Another client this week told Mr. Workman, a Logansport, Ind.-based adviser with LPL Financial Holdings Inc. (LPL), he had to purchase 12 semi loads of hay for the first time ever to feed his dairy cattle. His fields are too parched to sustain them.
The worst U.S. drought in decades has some farmers and agricultural-business owners facing heart-wrenching decisions and potentially devastating losses. Financial advisers can help to alleviate some of their clients' anxieties by reviewing the financial plans they have put in place. It is also a good time for advisers to discuss making alterations to better protect their clients in the future.
"This is perhaps one of the best times to talk to farmers or those in the agricultural business," said Richard Weylman, chairman of a Boca Grande, Fla.-based consultant to advisers. "In the salad days, they don't think much about liabilities, preserving capital, risk tolerance and evaluating their business plans for crop insurance."
Advisers should seize this chance to talk with farming clients about preserving capital for the next industry challenge or in life, said Mr. Weylman, who also raises Black Angus cattle on a small Nebraska farm. This means exploring such difficult scenarios as: what happens if the farmer dies or if there is a years-long drought, a dilution of government subsidies or a large crop-price decline, he said. Advisers should also ask whether the farmer has an estate plan, he said. "How many farmers die and lose the farm because the kids can't pay the estate tax?"
Advisers should ask clients--especially those in hard-hit states such as Iowa, Indiana, Missouri and parts of Nebraska--whether their risk tolerance has changed, Mr. Weylman said. Dramatic and frightening events may change an investor's outlook, and advisers who continue managing assets based on two- or three-year-old discussions on risk tolerance may jeopardize those accounts, he said.
Evaluating business, crop and livestock plans to ensure sustainability is critical, said Mr. Weylman.
One of the main concerns farmers now have is whether they are going to be able to farm next year, said Darren Frye, chief executive of Peoria, Ill.-based Water Street Solutions, which employs experts in agricultural finance, commodity marketing and legacy planning.
"They're very emotional, very upset. It's hard to watch your crop die before your eyes," he said. "If you sit down with them and start working through the numbers, they start understanding their year will be a lot better than they thought; there's hope, a certainty that they'll be able to farm again."
But it is also time to consider necessary adjustments. "We look at what type of insurance they have, and help them understand, if they didn't take the right insurance last year, what they should do this year and why high coverage levels are best," said Mr. Frye.
