The corona crisis has been an unprecedented challenge for humanity and a shock to the global economy. What have we learned from the crisis? Our wealth planning experts expect to see trends developing in five areas: family and asset protection, succession planning, relocation, digitalisation, and financial & liquidity planning.
Family and asset protection
Maria Eugenia Mosquera: “Considering the speed of change in the world today and the challenges which the crisis has posed to globalisation, we have been consulted from different quarters about how to best protect families and their wealth in these times of uncertainty. Some families have taken the time to think on how to plan ahead in order to mitigate the risks that this crisis has posed to them and their assets.
As some countries lack borrowing capacity, they need to find other sources of revenue generation in order to respond to COVID19. A handful of countries have already reacted by issuing draft legislation about increasing solidarity taxes to be borne by the wealthiest parts of the population. Others are looking into taxing digital platforms, to VAT increases, or imposing stricter measures in the enforcement of tax collection. Aside from the negative effects that an increase in taxation could have for the economy as a whole, what does this especially mean for High Net Worth Individuals (HNWIs) and their families?
If executed properly, wealth structures may prove to be a useful vehicle, providing protection and consolidation. More importantly, they may mitigate risks and guarantee accessibility to assets in an efficient manner by providing liquidity in times of need. (Examples of such structures could be trusts, foundations, life insurance, private label funds, companies, wills, or other legal arrangements.)
In times of crisis, priorities shift and our crisis-defined experiences flag the way toward finding new values. Whether a certain wealth structure is suitable for a particular family or not, will depend on those values, on family objectives, country of residence, family members affected, applicable legislation and the type of assets involved. Unfortunately, doing nothing is no longer an option.”
Eleanor Yuen: “Since the beginning of the 21st century, we have suffered multiple financial crises, from the Dot-Com bubble bursting, 9/11, the 2009 crash and now the COVID crisis. We have seen wealth both increase and disappear in the flash of a moment. The last 20 years have made it very difficult to build wealth and to maintain it, especially through financial markets. Protection and conservation of wealth will become more and more relevant as the older generations realise that it will become increasingly challenging for the next generation to build their own wealth, through no fault of their own.
The pattern that is starting to appear is unique to our time. Until recently, the notion was held that the next generation would be better off than the previous one. Asset and family protection will now become more relevant than ever. This means that much more will be required than simply reviewing a last will and testament or an advance care directive once in a blue moon. A regular review will be vital ‒ preferably annually ‒ and should become standard practice for everyone.
Another important topic concerns businesses. With or without COVID, the topic of succession planning is at the top of many agendas today, whether it concerns a family business or not. The questions are usually the same: ‘Is the business model still relevant? Will it be relevant in the future? And who is best suited to lead the business to ensure long term success?’ The question of securing liquidity in emergency situations also needs to be actively addressed and solved.”
Silke Mies: “Many people have been able to attest to the value of their citizenship. Citizenship has shown itself to be more than merely another passport; it has proven to be a lifeline, a window of opportunity for returning to a safer haven. In a world in which borders were perceived to no longer exist (EEA), Covid-19 demonstrated that those country borders still significantly impact on the free movement of people and capital. In the future we expect to see a rise in the number of people placing increased value on their citizenships and people exploring ways in which to activate those citizenships to which they are entitled (by birth), as they have now come to realise the real value of having such.
Having emergency assets, such as access to bank accounts, real estate property, forms of mobility etc., which are spread out over a number of jurisdictions, has proven to be very useful for maintaining living standards for our HNWI clients and their loved ones ‒ who quite often live in other countries.
Under normal conditions, the preferred place of residency is often determined by factors such as quality of living, access to education, clean environment, safety, etc. However, going forward we expect people to be more concerned with other primary factors which have gained in importance, such as access to health care, the availability of supporting infrastructure, the possibilities of (speedy) repatriation and the general handling of crisis scenarios. Countries which handled the crisis well will become more popular. This will not only feature the short-term considerations of mortality or infection rates, but will take in the length of time it took for the country to recover economically. Did short-term success incur a disproportionately high bill in the long-term?”
Anna Ivanova: “What role will digitalisation play going forward? Have certain traditional industries been too relaxed in the past and too slow and too reluctant to move with the times? One of the most common questions we have heard asked was ‘How can we get our important documents, such as Power of Attorney, to a public notary for certification if we cannot physically meet with them?’
It is certainly time for the question of digital signatures to be addressed by lawyers and institutions that need to recognise such signatures. We may have successfully put man on the moon, but many jurisdictions have still not found a way around a physical signature. It is not a question of whether it is technologically possible ‒ because of course it is; rather, it is a question of institutional willingness to embrace digitalisation.
We expect to see a rise in digital archiving of documents in places where documents can be signed electronically and then shared with lawyers, banks, insurance companies and the authorities.”
Financial & liquidity planning
Susanna Keller: “Many businesses will have woken up to the shock of not being able to operate fully, if at all, for several months, despite the spending power of the purchasers still being there. Being able to remain liquid and pay wages for a few months ‒ even if the business itself does not make money, will likely be a governmental requirement going forward. After having spent much of the public budget on keeping companies afloat, it is likely that going forward, governments will ensure businesses have capital reserve minimum requirements in place for such emergencies.
A further trend we might see in the future is liquidity insurance. Businesses might consider insuring against future pandemics in order to generate cash flow should another crisis occur. Time will tell whether the demand arises and if so, as to whether insurers will feel up to it or not.
Naturally, the effect which the crisis has had on business has also had a knock-on effect on individuals. Such an unpredictable event will without a shadow of a doubt have thwarted many personal plans. How can we get these plans back on track? The important thing is to plan-ahead carefully for it.
As we have just seen, another key aspect of forward planning is the need to have good contingency plans. A fixed feature in any financial and liquidity plan for the future will most likely include the simulating of crisis scenarios and a consideration as to how assets and liquidity are best preserved in such cases, thus ensuring that they do not negatively impact any long term plans.”
The Julius Baer 'The world after the corona crisis' report provides brief answers to big questions in the areas economics, politics, globalisation, society, inequality, healthcare, ethics, digitalisation and investing.
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Life, business, investments, aspirations - what matters to you matters to us. This article is part of our ’Your Wealth’ series, in which we have a close look at what lies close to your heart and how wealth planning may help you achieve your objectives.