Personal Finance

How wealth managers can respond in the wake crisis


The Covid-19 pandemic is a black swan event that has marked the end of an extended bull run since 2008/9 recession. FILE PHOTO | NMG

The Covid-19 pandemic is a black swan event that has marked the end of an extended bull run since 2008/9 recession that caused an economic downturn of unprecedented scale world over.

While governments have imposed measures against its spread, these restrictions have had undesired outcomes in the economy in which these governments operate, sparking record volatility and plummeting prices across assets classes in wealth management.

The financial markets have since experienced huge capital outflows and panic sell-offs in a flight-to-quality, as investors seek safety and stability in perceived stable assets and precious metals. With this sense of dislocation and uncertainty, wealth managers should seek new strategies and measures to adapt to these emerging challenges and position themselves at a vantage point to remain competitive in the long run.

1. Automation and digitisation

Automation is shaping the future of wealth management. A surge in robo-advisory sign-ups in the US during the first quarter of 2020 is an exemplar one can allude to.

Investors continue to prefer robo-advisers as they make investment decisions based on real-time statistics and are unfazed by emotions even in tumultuous times such as Covid-19.

Further, tactical re-evaluations by digital portfolio managers can mitigate the effects of volatility on investments.

Adoption of digital channels across the wealth management value chain can support business continuity amid a sustained crisis. These digital tools enable personnel to work remotely and teams remain connected. Communication becomes effective, improving team playing, sharing of data and resources across teams. Digital customer relationship management functions from investor onboarding to redemption, aid firms to break free from shackles of a paper-based environment.

Integrating clients into the digital platforms also ensures real-time tracking and access to their portfolios through omnichannel options that include email, web, apps, social media and interactive voice and video response. Besides, digitisation allows individuals to assume multiple workflow roles. Remote sessions drastically reduce office space demands improving operational efficiencies and cost rationalisation. However, increased reliance on digital tools, especially when working remotely, may weaken the security protocols and expose firms to cyberattacks and phishing attempts. To mitigate this, IT security departments should collaborate with digital service providers to ensure the safety and stability of their digital platforms.

2. Communication

In times of uncertainty, timely communication is a rewardful pursuit. Wealth managers have a responsibility to communicate regularly with their clientele, advising to remain calm and committed to the long-term investment goal. In light of observing social distancing, financial advisors should reach out to investors through phone calls, emails and virtual meetings to build goodwill and inspire confidence in their clientele. To sustain investor confidence, continued engagement with the client is vital.

Tax guidance is necessary to address tax concerns in line with deflationary fiscal policy adjustments.

Wealth managers with a large clientele can seek to adopt artificial intelligence to communicate with the investors via emails and social media.

However, a mix of analogue and digital communication model can yield better results because of the different client niches. General non-confidential communication such as market reports can be through websites and social media platforms. Investor education on investment philosophies can be through podcasts, webinars, circular notes and video calls. Most importantly, non-disclosure and confidentiality must be prioritised through safeguarding and protecting investor information and data at all times.

3. Value Preservation

Both public and private markets continue experiencing downturns due to the pandemic.

Public markets such as the stock markets characterised with high levels of liquidity exhibited sudden loss of liquidity and high volatility. However, the stocks have since bounced back.

Private markets such as private equity and asset-class real estate investments have not been spared either. Reduced investor sentiments during this period have cut revenues, leverage and valuations of both equity and debt investments.

Assessing the impact of this market turbulence, wealth managers should build contingency plans, liquidity management procedures and roll out value creation strategies to minimise cash-burn as the enduring during effects of the bear market last.