Mother Nature sometimes has a cruel way of reminding us how much power she has. Even as parts of New Orleans are still recovering from the effects of Hurricane Katrina in 2005, Hurricane Harvey is devastating large parts of Texas. Once the floods subside, residents will be trying to piece their lives back together.
How can you as a financial advisor assist clients who are suffering? And what can you do to prepare for an event closer to home?
GRASPING THE IMPACT
Extensive damage caused by severe weather, or losing a home completely, is devastating on many levels. Assuming no one has lost their life, the financial implications of losing one’s largest asset are coupled with the emotional toll of losing many day-to-day and prized possessions.
Clients will most likely be in shock for days. They may go through stages of grief if they have lost their home and possessions, exacerbated by the lack of a timeline of how long recovery will take. They’ll need expert guidance from many professionals, and you, their financial advisor, are one of them.
QuoteDon’t assume — no matter how strong the relationship — that you know what clients will need. Ask them about their situation and listen actively.
One role you have is to listen carefully. Don’t jump into a fix-it mode. Don’t assume — no matter how strong the relationship — that you know what clients will need. Ask them about their situation and listen actively. The conversations will change in topic and emotion from the initial days to the ensuing months as the clients work through the rebuilding process, so be prepared for this to be an ongoing discussion.
USE YOUR NETWORK
If you happen to know of disaster recovery specialists, now is the time to bring them into your clients’ lives. If you don’t, start networking to build such relationships.
I have a personal relationship with a local team at ServiceMaster Kwik Restore, which is a disaster recovery company. They help clients with everything from minor flooding, the removal of sections of a house because of water and mold damage, and even fire and suicide cleanup. Because of this personal relationship, I can call them to quickly serve clients when there is a need. This takes work off the clients’ plate, and they know they’re using a reputable company that has my backing.
These companies are inundated with service calls during extreme weather. It can take weeks for them to process all of their requests. By leveraging personal relationships, you may help your clients receive faster service than they would have otherwise. While services like these are often paid for by insurance, scheduling appointments and getting bids to do the work sometimes take the most time.
“In mass flooding situations, knowing that a customer has a team of relevant professionals to assist them means we know their coverage situation and can expedite the process,” said Katie Kallas, office manager at the ServiceMaster Kwik Restore that I use in Cary, Illinois.
QuoteIf you happen to know of disaster recovery specialists, now is the time to bring them into your clients’ lives. If you don’t, start networking to build such relationships.
If you have done insurance reviews with clients, your role becomes invaluable. You should be able to pull up their insurance documents, find their benefit amounts, the contact details for agents, and the claim numbers to start the process as quickly as possible. You can also provide them with documentation showing how much coverage they have, so they are informed when having conversations with insurance agents.
If you personally know the agents that your clients are using, now is the time to leverage those relationships.
STAY IN CONTACT
When times are tough for clients, you earn your money as an advisor. While checking in during the initial days is expected, you need to show that you’re with them throughout the journey.
It is important to make notes on your calendar to check in every few days to ensure clients are dealing with their loss and have support. While we’re not qualified to be psychological counselors, showing that clients are on your mind will remind them of your relationship. If these conversations are difficult for them, you can suggest that they may seek professional counseling.
THE NEW REALITY
In the case of a complete home destruction, it can take nine to 12 months, once rebuilding work actually starts.
“This process is not short; even if a house is able to be restored, drying and correctly repairing several feet deep of water damage can displace the homeowner for months,” says Kallas, who had firsthand experience during recent flooding in Illinois. Her team also responded to floods in Houston in 2015 and was still helping customers process insurance claims the next winter.
This can be complicated by not having the money to rebuild the exact home if insurance coverage is outdated or incomplete. Some insurance policies still include actual cash value as a payout if a home is destroyed. If this number hasn’t been updated in many years, clients may find themselves with as little as 50% of the cost to rebuild their house. You should be heavily involved in this part of the process with your clients, making sure during reviews that they have replacement cost coverage.
QuoteWhen times are tough for clients, you earn your money as an advisor. Checking in with clients in the initial days is expected, but you need to show that you’re with them throughout the journey.
If they want to rebuild but insurance won’t cover the full cost, you will be instrumental in identifying various portfolio withdrawal strategies to fund the gap. For example, they could take money from taxable accounts, apply for a construction loan or start withdrawing money from their retirement accounts.
As for tapping into retirement accounts, take them through the steps of accessing the money and the subsequent consequences. This may involve going through 72(t) early distribution discussions for IRAs, or detailing the tax consequences if money is taken from various Roth and traditional accounts. Even taking a 401(k) loan can be helpful in getting a home rebuilt.
For some clients, the desire to rebuild may come into conflict with the emotional need to get back to normal, and the financial issues may become cloudy. It may help to take them through the discussion of “If I were to rebuild this home back to its pre-devastation specifications but this derailed other financial goals, would it be worth it?”
Living through a traumatic situation can be a defining moment. It may change how clients feel about where they live, their priorities, how they view their home and what the rest of their life should look like.
Sitting with clients to review how things look going forward from this point is important. Rather than assume every person will rebuild and continue life in the same location, explore if this devastation should prompt long-term changes. It may accelerate a relocation or it may encourage clients to build a home better suited to their actual needs. Encouraging them to see the possibilities may lead to a positive change.
While a change in location — either to accelerate a financial goal or to move away from danger — can be daunting, other clients may experience a more existential transformation.
Clients may start reflecting on what they value. They discover that things they had placed meaning on no longer hold that effect. While they saw their home as an object to improve and perfect, they may now want to devote more of their money and energy to helping those less fortunate. After escaping death, they may want to change their financial plan to something that has a renewed meaning for them. It’s your job to take them on that journey.
BOOTS ON THE GROUND
As advisors, we have a special skill set. But, as humans first, we have the ability to help those in their time of need.
It’s easy to provide advice over the phone and through emails, but showing up in person can be a true commitment to the well-being of a family. Make the time to visit their house and assist them in restoring their life — move furniture, bring clothes, provide food — but, most important, bring a smile and hug.