2020 has been another year of uncertainty around the world, mainly caused by the COVID-19 pandemic and unprecedented lockdowns globally. Has this impacted families’ priorities and objectives in terms of wealth structuring?
Last year’s COVID-19 outbreak has certainly made a significant impact on the entire population, regardless of net worth. For the past 75 years, serious crises or natural disasters were local or regional, and the middle-to-upper class was able to stay clear or simply move or migrate to safer countries. This pandemic poses a different risk, and a realisation of vulnerability has certainly made some of our clients re-assess their priorities. In many cases it has prompted them to implement or review the existing risk assessment. Most important are the four big Cs: continuation, conservation, confidentiality and control. In reality, practical and sometimes simple solutions were applied but they vary from family to family.
We had some client families being separated for months without the chance to re-unite, which caused them to consider a central hub for the entire family. Others, with advanced age, were imposing strict self-isolation and refusing to meet their closest advisers in person – their emphasis was on better and more secure IT systems. At JTC Private Office we were able to support this by introducing our Edge client-portal. Then we have a few clients who accepted and followed government guidelines, but other than that have been able to carry on with their business as if nothing has happened, however, they are the exceptions.
The last year has also seen massive drops in stock markets around the world, only to recover within fairly short periods to new heights. Has there been any impact on the investment profiles of Family Offices?
Well, that’s a good question, which is not easy to answer. Traditionally Family Offices have a long term view on their investments for the majority of their wealth. If the investments haven’t been leveraged, most of our clients remained calm and committed to them. Only a few panicked, but some were caught in a liquidity trap due to their highly leveraged investments. We assisted them through bridge-loans and by increasing their collaterals, which was a well worthwhile exercise given the market performance in recent months.
What we have noticed though is the increased interest and discussions in new industries and innovations, which benefited from the pandemic.
Has the COVID pandemic changed Family Offices’ attitudes towards digital innovation and opportunities?
As I mentioned earlier, we have seen increased interest in our client portal, Edge, for consolidation, reporting and controlling purposes. After various discussions with our clients, prospects and their advisers we decided to conduct a survey to find out how we can improve our portal further. We were surprised how knowledgeable and open most of our clients are towards digital innovation, as long as security and confidentiality are guaranteed. We have worked with some family offices, which even developed their own bespoke portals, which clearly shows how far their adaption to the digital world goes.
Needless to say that video conferencing became the main means of communication for Family Offices as it has been for the financial and professional industries, and it is expected to stay.
There’s been much said about the ‘great wealth transfer’ and the significance of the attitudes of the next generation. Have the last few months changed clients’ views on this?
Yes, definitely, the pace has changed! Last year accelerated, if not the actual transfer, at least preparation for an orderly and efficient wealth succession. To start with, many law firms reported an increased demand for a Letter of Wishes. We discuss more and more often the creation of trusts for dependent family members or children from a patch-work family. We have also seen early introduction of the family business to the next generation. Due to the perceived mortality risk, we expect this to become a trend for the next 2-3 years at least.
What do you consider to be the biggest challenges/opportunities for families in 2021?
I believe the biggest challenge will be the adaption to a new world with a lot of uncertainty, be it political, fiscal, environmental, social, financial or regulatory.
Governments around the world are losing control as they can’t keep up with the speed of today’s innovation.
They barely addressed the issue of taxation on internet sales and they haven’t even touched bit data and blockchain yet. It is not unlikely that the markets will decide before the governments can, as we have seen with cryptocurrencies.
The stock markets have been distorted by unprecedented government intervention (read helicopter money) and the gap between the real economy and the stock markets is widening further. This in turn will shift the focus on taxes again, once we overcome the worst of the pandemic, since somebody will have to pay for all the government spending.
Climate change and global migration pose other risks, which are very difficult to predict.
As with everything, these changes and challenges will bring along opportunities, and the good thing about most Family Offices is their agility and entrepreneurial approach. Many new technologies and charitable projects receive seed funding from Family Offices and I can see the private sector stepping in where governments fail or retreat.