While the pandemic has taken a financial toll on millions of Americans, small-business owners may rank among the hardest hit.
Global shutdowns and social distancing have put pressure on an already financially fragile area of the economy. Just three months into the pandemic, the median small business with more than $10,000 in monthly expenses had enough cash on-hand to cover just two weeks of expenses, according to a survey of 5,800 small businesses published last summer in the journal of the Proceedings of the National Academy of Sciences, or PNAS.
This financial reality poses both a challenge and an opportunity for financial advisors in guiding clients who own small businesses.
To learn more about the financial state of small-business owners and what financial advisors can do for their entrepreneurial clients, we spoke with Alyson Klug, head of national sales at TD Wealth, about the organization’s latest Retirement Readiness survey. Klug offers insight into the financial lives of small-business owners. Here are edited excerpts from that interview.
What are the key findings of TD Bank’s annual Retirement Readiness survey regarding the financial state of business owners in the wake of COVID-19?
Two-thirds of business owners reported that their operations were impacted by the pandemic as the country implemented widespread lockdown measures. Just about half of business owners had to reduce their operations, and one-quarter of respondents reported that they permanently or temporarily closed due to the pandemic.
The economic impacts of the pandemic and the results of the recent U.S. elections continued to be top-of-mind. Mass affluent business owners — defined as those with investable assets of $100,000 to $499,000 — were more concerned about economic or political uncertainty compared to high-net-worth business owners — defined as those with more than $500,000 in investable assets.
Despite the negative business impacts of the pandemic, an overwhelming amount of business owners — 85% or them — reported that the pandemic has not affected their retirement plans, and they’re staying the course. This reinforces the fact that retirement savings are long-term and investors should continue to be prudent and not react emotionally to short-term market disruptions. The study also revealed that retirement confidence continues to remain high for high-net-worth business owners year over year despite the 2020 market environment.
What do these findings mean for financial advisors?
Many of the business owners had an “edge” in staying the course by working with their financial advisors. Six out of 10 business owners reported that they already work with a financial advisor. Among millennials, that number was even higher at 68%.
This demonstrates that business owners are keen to work with a financial advisor to help with short-term and long-term planning, especially the younger generation. Advisors might even have a greater opportunity to provide financial advice to the younger business owners who are looking for additional guidance for their financial journeys.
The survey also revealed that 88% of respondents have some form of estate planning such as a last will and testament, a trust or a fully integrated estate plan. Some 70% of respondents reported that they work with an advisor when developing their estate plans. This presents an area of opportunity for advisors to help clients with succession plans since business owners are aware of the importance of estate planning.
How can financial advisors best help business owner clients right now?
The past 10 months have been a test for financial advisors as they have had to help their clients navigate a truly challenging time. In the new year, it’s critical that advisors stay connected with their clients and make themselves available to answer questions and proactively provide advice.
In this current work-from-home environment, investors are more willing than ever to “invite” advisors into their homes through videoconferencing technology. As a result, advisors and clients are strengthening their relationships, able to dive deeper on their goals and objectives for their long-term financial plan.
While the advisor’s primary role is to review the client’s current plan and provide the appropriate advice based on the current and future landscape, advisors can also play a critical role in helping business owners with their additional current financial needs such as banking, lending and investing.
What do you foresee for the small-business landscape in 2021?
While some headwinds remain, we expect the economy will recover as the COVID-19 vaccine becomes more readily available and administered. Small businesses are an important part of the economy, and broad reopenings will depend on the distribution of the vaccine. The business side of the economy is likely to open more if we approach a “return to normal” as the vaccine becomes increasingly available.
We are also hopeful to see unemployment rates come down. However, there would probably still be a need to secure fiscal support to help those who have been unemployed since the start of the pandemic. We must remain diligent in helping business owners get back on their feet and provide the financial tools necessary for recovery.
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Q&A: TD Wealth on Helping Small-Business Owners Through a Pandemic originally appeared on usnews.com