Impact of Covid-19 on the investment pattern, legacy planning of HNIs

By: |
March 31, 2021 6:58 PM

The need for isolation and the fear of getting infected have also caused a mental stress and a change in behavioural pattern in legacy planning.

Covid-19 pandemic, Impact of Covid-19 on investment pattern, legacy planning, HNIs, UHNIs, Drafting Will, Diversification, succession plan, real estate, financial advisor, custodianThe turmoil has led to a pronounced need for HNI and UHNI families to secure their wealth and ensure that there is a certain level of financial preparedness.

The Covid-19 pandemic has affected the health, life and livelihood of almost everybody in a way or other. Although the virus has made both rich and poor vulnerable, a study has revealed that the mortality rate is low in the areas where hygienic condition is poor and instances of the spread of communicable diseases are more, compared to areas where proper hygiene is maintained and instances of non-communicable diseases like diabetes, hypertension etc are more.

So, compared to large numbers of poor people in India, the pandemic has affected the comparatively lower number of rich people – High Networth Individuals (HNIs) and Ultra High Networth Individuals (UHNIs) – in the country. This has made the rich people rush to get their Will made to prevent any unwanted divide among the family members to get the share in the family wealth.

The need for isolation and the fear of getting infected have also caused a mental stress and a change in behavioural pattern in legacy planning.

Acknowledging that this turmoil has obviously led to a pronounced need for HNI and UHNI families to secure their wealth and ensure that there is a certain level of financial preparedness, Rajmohan Krishnan, Principal Founder and MD, Entrust Family Office – who has a long experience of handling wealth for HNIs and UHNIs – has indicated the following key developments:

Need of Drafting Will

With the pandemic spelling so much uncertainty in terms of life and death matters, scores of wealthy families are now beginning to take legacy planning more seriously. Matters of succession, estate planning, and financial handovers are being reviewed and updated. In order to protect family-owned businesses and wealth from the vagaries of this pandemic, many HNIs and UHNIs are opting for carefully drafted wills that can facilitate the smooth transfer of a person’s wealth and assets during as well as after his or her death. Trusts are also emerging as a favoured option in order to avoid legal squabbles over property and money during and after the death of a family/ business head.

Importance of Diversification

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Another aspect that needs attention during such times is the investment portfolio of businessmen which is spread across diverse asset classes. With the economy and the markets in a free fall, there are chances that millions of dollars of UHNI wealth can get eroded within a few days. It is vital to keep a close eye on the market movements and align the portfolio in a way that risk is mitigated and wealth that has been created over a period is preserved. UHNI’s have their investments across different asset classes – equities, debts, private equity, seed capital, debt instruments, and real estate to name a few. Some also have a considerable amount of exposure to international markets.

Plight of Real Estate

The global economic conditions have a direct impact on the performance of each of the asset classes. For eg- real estate as an asset class has nosedived since demonetisation. With the onslaught of the pandemic, it has further buried its head in the sand. The outlook for this sector does not look positive in the near term. Likewise, SIPs too have not been performing well for the last couple of years, whereas debt instruments have proved their mettle even during times of predicament. It is essential to keep an astute eye on these macroeconomic conditions to take appropriate asset allocation decisions. This helps to mitigate risks and ensure better returns.

Need of Advisor/Custodian

The role of a multi-family office has been constantly evolving over the last few years and it has taken a whole new meaning during these turbulent times. As a trusted advisor and custodian of wealth for UHNIs and business houses, they play an important role in safeguarding their wealth in good times and bad. It is their job to study the global economic situation, assess the risk, reallocate the assets and ensure that the wealth creation process does not get hampered by any external events, whether they are within control or beyond control.

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