We examine the ideas that wealth managers have for clients about how to think about the investment, risk management and goal-setting implications of the pandemic.

This news service continues to talk to wealth managers about the kind of decisions that advisors and clients discuss around investment in the current extraordinary environment. Markets are off their spring lows and yet the underlying economy has been battered by COVID-19 and the associated suppression measures. 

Mark Walker, managing partner at Tollymore Investment Partners, the UK-based organisation. 
Do you expect to change how you segment your market as a result of this crisis and the falls in global markets?
An investment process should help investment managers to adhere to the stated investment philosophy, to remain faithful to its key principles. This is especially important in periods of market dislocation, underperformance or other source of self-doubt. While a process should evolve over time, it should not drastically change from one cycle to the next. 

It should be designed to facilitate the highest quality decision-making no matter the business, political, or capital markets environment. We continue to believe in the merits of a global investment remit and a concentrated portfolio. This avoids the constraint of picking winners and losers within a narrow universe, and allows us the best chance of finding very large gaps between price and value, no matter where in the world they may exist, and irrespective of the point in the cycle at which we are making these investment decisions.

If the answer to the first question is yes, what do you intend to do?
In many ways our investment programme is unchanged in periods of economic distress and market dislocation. We still believe in the utility of independent thinking, in the power of deep work and the pitfalls of forced collaboration. We still seek to own companies that score highly across our vectors of business quality. We still think of risk in terms of business quality, finances and valuation. We still believe in exploiting a set of constraints facing most active money managers in executing a long-term investment strategy. We still believe our investment partners are a competitive advantage. And we still believe stock market volatility is a reason to prefer public market vs. private business ownership.

But admittedly this is no ordinary crisis. One quarter of the global population is under lockdown. This means that many businesses will need to navigate a period of zero revenues. This reality caused us to re-underwrite our investments with a special focus on liquidity runway. In our “survive and thrive” analysis we estimated how long each business could survive without revenues; protections mitigating revenue loss; and what forms of cost relief may be available to our companies, due to the natural variable cost structure of the business, the curtailing of capital reinvestment, or government support. We compared the estimated cash burn to liquid assets and ranked our businesses according to those most likely to survive these extraordinary circumstances.

Will you focus more on high net worth individuals, ultra-HNW individuals, because they still have sufficient assets to be interested in what you have to offer?
We do not prescribe the profile of our investment partners. We do insist on the possession of some important characteristics. We partner with long-term investors who think like business owners rather than traders. Investors who are sympathetic to our investment philosophy and approach, and share our belief in the opportunities that a long-term focus affords. Investors who recognise that a common stock represents a fractional interest in real assets. Our goal is to accumulate wealth by investing in high quality businesses for the long term; it is not to predict share price movements. This is because we believe high quality, intellectually generous investment partners are an important competitive advantage in delivering a long-term successful outcome.

How will you engage with the wealth management client base in the next year? Are there products and services you expect to see more in demand/less in demand?
There are inherent and probably permanent inefficiencies in matching allocators with the right managers. While we are always interested in connecting with aligned long-term investors, it does not serve our existing investment partners well for Tollymore to proactively swim upstream against this capital allocation inefficiency. We are principally concerned with delivering excellent long-term returns for our partners.

We are not concerned with enriching ourselves through asset-gathering. New relationships are normally conceived through referrals and blossom through mutual appreciation of a time arbitrage opportunity afforded to patient investors with patient capital.

Are there other ways you expect the distribution of funds/services/products to the wealth management sector to change in the next few years?
Reverse solicitation of capital may become more prevalent. Platforms such as SumZero and Edgefolio are trying to address the misdirection of capital in this industry. They may help smaller managers in particular to overcome the career risk behind decisions, by agents on behalf of principals, to direct capital to large well-known firms rather than the most talented managers with alignment of interests permeating every aspect of their investment programmes.

Ross Jennings, head of sales and relationship management at RBC Wealth Management
We expect to see a continued rise in the demand for secure technology products across the industry. Digitisation was already a trend in wealth management, but the current situation has led firms to rapidly develop solutions and products, and rethink business models and operating processes to improve the client experience. We also expect there will be more demand from clients for increased customisation.

The industry will continue to look at ways in which to execute with speed and reduce effort on behalf of clients. Technology will clearly play its part but firms will also look at their own internal processes to reduce friction points wherever possible.

We expect to see a more permanent adaptation to virtual working practices – it would be unrealistic to think that things will go back to the way they were. We’ve noticed that our clients are also finding ways to adapt to this new norm. Proactive client engagement couldn’t be more critical right now and is proving to be another real source of differentiation.

This pandemic will also accelerate our learning and understanding and force further change to conventional working approaches worldwide. We’re being challenged on a daily basis, but with these challenges come opportunities to develop new best practices.