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Directing Boomtown Clients in Not-So-Booming Times

December 15, 2016

Oklahoma’s fortunes have long dovetailed with those of the oil and gas industry, and the recent shale boom proved no exception. When new methods of using shale oil raised domestic oil production to record levels beginning in 2008, “fracking” ushered in a paradigm of local jobs and prosperity.

The success enjoyed by the likes of Chesapeake Energy, Continental Resources and Devon Energy — as well as others — helped shrink the state’s unemployment rate to nearly three percentage points below the national rate in 2012. Then, starting in the second half of 2014, oil prices suddenly fell nearly 60% and the boom was history. The local economy hemorrhaged jobs, state tax revenue dropped for 18 straight months, and the state faced a budget shortfall of $1.3 billion.

The pain locally has been quite palpable, with some studies projecting more than 20,000 job losses statewide through 2016 – in a state with a population under four million—coming as a result of the downturn in oil prices. Wealth, as well as sources of income, evaporated. Government workers have been laid off, teachers have lost their jobs, and the service industry has suffered deeply.

In Oklahoma City, home to the aforementioned fracking giants, I see at least a client per week who has just lost their job as a direct result of the impact oil prices have had on the economy. Nearly three-quarters of the people I see are significantly affected financially in some way, shape or form.

What I find unique to the oil and gas industry is that there are no replacement jobs for these workers. Their skills are highly specific and do not easily translate to other types of jobs. The silver lining, however, is that prices tend to be cyclical, leading many to wait out poor conditions rather than seek training to learn new skills. As a result, my budget-planning skills have been put to the test like never before in order to determine how long each client can survive while waiting out the downturn.

The critical task is to have a thorough and realistic conversation with clients about identifying any and all potential income sources, and then setting a budget that they understand and will follow. This involves couples being on the same page, figuring out where priorities actually lie, putting money aside for emergencies, and making sure to write everything down. The ultimate goal in planning is to empower clients with ways to provide for their families for two or three years until the market rebounds — something a number of my older clients vividly recall having to do following the last major oil and gas crash in the 1980s.

While the majority of clients whose livelihoods have fallen victim to the downturn have chosen thus far to ride out current market conditions until oil prices (and jobs) recover, many severance packages include stipends earmarked for education. This has led to a trend of unemployed oil and gas workers returning to school to learn new skills as means of qualifying for other positions — with many turning to accounting, among other fields.

Interestingly, whereas education typically falls hand-in-hand with advisor conversations regarding loans, stipends have alleviated such questions for most of my clients. Today, many are still in school (as the downturn only began two years ago) and have yet to re-enter the workforce.

The hope in Oklahoma City and statewide, as with any economy that is so closely tied to commodity prices, is that prices quickly rebound. Advisors in places like South Dakota can surely empathize — and the lessons gleaned through being an advisor helping navigate through booms and subsequent slowdowns can be applied whenever working with clients in notably volatile sectors.

The key is always being able to sit down with clients and weigh their tolerance and desire for waiting things out against the need to acquire new skills through training.

Expert budgeting is the pillar behind this decision, and serves as the way forward for afflicted employees in boomtowns throughout America.