The role of wealth managers during a banking crisis

The recent collapse of Silicon Valley Bank (SBV) has left many retirement savers concerned about the safety of their savings. The bank’s collapse was due to a rapid increase in interest rates, which caused losses on its investments in US government bonds. As the tech sector took a negative turn, SBV customers began withdrawing their funds, which forced the bank to sell bonds at significant losses to meet cash demands. This caused depositors to become concerned and embark on a 48-hour withdrawal frenzy that ultimately led to the bank’s collapse.

The collapse of SBV has raised concerns among savers about the safety of their cash savings and the fate of their workplace and individual retirement plans. Wealth managers are facing a crucial question amid all this unease: how can they alleviate their clients’ fears? Advisers can utilise this moment as an opportunity to proactively communicate with their clients and provide reassurance regarding the measures taken to protect their savings.

South Africa is not immune to banking crises, with notable bank failures in the past. The small bank crisis of 2002/3 began with a run on Saambou bank, then the seventh-largest in the country, which caused seven other small banks to experience runs. The failure of these banks was due to liquidity pressures and a general loss of confidence.

Two days after the SBV collapse, regulators seized the assets of crypto-friendly Signature Bank in New York. The US government announced on Sunday that they would guarantee all deposits placed with both SVB and Signature Bank to manage contagion risk. The banking sector’s woes reverberated across all financial markets on Wednesday when Credit Suisse, one of Europe’s largest banks, tumbled by over 30% after disclosing “material weaknesses” in its financial reporting. Credit Suisse’s largest shareholder, Saudi National Bank, also announced that it would not provide further financial support.

Botha cautions that the risk of Credit Suisse collapsing is of much greater concern than SVB as the bank is a global banking giant thoroughly integrated throughout the global financial market. Investors rushed to safe-haven assets to shelter themselves from further fallout.

In a joint statement with the Swiss Financial Regulator, FINMA, the Swiss National Bank aimed to bring stability to the market by stating that Credit Suisse met all their capital and liquidity requirements. The bank also announced that it would borrow over $53 billion from the Swiss Central bank and buy back up to $3 billion worth of debt.

Amid fears over bank failures and stock market volatility following the collapse of these banks, Jeremy Bohne, a financial planner and the founder of Paceline Wealth Management, suggests that wealth managers ought to reassure their clients. With the implosion of any bank, retail investors would be worried about their nest eggs and ask their advisers questions.

Bohne suggests that wealth managers can address three subjects: their bank deposits, their portfolios, and their emotions. Firstly, an adviser can quickly check whether a client’s bank is insured and how much money is in each deposit. Secondly, the adviser can assure clients that their investments are probably diverse enough to handle short-term volatility.

Thirdly, the adviser can address the emotions of the moment by discussing the present crisis in detail, bringing it back down to reality, highlighting why this time is different, and providing extra reassurance through showing clients how their investments would fare under the worst possible market conditions.

“The adviser’s job may be less to recommend a course of action than to talk a client out of doing something rash, like panic-selling assets. The key is to calm clients down and address their concerns proactively,” says Bohne.