If you’re like me, you’re tired of reading about the global economic crisis and what every government agency is going to do to fix the mess. Enough speculation. I’m going to talk about specific steps our firm has taken with clients, why we took them and what the results have been. Also, I’ll briefly describe the financial impact the downturn has had on our firm and what we’re doing in 2009. If you’re facing a rocky road, ideas in this column may help your situation.

Calming Clients

We were alarmed in August when the S&P 500 dropped so quickly. We sent clients a memo stating, “We feel your pain,” and providing general reassurance. However, the S&P 500’s incredible drop between August and November forced us to push client interaction to new levels. Here’s what we did:

Held client teleconferences. In October, the teleconference showed one staff member interviewing two other employees. We focused on what was happening and why. We repeated the teleconference five times in three days. Nearly 50% of our clients signed up.

We did another teleconference in November; about 35% of our clients dialed in. We recommended that all listeners call for an appointment to discuss their situation regardless of review meeting cycle. About 15% of participants called for the face-to-face meeting. This meeting helped clients who were on the verge of panic, as well as information seekers. In December, two teleconferences featured DFA and Vanguard executives, two of our mutual fund providers. We continued to connect with clients in January and February with 30-minute teleconferences. They’re inexpensive to put on, easy to develop and advertise and connect us with clients we normally only talk to once or twice a year. The feedback has been extremely positive. Want to know how we did it? Email me.

Provided Website MP3 files and transcripts. We scripted our teleconferences, so a transcript was easy. We recorded the discussions and put up an MP3 file and the transcript on our website. Our web traffic doubled after the teleconferences, mostly due to folks downloading the MP3s or transcripts. Check our website for the discussion audio.

Made phone calls. Every client received a phone call.  Parts of the conversations were objective: what’s happening, why and what we’re doing investment-wise. Parts of the conversations were emotional: facing worry and fear. It’s been an educational process for clients and staff. It’s the most valuable thing we’ve done for many clients in the past year.

Held face-to-face meeting with endangered clients. For every client we considered “endangered,” we requested a meeting. By the time you read this, we will have traveled over 5,000 miles since October to see out-of-town clients. Clients are ecstatic to see us. Want to have a significant impact?  Make house calls.

Modified portfolios. Some clients remain panicked; no matter what we say, we can’t completely assuage their fears. For them, we’re focusing on portfolio modification for emotional rather than technical reasons. For example, some clients are now 65% to 80% in fixed income; they say they finally can sleep at night.

Updated financial plans. This gets to the heart of clients’ worries. Retirees, who make up about 50% of our client base, are especially concerned. Cash flow and having enough assets going forward are key issues. Because portfolio and income changes have a significant impact on financial independence, we are updating a majority of our clients’ plans. This is a huge job, leading to 160 updates in less than 12 months rather than our typical 50. In some cases it leads to serious--and emotional--discussions about spending and lifestyle modification. This is also valuable for clients. Be proactive: Update financial plans before you’re asked to do so.

Looked at client losses through the end of the year. Even with all our efforts, client leavings (other than death) are up for our larger company. Here’s our history: Year 2000, lost 11 (All former owner’s clients who left when he left the firm). 2001, lost 7. 2002, lost 9. 2003, lost 2. 2004, lost 0. 2005, lost 1. 2006, lost 2. 2007, lost 1. 2008, lost 10. However, in 2000 departing clients took 5.9% of assets under management; in 2008, it was 3%. Had we not proactively reached out to our clients, our losses would have been higher.

Listened to clients. Most are distraught. Nobody enjoys seeing 25% to 45% of their assets disappear, no matter what the future holds. Clients who listened to the teleconferences said they felt better and less worried. We made a point to connect with those who didn’t participate. When we did, they were often angry, accusatory or simply too emotional for an objective discussion. Even so, we refuse to give up—we continue to engage them, no matter how painful to them or us—until we’re sure we’ve communicated the real financial situation in an objective way. This is one of the toughest jobs we’ve had in years, but it’s what superior financial planning is all about.

Planning for Tough Times

As a pilot, I repeatedly check my fuel gauge when flying, or I risk crash landing. That same mindset has been critical to keeping our firm from crash landing financially. I use financial tools on a regular basis to understand and manage cash flow, because cash is the fuel of business.  

What’s keeping us flying? I use a 12-month spread-sheet detailing all categories of spending and update it twice a month. Revenue forecasts are our most recent quarterly billing plus monthly income; I leave the revenue projection flat. Here are the key points:

Ninety-six percent of our income is paid quarterly. It dwindles down by the end of each quarter. I guard cash like I watch fuel on every flight; having a big wad at the start doesn’t help if I run out before the quarter ends. Plan for and pay attention to cash flow at the beginning of each quarter—it’s too late to do anything at the end.

Our revenues are based on assets. As the markets change, we change our projections immediately. For example, we changed our 2009 projections in October, November, December and early January, so check your cash flow projections for anomalies early and often. When actual numbers are different than projected, dig deeper to see what’s happening. Compare and adjust your cash flow statement each month to have an accurate starting point that’s never more than a month old.

Our gross revenue income projection is down nearly $1 million for 2009 from 2008. When I saw it coming, I told the staff what was going on. If you project reduced cash flows, be positive but realistic in your comments. Don’t sugarcoat it. Get everyone involved with expense reductions and revenue increases before you’re in crisis. Here are the review, reduce and re-negotiate steps we’ve taken so far:

• We reviewed. We examined every line item expense of the cash flow proforma. We calculated how much we had to reduce to keep certain levels of operating capital. Nothing was exempt, and everyone was asked to think of ways to cut and save. The entire firm has done a superb job in this area.
• We reduced. In every category, we reduced or eliminated expenditures. For example, we changed phone service to a less costly provider. We suspended specific employee benefits. I talked over every temporary reduction with each affected person to make sure he or she understood why we took that action.
• We re-negotiated. We talked with every vendor, consultant and supplier. We looked at the marketplace, asked other planners about their cost structure or pricing and asked for reductions. In some cases, we’ve suspended vendor relationships until cash flow hits certain levels.