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How wealth management is stepping up to help during the shutdown

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With the partial government shutdown moving into its unprecedented fifth week, financial advisors and wealth management firms are stepping up where federal resources have lapsed.

Military-focused firm First Command Financial Services, which has an independent broker-dealer, has provided zero-interest, zero-fee payroll advances to some 175 federal employee clients, CEO Scott Spiker says. First Command has offered the loans and other services in each of the recent shutdowns.

XY Planning Network advisor Kevin Mahoney led 60 CFPs from the turnkey platform in volunteering to give free emergency advice to federal employees affected by the shutdown. Advisors like Ryan Fleming of Commonwealth Financial Network are also exploring other ways to serve impacted clients.

The U.S. Chamber of Commerce and 385 business groups sent a letter on Jan. 18 to President Trump and Congress urging an end to the shutdown, but no end appears to be in sight. Trump demands funding for a wall along the southern border to restrict illegal immigration, and most Democrats balk at the idea.

Some 800,000 federal employees have not received any pay since the partial shutdown began on Dec. 22, according to the American Federation of Government Employees union. More than half are working without compensation, and about 380,000 are on furlough.

In addition to the record length of the shutdown, U.S. Coast Guard Commandant Adm. Karl Schultz sent an all-hands message on Jan. 15 saying it’s “the first time in our Nation’s history that servicemembers in a U.S. Armed Force have not been paid during a lapse in government appropriations.”

President Trump signed a bill into law requiring back pay at the end of the shutdown for all federal employees who are on furlough or not working. The servicemember and veteran-oriented company USAA also made a $15 million donation to the Coast Guard Mutual Assistance aid society to disburse interest-free loans.

Fleming, a principal with the Washington, D.C.,-based Commonwealth practice Armstrong, Fleming & Moore, has at least one client who may borrow from a retirement plan. Both he and Spiker cite federal employees’ decisions to serve the country rather than collect more generous pay in the private sector.

“I guess it would be more infuriating than difficult,” Fleming says of his 10 mostly senior-level federal employee clients. “These people are serious players in their industry, in their fields. It's insulting to not get paid for the work that you're doing and be sent home.”

As the SEC furloughs workers, the consequences are rippling across the entire wealth management industry.
January 18

About 6% of 3,000 eligible First Command clients have opted for payroll advances, according to Spiker, who says the Fort Worth, Texas-based firm is also waiving penalties on early withdrawals from CDs, among other aid. First Command’s IBD has 500 advisors managing about $26 billion in client assets.

“We'd rather have them have the liquidity through a zero-interest loan so that they don’t have to go touch that money,” says Spiker, noting tax and income consequences for retirement-plan withdrawals. “They shouldn’t have to do that because the government can’t figure out how to keep running.”

XY’s fee-only planners lined up to help after Mahoney, the founder of Washington, D.C.,-based practice Illumint, came up with the idea of pro bono emergency sessions for the workers. The 850-advisor network posted a list of the volunteers on its website.

“The shutdown is a good reminder of why financial planning is about so much more than just investments,” Mahoney said in a statement. "A financial advisor can help an impacted worker evaluate the challenging tradeoffs that come with financial decisions during income uncertainty.”

One of Fleming’s clients, an attorney with the Treasury Department, said in an email that they were “trying to look at the silver lining” of the furlough such as more time with their kids “but it’s getting really old.”

The client’s household has begun tapping their savings, but they may need to look at other options if the shutdown stretches into April. The need for cash flow may prompt others to borrow from their retirement accounts, which Fleming says is “a pain” in terms of logistics and rules.

“I think it's something that none of us who are planners like doing,” says Fleming. “It's one of the cheapest ways to access your retirement plans, fortunately or unfortunately.”

First Command’s 10-member military advisory board, which has retired and enlisted leaders from each branch, includes retired Coast Guard Master Chief Petty Officer Charles “Skip” Bowen. The Coast Guard is different from the other military services since it’s not part of the Department of Defense, he notes.

“You only need to glance at the military pay tables to see that these Coast Guardsmen do not make a great deal of money, and many live paycheck-to-paycheck,” Bowen said in a statement. “Bottom line, Coast Guard families cannot go for long without pay.”

One of advisor Ryan Fleming's clients says they're “trying to look at the silver lining” of the furlough such as more time with family “but it’s getting really old.”

He added that many other banks and financial firms are also trying to help. AFGE, the federal employees union, has posted a list of resources for the workers while noting that nine of the 15 departments have closed. FINRA remains fully operational, but the SEC has scaled back its operations.

The shutdown is cutting an estimated 10 basis points worth of growth in gross domestic product from the economy every week, up from earlier White House projections of 10 basis points every two weeks, CNBC reported. Economists have warned that GDP may actually decline in the first quarter.

First Command has been assisting its servicemember clients through shutdowns since at least the 2013 closure, but Spiker declines to weigh in when asked if the company has any messages for lawmakers. The company’s bank, insurance, investment and planning services put it in a position to help, he says.

“Our reps are proud that our mission is such that it compels us to step into this gap and try to fill it,” Spiker says, noting the firm will simply take the proceeds from the back pay and apply it against the zero-interest loans after the shutdown. “Administratively, it's very easy to undertake.”

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