Should the crisis cause you to revisit your wealth strategy?
Adam Cleland COO
April 20th - 4 min read
The current crisis is unlike anything any of us have ever seen before. A rapidly advancing pandemic claiming the lives of tens of thousands of people, bringing society to a virtual standstill across the world and causing an economic reversal of yet indeterminable scale.
During this crisis everyone’s immediate priority is the health and safety of those closest to us. However, it is also only natural to consider the impact it has had on your wealth. The speed with which we moved from bull to bear market was unprecedented.
Source: Bofa Research Investment Committee, Bloomberg
Note: The recent sharp rally has the potential to make it not just the fastest bear market in history, but also the shortest.
While we hope for a swift return to normal, the reality is that “normal” will be different for some time. It is still too early to know exactly how COVID-19 will play out and the impact on our businesses, our cashflows and indeed our investments. In navigating the pandemic the question arises - should you revisit your wealth strategy? While where you want to go might not have changed, how you are going to get there likely will.
“Strategy is all very well, but it pays to give thought from time
to time to the results.”
In more volatile times execution of your strategy becomes key. It is successful execution that turns an aspiration into a reality. When it comes to managing your wealth through the volatile times of C-19, wherever your destination we believe execution should be based on four key pillars:
1. Have a single point of view of your wealth, it is critical to making good decisions.
The world can change very fast. Making the right decisions will be driven by you and the people you trust having accurate, timely information - a single source of truth - for how you are positioned.
Many UHNW investors are still reliant on a personal spreadsheet or their memory to understand how they are positioned. Even where a family office or other trusted adviser is maintaining a centralised record too often this is a manual process that struggles to deliver the relevant information in a timely fashion. Putting yourself at an informational disadvantage is undermining your probability of success from the outset. Leverage technology and data to give yourself an informational advantage.
2. Keep your costs lean.
Re-visit your fees and charges. Understand what you are paying to all parties involved in managing your assets i.e. all costs for all products and services. Benchmark those costs against the value you are receiving and alternative options that are available.
Thanks to the 2018 MiFID II regulations, this is the first crisis whereby costs are fully disclosed by private banks and wealth managers and can be accurately factored into the decision process. There are still a lot of clients overpaying for what they get – how confident are you that you are not one of them? Make full use of the newly available cost disclosures.
3. Know your risk.
Understand what risks you are taking. Ensure mandates with appointed managers are clear and there is no ambiguity. Adopt a proactive approach to risk management with clearly identified triggers for action.
Convert generic words such as low, medium or high or into numbers such as an "expected maximum % decline” and “% risk relative to an all equity portfolio". Use forward looking scenario analysis to help you understand likely outcomes.
4. Keep dry powder for the recovery opportunities.
The recovery from this crisis will require capital. Having liquidity, and being flexible and informed as to the opportunities that will arise, is key.
Just when the opportunity set gets most attractive and the groundwork for higher future returns can be made, market crisis can cause investors to freeze and become backward looking. Be adaptable and open, and be aware of where the opportunities are likely to be.
When it comes to your wealth strategy, the crisis may not cause your destination to change but it is a good time to test of how robust your plan is to get there.