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How to Talk to your Clients about Inflation Concerns

You can hardly turn on any form of media these days without being inundated with the talks of inflation. Whether its consumer goods, food prices or wholesale manufacturing costs, inflation is taking its toll on everything. The spotlight on inflation is increasing pressure on lawmakers and politicians who can influence policies that are designed to ease consumer’s minds. 

As a financial advisor, you know that inflation impacts your prospects and clients in a variety of ways. Especially for those in the fragile decade, inflation can wreak havoc on their financial plans. Frequently, retirees aren’t bringing in new sources of revenue outside of what they have saved and invested. As inflation goes up, their money loses value. The question is, what can we do to calm these worries? 

Inflation Talking Points

How do you communicate the concerns your clients may have about inflation? After all, it’s likely they’re not getting an objective critique of the problem from mainstream media. You know your clients the best and it is important to address real concerns while reassuring them they won’t go broke. 

It’s important to remember that inflation cannot go on forever. At some point, market forces will drive changes that push costs down or the Fed will raise interest rates. In either case, inflation will begin to level out. Explaining the mechanisms through which this current inflation spike occurred can help assuage any concerns clients have. Additionally, using the financial advice tools in your toolbox to run projections for your clients can provide real numbers and data to support the conversation around inflation’s causes.

Current Inflation Mechanisms

The Federal Reserve has pumped a lot of money into the financial system as the result of the Coronavirus pandemic. This new liquidity means that prices go up because their dollars are worth less (because there’s suddenly more of them). You’ll be hard-pressed to find a financial advisor who sees this as a good thing, but it’s certainly not the doom and gloom that many make it out to be.

The USD is still the world reserve currency, meaning that most global economics are centered around it. If your clients hold USD, it’s the most stable asset that has the biggest upside. The Swiss Franc and Norwegian Kroner might be technically less volatile, but don’t compete with the United States in terms of market dominance. Similarly, the petro-dollar system keeps countries around the world hungry for USD. All oil trades around the world must be made in USD and oil, despite the rise of electric power, it is not going anywhere soon. 

While to some, defending the USD seems like a fool’s errand, the reality is that it will likely be just fine when viewed on a longer spectrum. Inflation could have a multi-year impact on fixed incomes, but it will likely be marginal to most retirees.

When clients reach out to you about inflation concerns, that’s a good time to talk about the stability of their money, schedule a review of their financial plan and to give them the opportunity to move assets that hedge against inflation, like real estate. Generally speaking, your clients look to you for reassurance that they are going to be okay and to help manage their emotions around the inflammatory headlines designed to scare them. Make sure you’re surrounded by a community of like minded advisors and supported by a team that helps free you to have ample time to triage client and prospect calls.

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