place, the end of the pandemic may finally be in sight. However, many unknowns still lie ahead.

For now, CPA financial planners can continue to do their best to support clients through this uncomfortable time of transition. And remember, every situation that combines change and uncertainty is potentially an opportunity for tax and financial planning.

For a detailed discussion of the issues in this area, see "Personal Financial Planning: Helping Clients Emerge From the Pandemic," in the March 2021 issue of The Tax Adviser.

— Tracy Stewart, CPA/PFS/CFF


The Tax Adviser is the AICPA's monthly journal of tax planning, trends, and techniques.

Also in the March issue:

  • A review of recent developments in individual taxation.
  • A look at year-end tax legislation.
  • A discussion of business development issues for firms.

AICPA members can subscribe to The Tax Adviser for a discounted price of $85 per year. Tax Section membership includes a one-year subscription to The Tax Adviser.

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100th ANNIVERSARY

Black CPA Centennial, 1921–2021

With 2021 marking the 100th anniversary of the first Black licensed CPA in the United States, a yearlong campaign kicked off to recognize the nation’s Black CPAs and encourage greater progress in diversity, inclusion, and equity in the CPA profession.