How the Next Downturn Will Shape Your Career

Posted in: Practice Nitro

“We cannot solve our problems with the same level of thinking that created them.” – Albert Einstein

With the financial crisis 10 years in the rear-view, this is a time to reflect on lessons from the past and plan for the next downturn even while we’re still in the throes of a bull market. Sadly, today many financial advisors are employing the same strategies, tactics, and behavior that ended many careers. What should we have learned? What are the opportunities? Does it make sense to make plans and implement strategies now to prepare for the next downturn while those decisions can be made rationally and free of emotion?

The last bear market shook out a lot of financial advisors and the impact is still felt a decade later. There are fewer financial advisors today than there were in 2007, even though there are about 500,000 more millionaires (9.8 million in the US, compared to 9.3 million before the financial crisis) and US households have about $14 Trillion more dollars than a decade ago ($94.8 Trillion vs. $80 Trillion a decade ago).

The next downturn will be the most advertised downturn/correction/bear/crash in history – and it hasn’t even started yet! Talk to clients – the anxiety is palpable. The next downturn will be like ones in the past in many ways (“it won’t be different this time”), but this one will be decidedly different in how it affects the advisor community. It is likely to shake out more advisors and define another generation of advisors’ careers. How you fare will depend largely on how you respond.

When the last bear attacked, the average age of financial advisors was 45. The predominant conversation in the advisory community was how to deal with the crisis and how to grow your practice. Today, ten years later, the average age of a financial advisor in the US is close to 56. As any cursory glance at an industry trade magazine shows, the most pressing conversations today center around succession planning. A generation of advisors are planning their exit.

Based on our research and my experience of working through the fourth quarter of 1990 (where the Dow was down almost 20% in three months), the “stealth bear” of 1992 (where the S&P was up marginally but the majority of stocks were down), Long-Term Capital fallout of 1998, the Dotcom bust of 2000-2003, the liquidity crisis of 2007-2009 as well as the shakeout in international markets in 2013, I believe the next down market will likely affect your career three ways…

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