How wealth managers helped millionaire clients get richer during lockdown
The world’s wealthiest have seen their fortunes soar during the coronavirus, rewarding wealth managers who have helped them profit from the pandemic.
Even before the coronavirus was declared a pandemic, wealth managers and private bankers were preparing for the storm. Markets were already hammered in Asia and many millionaires in the West wanted to make sure they were ready.
“Here in London, everything was normal. We were still eating out,” says Georgios Ercan, business development manager at Dolfin, a London-based wealth management firm.
Then it hit: Trading volumes soared and advisers rushed to reassure clients, even as they were kicked out of their offices to work from home. “We were literally phoning our customers 12 hours a day,” says Rebecca Hughes, managing director of Coutts, a British private bank.
But the hard work paid off. In the first three months of the year, only wealth managers outperformed the market, according to a report by Finncap, a British financial services firm, which specifically mentions Schroders, Hargreves Lansdown and Tatton Asset Management.
“Our portfolios were nowhere near as low as the FTSE 100,” Hughes says of Coutts’ performance.
The fortunes of some clients have reached new heights. Forbes reported that 600 billionaires added more than $400 billion to their wealth during the pandemic as markets crashed and then rebounded.
It’s not just paper fortunes piling up, either: We now know that the wealthy have been spending the past two months skimming cash. In the UK, the richest 20% cut spending by £23bn ($29.3bn) during the lockdown according to the New Policy Institute, a think tank.
More than half of their reductions came from travel and vacations (private jet travel fell 68% between April and May according to WingX). Other savings came from dining out and shopping, as spending on luxury goods had all but ceased.
Some wealthy business owners have saved millions even as their businesses benefited from government support measures.
Wealth managers have been amply rewarded for their work. Profits at UBS, the world’s largest wealth manager, rose 40% in the first three months of the year. Swiss bank Credit Suisse announced a 75% increase in quarterly profits. Coutts saw an additional £424m ($542m) paid into his investment products.
Perks enjoyed by wealthier customers also return. Before the pandemic, these tickets included tickets to theatrical and sporting events. Now Coutts is hosting virtual wine tasting events. “Clients just liked to do something a little different,” says Hughes.
How the rich invest after the pandemic
The question now is what will happen to all that money saved?
“I’m on a videoconference all day, from 8:00 a.m. to 10:00 p.m.,” explains Ercan. “Customers are bored, so they try to read the markets and come up with ideas.”
This is especially true for new clients and newer wealth builders who want reassurance, says Annabel Bosman, head of relationship management at RBC Wealth Management. Some might hope to recover the losses that have accumulated over the past two months.
Don’t be in such a hurry, say their advisers. “They have to stick to the roadmap and stick to the plan,” says Hughes. Investing for the long term and not being too reactionary is the dominant message. Especially since the storm has not passed yet.
However, what if the rich don’t start spending again? “If these savings are not spent on productive activities, there is a real danger that they will only add to asset price inflation, an activity that is productively wasteful but nevertheless profitable at least for some,” says the New Policy Institute. in a note co-authored by former Downing Street economic adviser Dan Corry.
The worry then is that we will emerge from the pandemic into a more unequal world, as the rich keep their gains while everyone else remains the same, if not worse.
There is increasing talk of a wealth tax both to counter this and to pay the huge bill that governments have racked up to combat the economic consequences of the pandemic.
“As most agree that at some point taxes will have to rise, the burden should fall on higher income earners – on higher, not standard, tax rates,” says the New Policy Institute. Any such tax will give wealth managers something else to worry about.