The coronavirus continues to have an unprecedented human and economic toll, and as we face our “new normal,” no sector of the economy is immune to the potential impact or resulting downturn, including family offices.
Wealthy families and family offices, like many others, are facing new challenges and unforeseen changes in the wake of this crisis. While the world is healing and our society recovers from the impact of COVID-19, families and family offices should be debriefing: Was the family prepared for something like this? What steps could have been taken to prepare sooner, and what can we learn from our missteps? What can we implement now to prevent future losses or risks?
The most common question? How do we navigate the current environment and prepare for future chaotic situations? The following issues should be top of mind:
1. Technology
The value of technology has never been more obvious than today; what’s less obvious are the risks our increased reliance on technology can potentially expose. Leveraging technology to play a critical role in disaster planning, whether it pertains to personal and residential security, cyber protection or simply the ability to work effectively from home long term, is critical.
Perform regular tests on your security systems and processes and ensure every family member is properly trained to utilize this system. In addition to implementing systems to protect your home, take steps to protect online data by doing simple things such as changing passwords, implementing high-end data back-up and fraud detection systems. Evaluate document storage options to protect and save critical family documents (wills, trusts, titles, insurance documents, etc.) in one place. Unfortunately, crises increase our vulnerability to cyber-attacks and open windows of opportunity for cyber criminals who may try to access key reporting systems and private data. We are even more vulnerable when working from home. Implementing formal security protocols along with education can prevent the loss of critical and confidential family information.
Finally, seek professional advice regarding wiring your home to support extended periods of remote work. Confirming the strength of your IT infrastructure, bandwidth, network security and records management will minimize disruptions and keep your operation moving forward.
2. Households And Residences
Given varying travel restrictions, secondary residences may not currently be accessible. This increases the importance of having a management company or local security team to aid with physical surveillance and protection. Appoint someone you trust to manage your non-primary residence(s). If this individual or institution is unable to work, identify steps to ensure your home is secured and implement household staff mitigation strategies.
For your primary residence, added layers of precaution for household staff should be considered. This could include screening employees prior to entry in the home, requiring protective measures such as facemasks, or even providing uniforms that are left at the residence, cleaned and reused only at that site. Home entry sanitization stations can easily be established in a garage or mudroom. Once in place, protocols should be followed rigorously without exception.
Like most of the world, many ultra-high-net-worth (UHNW) families and family offices were caught off guard by COVID-19 and lacked the proper safety and everyday essentials in their residences. On the contrary, some family offices have been preparing for years and thus have stockpiles of masks, cleaning supplies, rations, etc. Having some level of emergency inventory may make sense given this “new normal.”
3. Health Care
Planning for events that seem unlikely may save your loved ones from having to make difficult decisions on your behalf. It can also keep your family united during crucial moments, knowing they have your best interests in mind.
Write down or otherwise share with your loved ones how you would respond in times that you may be unable to do so. Documenting and formalizing a loved one’s intentions, through health-care directives and the like, ensures there is no guesswork involved if the unthinkable happens. The recent COVID-19 outbreak also reminds us of the importance of having a plan for caring for sick members of the family virtually and from a distance. Another tragic issue faced during this crisis has been healthy family members not being able to physically assist their ailing family members given social distancing and hospital guidelines prohibiting visitors.
Well-prepared families not only plan for themselves, but they also take these precautions for their employees and other household staff. Caring for those in your inner circle during a crisis can foster stronger bonds and help maintain the team you have so carefully assembled.
Now is also a good time to consider the value of your long-term care or life insurance policy and assess the cost of increased or alternative coverage. There may also be options for other family members, such as more flexible elder care arrangements or facilities that are better equipped to provide medical attention to your loved ones during emergencies.
4. Family Communication Planning And Preparedness
Life changes quickly. It is important to not only assess and respond to changing environments, but to also ensure those closest to you know and understand any plans you have in place. Lack of communication is often the main reason plans fail during this difficult time. Effective communication is key.
If your family does not already have a plan in place, design a family crisis strategy, including proper emergency contacts. Make sure all family members are aware and comfortable with action steps according to this plan. These processes can and will evolve but having a guideline in place is crucial.
Up-to-date wills and trust documents, and instructions for how the family office will function during an extended period of closure are all beneficial items to include in this plan. Consider factors such as where family members will safely reside, how travel restrictions will impact this, and how your family might outsource functions of the office to a third party or seek oversight by an institutional trustee.
In addition to revisiting your life insurance policy, review coverage related to general liability, disaster, kidnapping, real estate, investments, personal assets and cybersecurity. If your family office is registered with the SEC or other regulatory agencies, review communication plans and reporting to maintain compliance during a period of disruption. Finally, document your plans for communication with all stakeholders (i.e. family members, professional advisors, investors, etc.) to help facilitate discussions and ease anxiety.
5. Wealth Management
Opportunity can arise from market volatility and uncertain environments. Having the right advisor or advisors to guide you and identify the strategies that may benefit you before, during or after a crisis is essential. Areas family offices are evaluating include revisiting and/or advancing wealth transfer opportunities, weighing tax loss harvesting opportunities, updating liquidity profiles, reassessing whether strategic asset allocations are currently in line, and considering commitments to distressed and secondary private investment opportunities. Times such as these also lead to forward-thinking on the advantages of Impact Investing, an area in which many wealthy families elect to focus a portion of their funds.
There is much to be learned from the obstacles presented by the COVID-19 outbreak, and now is the time for families to review policies and procedures for handling a crisis. With proper and proactive planning as well as organized and formalized communication, families and family offices will be well-positioned to prevent lasting, detrimental impacts so generations to come will be prepared for future success. Lastly, there is no need to feel alone in this preparation. There are experts that can partner with you through these challenging and uncommon times.
Steve Nowak is managing director and head of BT Family Office.