The fall-out from the pandemic has demonstrated that, more than ever, being a successful trustee comes from cultivating strong relationships with beneficiaries – and being agile to respond in a fast-changing world
For the many thousands of individuals who rely on trusts to manage their wealth, 2020 has been an anxious time – not only from a sense of recognising their own mortality as the Covid-19 pandemic spread, but the escalating economic crisis caused by a world in lockdown.
When humanity is plunged into such testing conditions, beneficiaries need trustees to respond with rapid reactions and cool heads. And respond they have – bringing new working practices and processes that are set to change the face of trusteeship forever.
As Covid-19 created personal, social and economic chaos worldwide, trustees were forced to increase the pace and frequency of interactions with their beneficiaries, often covering uncharted territory.
Grant Barbour, who leads Ocorian’s European private client services team, says: “People who are used to being in charge were presented with a situation they couldn’t control; it gave them an enormous sense of vulnerability. We had to jump in quickly and help them through this.”
Beneficiaries needed a multitude of reassurances, which could no longer – thanks to lockdown – be delivered in the conventional way.
Mirek Gruna, Managing Director in Dominion’s Jersey office, says the key to not just surviving but thriving during coronavirus lies in trustees’ resilience.
“The Covid-19 pandemic has changed the way people and businesses used to behave or trade. It seems that most adjustments are for the better and have created more resilience among people as well as businesses,” he says.
“The resilient way is not about being tough and surviving the crisis, it is about being nimble enough to overcome the challenges brought about by a situation outside of our control.”
Growing divisions
But not all trustees have been able to respond with the rapidity or the resilience needed to service beneficiaries under such difficult circumstances, and divisions are likely to grow between the successful ‘can dos’ and those left floundering.
Arabella Murphy, Director and Founder of consultancy Propitious (London), which works with wealthy families, says: “Covid-19 will sort out the sheep from the goats. There are the good ones who are doing what is required, and then the really good ones who are incredibly proactive and going much further.”
Every industry, indeed every family, has become familiar with Zoom, Microsoft Teams and FaceTime during lockdown, but this commitment to digital communication was not necessarily easy to come by. Not only were there obvious educational obstacles to overcome when interacting online, but some beneficiaries and trustees were reluctant to use it.
As Barbour puts it: “The tech existed before we went into lockdown, but some people were reticent to use it because it was seen as a cheap alternative to traditional face-to-face meetings. Our beneficiaries are important people, they pay fees and they want to see you.”
But Covid-19 has proven a great leveller and no matter how wealthy or important a person is, lockdown has meant using digital communications, like it or not.
Beneficiaries and trustees did embrace the digital age, which brings with it enormous cost savings for a sector traditionally associated with hefty fees.
Angela Calnan, Group Partner and Head of the Guernsey-based Fiduciary Team at international law firm Collas Crill, suggests this offers real potential to open trusteeship to a wider market.
She says: “There will be significant cost savings for structures, with trustees travelling less for face-to-face client contact. If trust administration is significantly cheaper and more efficient, this may make trusts available to an even wider demographic.”
The next generation
Technology may have been able to bring people closer together, but it could do little to prevent key stakeholders from succumbing to the virus. Covid-19 was a sharp reminder that trusts are vulnerable when the ultimate decision-makers are no longer in communication.
And given the suddenness with which the crisis descended, trusts with governance structures that allowed other individuals to make decisions benefited from being able to act swiftly.
Josephine Howe, a Partner at Ogier who advises high-net-worth individuals on trust structures, believes some families were better prepared than others, and already had governance in place that kept lines of communication open with trustees.
“When a key person is out of the communication chain due to illness or lockdown, it’s difficult for decisions to be made,” she says. “Families with good decision-making processes were able to take advantage of some of the investment opportunities presented by the pandemic. This contrasts with those without robust structures in place.”
It has fallen to trustees to remedy structures that were unfit for purpose and implement new flexible processes that allow the next generation to take over.
Critically, the focus has been on succession planning and, in some cases, forcing difficult conversations about control and mortality that, pre-pandemic, might have been all too easy to kick into the long grass.
As Howe points out: “Covid-19 forced wealthy families, many of whom travel a lot, into having long periods of time together. This opened the door to conversations that often ‘wait for tomorrow’, and has allowed trustees to make sure trusts are fit for purpose.”
Investment opportunities
There is nothing more important than a trust being fit for purpose when stock markets are enduring double-digit falls, as was the case during the worst point of the pandemic.
Those with a nimble decision-making process, run by trustees in constant contact with fund mangers and investment advisers, could, at the very least, hope to be insulated from the worst of the fallout. At best, they would have been able to buy into a stock market that went on to recover dramatically in the second half of the year.
But there has been much more than market volatility to contend with. Many PLCs were forced to stop paying dividends, and the future looks bleak for beneficiaries relying on shares for regular income.
The Q2 2020 UK Dividend Monitor from Link Asset Services reports that Covid-19 caused unprecedented cuts in dividends in Q2, down £22bn on a headline basis, and there is no sign of improvement any time soon. This will be difficult reading, particularly for those who are themselves financial victims of Covid-19, having been furloughed or lost their business.
“This is a perfect storm for trustees,” says Murphy. “They have beneficiaries who need more income, but resources may not be available from the trust. Trustees will have to have some interesting conversations about how to meet that need.”
The investment challenges kept coming during Covid-19 – notably for beneficiaries attempting to complete transactions, especially in real estate. With so many key players potentially out of action – and buildings closed – there was plenty of danger that the deals could grind to a halt.
Calnan says: “In London, valuers haven’t been able to value property, so banks can’t lend money, and that process slowed down to a virtual stop. Not being able to complete transactions, particularly in real estate, has been a challenge.”
However, she notes that Guernsey is experiencing “a real bottleneck of property and real estate finance transactions” and in a booming local property market, suggesting trustees with the right connections will be best placed to take advantage of the surge.
Much of the coronavirus-related investment challenges point to a lack of liquidity. Heavy reliance on the family business or one or two properties leaves few places to turn when something goes wrong. This was the case following the 2008 global financial crisis and it is manifesting itself again now.
Murphy says trustees who learnt lessons from the past were the ones who looked strongest when coronavirus struck. “Cash is king, for businesses and for everybody,” she says. “If you had cash or did not have too much borrowing against your assets, then you came out better than those geared right up to the hilt. Here we are, learning that lesson again after 2008.”
Thriving in the new normal
Covid-19 served as a sharp reminder that successful trusteeship comes from cultivating strong relationships with beneficiaries. Trustees who could guide their beneficiaries through new ways of communicating, keeping them apprised of the latest market volatility, and who were able to work with several members of the trust, proved themselves invaluable.
As Murphy says, the trustees who come out of this well have been adaptable, empathetic and able to turn on a sixpence.
However, Covid-19 has not just been a matter of survival for trustees. In plenty of cases, it has provided an opportunity to evolve their business, advancing into new markets with faster, modern attitudes and processes.
Dominion’s Gruna concludes: “A professional trustee, as any other professional services firm, operates in a highly competitive environment. Some businesses may not be able to continue because of the crisis, but businesses and trustees that have adopted the flexible approach and adjusted how they do things, will certainly thrive.”
• This article was first published in BL City Edition in October 2020