One Year After Sandy, Lessons for Advisors
The winds raged and the waves churned, rising more than 30 feet along the coast of Staten Island, N.Y., on Oct. 29, 2012. Seawater poured into homes as the wind tore walls and roofs from buildings.
The next morning, without power but with his home and advisory business intact, Allan Katz began what turned out to be a year of financial triage, helping patch up and rebuild the lives of clients and city residents.
He took on tasks large and small. He helped one client - a home improvement contractor - get more lines of credit by researching rates and literally taking the business' financial information to the banks, bringing back paperwork for the business owner to sign. That allowed the contractor to keep running around the clock and repair more homes.
Meanwhile, the Staten Island native poured his energy into pro bono work, joining several members of the FPA of New York as they offered free advisory sessions to help residents navigate insurance intricacies and federal relief.
The storm, he said, changed his relationship with and his obligation to his clients. "This is where doing our job should be about keeping people out of harm's way," says Katz, who owns an independent agency, Comprehensive Wealth Management Group. "Before Sandy, I don't think anybody thought about this kind of damage. The whole 'it's not going to happen to me' thing is out the window because now it just happened to you."
Many clients lean heavily on their advisors during times of devastation. Hurricanes, fires, tornados and other hardships change the work of financial advising, requiring that planners become business consultants, insurance experts, home repair wizards and even counselors and therapists - often on a pro bono basis.
After disasters, advisors often serve as disaster preparedness experts, telling clients and fellow planners how best to protect homes and businesses. In fact, the SEC issued a risk alert recently urging investment advisors to review their own business continuity plans to reduce downtime after large disasters.
Ellen R. Siegel, who owns an advisory firm in Miami, lived through Hurricane Andrew's devastation of South Florida in 1992, helping a friend and client who lost both a home and construction business in Homestead, Fla., the storm's epicenter. After that, the concept of preparation took on new meaning.
"The catastrophes are coming faster, more severe and much more furious," she says. "Most small businesses don't have a written disaster plan. We do here."
Siegel makes sure she knows where every employee is staying - or has evacuated to - when a storm hits; a prearranged phone tree helps her staff check up on one another. Her system also calls for an intensive data backup when storms approach. She shares the system with her clients and emails all of them when hurricane warnings are broadcast.
The plan also recommends what clients should have in case of devastation: a few thousand dollars in small bills, because ATMs won't work if there's no power; a telephone land line; and both scanned and hard copies of important documents, such as insurance policies, because they might be hard to obtain if the power stays out. Siegel also encourages clients to use flash drives or an online vault to hold scanned documents.
She encourages business owner clients to network with associations and sister firms. That way, if they need to get inventory, they've got a built-in system for getting help and perhaps obtaining supplies on credit. She advises business owners to get personal lines of credit before disaster strikes and have more than 12 months of capital on hand. All companies should buy business interruption insurance policies, she says.
Dennis O'Brien, a planner at Coastal Financial Advisors in Farmingdale, N.J., uses a similar scheme, and urges clients and nonprofits to make use of it. He maintains updated employee lists and client lists on paper. He also has a plan to have his office set up in a hotel room if necessary, to get back to work quickly.
"I think most financial advisors' objectives is asset gathering, and all they want to do is manage money," he says. "But if you want to be an advisor, you should pick up skills in ... business consulting. Being a trusted advisor, you have that foot in the door, [and] you have the opportunity to help them in other ways."
On Staten Island after Sandy, Katz says he helped residents make hard choices such as whether to stay and rebuild or move out and sell. One client, a woman in her 70s, owned a bungalow that had been in her family for generations. It was destroyed in the storm. The city's rules for rebuilding meant that she would have had to elevate the building, at a prohibitive cost. "In that case, it's better to walk away," Katz says. He advised her to downsize and move to a retirement community. "Wait for the developers to come in, and sell when the price is right," he says he told her.
In Sandy's wake, Katz says he had to develop new areas of expertise. He now advises clients to make sure they have broader insurance coverage, at adequate amounts - including disability and flood, where possible - and to understand what exactly is covered and what is not. He tells property owners to shore up their homes, maintaining roofs and doorways so that they can withstand water surges. "If they're going to build a new building, remind [them]: This can happen at any time," he says. Don't ignore the risks, he says. "Because if you do, it will be devastating."
Larry Ginsburg, a financial advisor in Oakland, Calif., has helped many people hurt by devastating wildfires. He says advisors can be helpful even if they're just a sounding board. Often, he says he has served as quarterback, directing families to address the myriad discrete tasks required to rebuild a home or workplace.
Even if an advisor is "only a second opinion, you'll be incredibly valuable," he says. "Expect to spend a lot of uncompensated time on your clients. Consider it part of your civic duty."
One of the biggest ways financial planners helped after Superstorm Sandy was by organizing pro bono workshops in the winter months afterward. The forums drew about 160 people who were devastated over the loss of their homes and uncertain whether they could afford to rebuild in the same location, says Mark Sallinger, a wealth manager at MTP Advisors in New York City.
The initial focus was triage work, says Sallinger, who coordinated the pro bono program citywide. The advisors told participants where to get financial resources and how to appeal flood insurance claims. The pro bono committee put together a workbook with tips on how to get a reputable adjustor and the process for fighting insurance and FEMA settlements. Planners also helped clients understand what to expect from their insurance policies.
The advisors also noted that if residents filed claims for financial losses, they could have amended their 2011 taxes, shown a loss and gotten a refund - a strategy that could work after the next disaster. "That was a good source of cash for them," Sallinger says.
If the clients didn't recoup money, the advisors offered guidance on how to manage debt - warning those younger than retirement age, for instance, that because of the penalties, pulling money out of a retirement account should be a last option. Advisors sought to protect the already battered residents from fraud, urging them to check credit reports, and instructed homeowners to use the remaining equity in their homes - even if damaged - to take out low-interest loans.
Like Ginsburg, Sallinger says he tells other advisors that it's not just about the finances. "You have to look for signs that they're having post-traumatic stress," he says. "You need to make sure that they're in the framework to receive the information."
Early on, he says, some of the storm's victims looked like walking zombies. "They have to go through those steps of grieving and anger before you can get to any serious financial planning."
Oftentimes disasters hit not just clients, but advisors themselves. Brad Fortier of New Orleans left Morgan Stanley in the summer of 2005 to go independent; when Hurricane Katrina slammed Louisiana that August, he lost everything.
"I had used most of my money to buy equipment for a practice, which was 10 feet underwater," he says. "I lost every material possession I owned. Basically, I was unemployed. I had no idea how to get hold of any of my clients."
While volunteering to help neighbors, Fortier began to hear from clients, about three-quarters of whom had suffered losses. Fortier spent a lot of time talking them out of draining their IRAs and other similarly perilous ideas. And what he learned in the months after the storm served as a wake-up call, he says.
"Prior to the storm, I considered myself an investment guy. I thought tax planning was a CPA's job," he says. But when he finally got back in touch with his clients, he learned that many had been un- or underinsured for floods - and had little money left for him to manage. "If [a client] has an adverse life event and someone did not properly address the risk transfer with them, your investment returns can get devoured instantly and they'll lose a lot of good assets," he says.
Meanwhile, it turned out that Fortier's focus on volunteering and pro bono work didn't hurt business. "Within a year of Katrina I had my best year ever," he says. "My business has grown to levels it never would have grown to because of relationships and contacts."
Fortier's advice when disaster hits? "Forget the fact that you're a financial planner and get to work doing the right thing," he says.
Suzanne Sataline, a former health care reporter at The Wall Street Journal, is a freelance writer in Brooklyn, N.Y.