COVID-19: Practical advice for private and family clients COVID-19: Practical advice for private and family clients COVID-19: Practical advice for private and family clients

The challenges caused by the coronavirus (COVID-19) that owners of private wealth are facing in the short to medium term are difficult. However, by focusing on what can be controlled rather than what cannot, wealth owners can gain comfort from understanding of the impact on their overall capital, not just financial capital, but human and social capital as well. 

Below is some practical advice to help private and family clients navigate these turbulent times.  

Use this time to consider what the role of your wealth is. Many families work on articulating what their inherent ‘values’ are. In times of crisis those values often become more apparent and act as an important base for decision making and ensuring that the family seeks to do the right thing.

The term ‘patient capital’ is often applied to the way family business owners think about business strategy and stakeholders. In many cases, families have already started to establish pools of liquidity by reallocating capital towards more defensive assets.

However, you may be concerned about the effects of the economic shock on your portfolio and your overall ‘risk’ tolerance may be tested. If you’re worried about the volatility in the market, and what the long term impacts may be, remember you can’t control the short-term financial impact on your portfolio, but you can control your own reactions. Now is the time to practice patience. Many of you would have implemented a strategy to manage the capital, and that strategy probably extends over a time period which far exceeds the likely length of the current coronavirus (COVID-19) situation.

You must consider the role of the portfolio in the context of your overall financial position, and the time frame around the investment – consider if this time frame has changed, and if so, revisit your investment strategy with your financial adviser. If your current portfolio is set up to fund your lifestyle, consider what your current cash flow needs are, how they may change and how this will be met. It would be good to understand how third parties are managing your assets. Ask them how accessible your capital is should there be a short-term liquidity crisis?

Dealing with the effects of significant shocks can, to a large extent, be a function of your own mindset. Focusing on your family’s health and wellbeing as a priority can increase the overall resilience of the family. Just a simple check in can help them feel more secure, and could open up the opportunity for broader conversations. Doing this could also help you feel like you’re doing something positive, which in turn can help your own perspective as you navigate through turbulent times.

Many wealth owners have concerns around how they will manage the transition of wealth from generation to generation. Now may be an opportunity to engage with the family about their thinking on matters that are important, but not urgent, and help you to focus less on the short term and more on the longer term.

Many families may have previously put in place family governance structures to aid in decision making. Now would be a good time to use these forums to help the family feel updated and supported. Also consider if your family office already has some form of risk policy in place, review the policy and implement as necessary. 

In times of high stress and uncertainty, it’s important to use a supported decision making framework to enable all members of the family to be comfortable with the choices being made. While you may be the substitute decision maker you should still seek family guidance.

The current environment might give you the time to become really clear on your family businesses current situation. Map out and identify the family’s networks and advisory ecosystem, and take this time to reconnect with networks to help inform you and your reaction to the situation. 

With many of us staying at home, you may have some extra time to really take stock and ensure you have a good grasp of how your wealth is held. As a suggestion, consider the following:

• Establish a complete register of financial records and other relevant legal documentation, such as powers of attorney or guardianship directions.
• Consider if any owned assets through separate legal entities such as discretionary trusts and self-managed super funds are still fit for purpose.
• Take the opportunity to reassess family budgets and limit drawdowns.
• Understand the family’s liquidity needs and how those needs have traditionally been met from the family’s capital base. Are there any asset based income streams such as pensions from your self-managed super fund? How can these be adjusted to meet your short term requirements? 

As a high net wealth taxpayer, it is likely that you will have been identified as a member of one of three groups targeted by the ATO’s Private Wealth Group’s activities. You will be asked at some point to explain your personal tax affairs and those of entities you control. Review your tax compliance and the systems that support this to help reduce the level of scrutiny by the ATO. Consider:

• how you oversee the management and oversight of your tax responsibilities
• your recognition of tax risks
• how often you seek advice
• the quality of your reporting mechanisms
• the existence of professional and productive working relationships
• timely lodgements and payments
• demonstration of ethical and responsible behaviour.

Our experience is that these reviews involve the ATO requesting an extensive amount of information in a relatively short period of time, so start preparing the relevant information now.

At these times, your philanthropic capital provides vital support to the not-for-profit sector which may currently be facing additional strain. While it might be possible that the value of the corpus of your philanthropic trust has fallen, it’s important to remember that for many non-government funded organisations – you may be their lifeline.

Take the time to check in with the not-for-profits you support to find out how you may be able to better help in the short-term. You may be able to bring forward future grant commitments in some cases. It would also be worth encouraging your network and broader community to support more local initiatives.

During times of crisis, it can be tempting to think in the short term, however you should remember the benefit of investing in your family for the long term. Making investments now in your family governance, development of social capital and family education will have a compound effect on the overall value of your family capital.