The start of this summer perhaps isn’t the quiet time for wealth HNWIs may be wishing for. Affluent individuals need to be poised to react to rapid changes affecting the investment and fiscal landscape.
Pummelled GDP and negative interest rate rumours prompt action
Predictions of negative interest rates combined with very sobering Gross Domestic Product figures have struck a nerve among High Net Worth Individuals wondering about the implications for their wealth.
The Deputy Governor of the Bank of England suggested a global era of negative interest rates is coming soon after rate options (a barometer of monetary policy) implied a 23% likelihood that the key federal funds rate will drop below zero by the end of this year1.
Confirming the modest growth enjoyed pre-pandemic is over, new figures show GDP slumped 1.8% across the OECD area in the first quarter of 2020, the largest fall since the Global Financial Crisis. France and Italy suffered worse, GDP falling 5.8% and 4.7% respectively, but Canada, Germany and the UK also fell by 2.6%, 2.2% and 2.0%. Even the US saw a 1.2% contraction.
There are worries that negative interest rates will cause a death spiral in consumer and investor demand rather than boost the economy as intended. Either way, the straitened state of public finances is undeniable, leaving the affluent pondering which form the inevitable tax hikes will take.
Either way, the straitened state of public finances is undeniable, leaving the affluent pondering which form the inevitable tax hikes will take
HNWIs await the next Budget announcement with bated breath. Yet there is a lot to be said for taking advice now to mitigate potential tax exposures.
Calls are certainly coming in from those who see dwindling returns on cash making building up investment portfolios look even more attractive. Over a tenth of investors have piled into the markets recently, seeing opportunity in volatility2. In a changed world, there is a case for “new safe havens” like the FAANG technology stocks, for instance, but experts are also warning that negative interest rates can be expected to push up financial asset prices significantly.
Expensive firms are fishing, but cash-conscious clients aren’t biting
Even if you think you have a good deal on the table, it is always worthwhile considering alternative wealth managers and strengthening your negotiating positionAlthough any differences in performance or fees you see might seem small, over time these can compound to make a huge difference to your eventual financial position. Always take your chance to aim for enhanced investment returns and minimised fees. Even if you think you have a good deal on the table, it is always worthwhile considering alternative wealth managers and strengthening your negotiating position. (Read our guide, What to expect from wealth management fees to get the inside track).
There are many moving parts to monitor in today’s investment environment – too many for any one individual, I would argue. Outsourcing the management of your wealth to a professional with institutional-grade expertise and research behind them would likely be a significant weight off your mind, as well as a path to boosted returns.
Performance blips aside, poor communication remains complaint number one
Wealth managers should have made clear by now the value they delivered during the dark days of the crisis. Your provider should hopefully have performed well against the broader markets, your agreed benchmark and indeed their peer group, proving their ability to mitigate risks and maximise portfolio growth even in challenging conditions.
Your provider should hopefully have performed well against the broader markets, your agreed benchmark and indeed their peer group, proving their ability to mitigate risks and maximise portfolio growth even in challenging conditions
Calls from disappointed clients are noticeably up, but we actually continue to hear most about service shortcomings. Investors have rightly expected timely, reassuring and tailored communications. While the majority of firms have been doing a fantastic job of keeping their clients informed, some have come across as complacent and lacking the proactive approach clients need.
Lifegoals to the fore, particularly for entrepreneurs
These past few months have really marked a time for reflection and financial overhauls, and a sense of urgency has increased as lockdown winds down. With many of them having a rare chance to breathe, we’ve seen a marked uptick in business-owners wanting a holistic overview of their wealth position, including a good number who are thinking of selling their business.
Life rethinks, including big-ticket property moves, seem to be a real trend. It’s great to see users adopting a flexible mindset and seeking advice in good time as the uncertain financial landscape evolves.
It’s also good to see people taking care of some of the more prosaic – but undeniably most important – elements of wealth management. Wills, life insurance, setting up Lasting Power of Attorney (LPA) in advance and inter-generational wealth planning have all figured far more highly in our conversations with users these past few weeks.
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