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How a $17 Billion RIA Is Facing Covid-19 Tribulations With Business Owners

Clients are seeking advice on laying off employees, steep pay cuts, and separation from loved ones — in a bad state for taxes, no less.

Steven Kaye, a managing director of Minneapolis-based Wealth Enhancement Group and head of its Warren, NJ office, thought he’d seen just about everything that could upset clients and markets. Then the novel coronavirus struck.

Although Kaye is ultimately optimistic, “This ‘event-driven’ market turmoil is very different than and much more painful for society than all the market disruptions I’ve experienced over my 40 years in practice, or studied over the past 100+ years,” he wrote in a recent note to clients. “This tsunami encompasses not just the financial markets and financial health, but everyone’s physical health and psychological/mental health.”

Over the past month, as the U.S. has leapfrogged ahead of every nation in its number of coronavirus infections and has put most of its citizens under some sort of lockdown, Kaye and his colleagues have continued to anticipate their clients’ needs, calm their fears, and help them find solutions.

On Monday this week, the firm ran a webinar on the CARES Act, the most expansive economic stimulus package in American history. Kaye points out that the legislation provides almost $350 billion of assistance to small businesses with fewer than 500 employees. 

While no one is immune from the coronavirus, the pandemic hits especially close to home for Wealth Enhancement Group. Many of its clients are small business owners and professionals whose operations have been shuttered or are operating at a much more limited capacity. 

Wealth Enhancement Group, which as of January 31 managed $17 billion in client assets, is also entrenched in a number of coronavirus hotspots, including New Jersey and New York City (the nation’s unsolicited leaders in confirmed infections and deaths). “Most of us in the Northeast know families with infected members,” says Kaye. 

Fortunately, that hasn’t included his client families or his local work family. Kaye’s office has called every client and isn’t aware of any Covid-19 infections. One of his colleagues had to self-quarantine for two weeks because someone tested positive at her child’s daycare center. Another staffer, sidelined by travel and social distancing restrictions, had to cancel a wedding planned for last week in the Dominican Republic.

Kaye discussed with RIA Intel coronavirus-related challenges and how he’s helping clients cope with the crisis.

What actions are you and your team taking to try to keep yourselves and clients safe? 

We closed the office three weeks ago. We have only one person, occasionally two, in the office on a rotating basis to handle mail and certain tasks. Almost all of our staff is participating in the rotation. Everyone who steps foot in the office must get prior permission to come and must sign in and out with the staff person-of-the-day.

How are your business-owner clientele faring, and have you been able to help any of them find the cash flow they need to retain employees, pay their mortgages or leases, and meet other expenses? 

Our medical clients and law firm clients are furloughing employees and cutting compensation. I’m seeing 20% to 40% pay cuts. Restaurant, entertainment and hospitality clients are getting crushed. Accountants and property/casualty insurance clients are fine.

We are having discussions with clients regarding whether to fire, furlough, and/or reduce compensation. We all know that every client is different and a new adventure, with differing needs, wants and emotions. Most important is to be a good listener and to try to understand the unique dynamics of each small business owner.

We are encouraging clients to try to negotiate with all creditors. Any and all relief is desirable, whether suppliers, landlords, banks, insurers or vendors. Some are more accommodating than others. We think communication helps to manage expectations of both parties, and that compromise will be required on both sides. 

Are clients typically instituting pay cuts for a particular length of time (say weeks or months, or for the year), or is it all over the map? 

While the approaches are all over the map, we definitely see a trend of lowering compensation for a stated period of time, such as four weeks, with the promise of reevaluation. I have seen some medical practices lower compensation by a specific percentage for the first four weeks and they’ll go to a lower level if coronavirus restrictions go beyond four weeks.

What efforts is Wealth Enhancement Group taking to coordinate coronavirus troubleshooting with clients’ other trusted advisors?

We are trying to identify clients who are getting hurt the most and clarifying if they might be eligible for benefits. We make an effort to coordinate calls and stay involved with the client’s CPA and attorney. Sometimes we know more about the client’s staffing needs than the CPA. However, we are careful to draw a line in the sand between our responsibilities and that of the other professionals. I think the CPA is better positioned and more qualified to be the lead person of responsibility on what tax relief programs may apply. The attorney is best qualified to drive the bus as it relates to creditors.

How are clients coping from an emotional perspective and are they pushing to change their business plans and/or succession plans?

Their first reaction is being a deer in headlights—inaction. Their second reaction is fear. Clients call to talk and listen and take it all in as the planner tries to calm fears with a historic perspective. When we hit an extreme stock market low, like on March 23, people start to question everything, including their advisors, and they wonder if perhaps we won’t recover so quickly this time. When we stay low or get the second dip, people will ratchet up to a higher fear and emotional level and start to really question the future. They may lose visibility and confidence of the future.

Are any of your clients trapped in another location—such as snowbirds who can’t come home from Florida, or individuals who can’t get back to a state with lower or no income tax? 

We have one client who has homes in Florida, Hilton Head, and Maine. It is a challenge during normal times to maintain his Florida residency. We are not certain if we can maintain the Florida residency for 2020 if travel doesn’t open up by the end of June, since they haven’t yet been to Florida this year, except for a few weeks.  We have one physician in N.J. whose wife is immune compromised and stuck in her Florida home. Since he is a practicing physician and in contact with patients, he cannot even visit her. She will meet the residency requirement, but he will not. Their separation is more hurtful than the potential loss of the tax break.

Everyone needs to become proficient with GoToMeeting, or similar programs. While people are isolated from outsiders and sometimes isolated from your own family, these video meetings bring people together, at least virtually. This medium provides critical functionality as well as crucial person-to-person connection/contact. It is invaluable. 

Have any clients pulled elderly or ill family members out of a nursing home or other care facility, and now trying to get the right accommodations set up to take care of them at home? 

One client, a physician, is in the process of moving his mother to his house because her assisted living facility has had infected people. The client and his family are scared of the potential exposure to his elderly, high-risk parent, even though the facility is not allowing visitors. They have no young children at home and feel it is much safer for her.

My mother turned 90 on Sunday. She lives in assisted living one-quarter mile away, but I couldn’t see her because of restrictions.

I’m sorry you missed that milestone and I hope the staff did something nice for your mom’s special birthday. Meanwhile, is your team trying to get up to speed on any spouses or children who previously weren’t involved in the financial planning process, in case the more involved individual gets ill? 

We deal with that all the time. We have one elderly client whose spouse just died and now he is in hospice. The first step was a conference call with the client’s son and daughter. It’s been so tough on them and, under the restrictions, they couldn’t even arrange a funeral with other relatives—gut wrenching.

Wealth Enhancement Group recently published a blog post about protecting against coronavirus-related cyberattacks. Have you witnessed this threat? 

We’ve been experiencing an increased volume of cyber-scam attempts, and we hear of fake calls to wire money to desperate charities. In my opinion, the hackers have extra time on their hands, there are more unemployed potential recruits, and people are more vulnerable while under stress.

How has WEG changed its investment strategies, if at all? And what is it looking at?

Fortunately, we have been gradually reducing risk in our portfolios for the last two years. We avoid large bets but have been making tilts towards large cap, quality, structured notes and real estate. This has helped tremendously and has provided dry powder to take advantage of the current and continuing market dislocations. 

What, if anything, brings you glimmers of optimism?

As I’ve told clients, the silver lining is that the financial markets were healthy and strong before the pandemic, which suggests a high likelihood for a relatively good recovery post-pandemic. However, we are not discounting that certain things will be permanently changed and be born of this event.

Most intriguing to me, is trying to figure out what permanent changes will result from this pandemic, and the “forced acceleration of evolution.” We’ve seen forced acceleration of working from home, virtual meetings, virtual weddings and births, social distancing, stepped-up emphasis on supply chain management. Hiring, training, schooling, travel, and prospecting have also gone virtual.

In addition, we see growing masses of people “coming together” and empathy levels rising, in a way that we haven’t seen since 9/11. It seems like almost everyone recognizes the great psychological strain and the need for individual support, which almost everyone is experiencing. Perhaps supporting each other is the next best medicine to a vaccine?

It’s been quite a year for you, between selling your firm to Wealth Enhancement Group in September and Covid-19. 

With all that is going on with the pandemic, the markets, the needs of our staff and running a business, the support we receive at Wealth Enhancement Group is invaluable. Larger, high-quality firms can provide the depth in technology, operations, human resources, communications, and marketing support which is so critical in normal times, but especially during these stressful, high demand times.

Thank you, Steven, and be well.