What to Do After the Banking Crisis

While the banking crisis raises questions about the safety of client funds, concerns appear to be largely contained to worries, rather than sparking an all-out run on investments, financial advisors say. 

Confidence in American banking remains strong, according to CNBC survey results reported this week. Slightly more than half, 54%, expressed confidence in America’s banking system, with 13% saying they are “very confident.” That trust was especially strong among those earning $100,000 or more, and was more prevalent among Democrats than Republicans and Independents. 

The crisis that saw banks shuttered and rescued in the U.S. and Europe “has raised questions from clients about whether their personal financial assets, including bank accounts and investment assets, are safe,” financial planner Joey Loss of Jacksonville, Florida-based Flow Financial told etf.com in an interview.   

Investing volumes, however, aren’t being affected, he said. 

 “This creates an opportunity for advisors to ensure they are considering and communicating these types of risks when helping clients make decisions about where to place their hard-earned money,’’ and how much of it to put at any one bank, he added.  

Bank exchange-traded funds, though, have been slammed by the crisis. For example, the Invesco KBW Bank ETF (KBWB) and the SPDR S&P Bank ETF (KBE) have both lost 18% this year while broader stock ETFs have gained. 

Financial advisor Lawrence Pon, who is also a CPA, is now in the thick of sorting through clients’ 1099-DIV tax forms. He said he and his team point out how some investments, such as ETFs, are more tax efficient than others. Yet Pon notices that more clients are invested in mutual funds and end up paying hefty capital gains taxes year after year. 

Pon, whose practice is in Silicon Valley, takes the long view of the recent crisis. Yes, he said, clients are worried, but he notes that the 2008 financial crisis was much more “scary.”  

“We show [clients] that the markets and economy always go through cycles over time—it’s important to stay invested,” he said, adding that he advises them not to try to “time the market,” follow advice from nonprofessionals or follow cable news channels or the internet. 

Follow Michelle Lodge on Twitter @lodgemich