Markets hate uncertainty, we are often told. As we navigate through the most uncertain times in at least a decade, wealth managers are being scrutinised by clients like never before.
The coronavirus pandemic is presenting the wealth management sector with a number of specific challenges beyond the vagaries of the market. How to maintain cyber security and client confidentiality when remote working? How to increase the firm’s size of wallet without face-to-face introductory meetings? How to ensure business continuity in general?
That is even before we’ve got to the forthcoming US election and enduring trade tensions between the world’s two largest economies, which are all contributing to the increasingly volatile markets we are now witnessing and which pushed the Volatility Index to a 10-week high at the start of September.
But perhaps the biggest challenge of all of these is to maintain the trust of the client amid so much uncertainty.
Wealth managers worldwide have had to hone their counselling skills during lockdowns as anxiety has increasingly defined the global mood. That anxiety has spilled across to the investment world as people worry not just about their health but also about their financial well-being as volatility across markets and asset classes upends our old assumptions about the world.
Such trepidation is even more pronounced across the Gulf states, which were already dealing with a downturn in the energy and real estate sectors before the pandemic closed airports, businesses, malls and schools.
In some respects, the lockdown changed the relationship between client and wealth manager, as virtual meetings opened up new windows of interaction between advisers and their clients, who both saw a little more of each other’s worlds. Their shared experiences of life in lockdown, which sometimes crossed borders, helped people to connect in a different way.
Now more than at any time in the past decade, investors are seeking reassurance from the people they entrust to advise on the management of their wealth. It represents a unique opportunity for the best advisers to demonstrate their worth, while at the same time presenting an existential challenge to the broader sector.
In the past, the wealth management industry has proved remarkably resilient to the most violent of shocks emanating from the physical and financial worlds.
In fact, over the past two decades, personal financial wealth globally has nearly tripled, according to a study from Boston Consulting Group. It rose from $80 trillion (Dh293.8tn) in 1999 to $226tn at the end of 2019 – navigating through the dot-com crash, 9/11, the 2002-2004 Sars outbreak and the worst financial crisis the world had seen since the Great Depression.
Such historical perspective should temper the cloud of investment despair that has accompanied the Covid-19 pandemic with a silver lining of at least some informed optimism.
Clients concerned about wealth preservation amid such volatility are now seeking more frequent interaction with their advisers. It is important for managers to be proactive in providing this information and respond to what may be more intense scrutiny of wealth planning goals.
Behavioural finance plays a big role in clients’ decisions and any effect on their emotions, such as Covid-19 fears, can become a challenge to their financial performance.
Demonstrating to clients how their investments can be re-balanced in the short term to maintain long-term investment goals, will be key in the months ahead.
The coronavirus is accelerating the digitalisation trend that had already gained traction across the industry before the emergence of the pandemic, especially now that Gen X, Y and Z are becoming a significant part of the client base. Virtual interaction may now become the norm much quicker than any of us would have anticipated six months ago.
It will be a trying time for all and demonstrating to clients that the prevailing anxiety of the day does not need to extend into their financial planning will be vital.
As wartime posters implored: “Keep calm and carry on.”
Francois R. Farjallah is the global head of the Middle East & Africa for Indosuez Wealth Management