Keeping a clear head is vital for prosperity in the long term

With financial markets in turmoil amid the Coronavirus pandemic, most of Malcolm Rust’s waking hours are spent reassuring clients.

Whether this is in relation to the effect of tumbling financial markets on their investment portfolios and pension funds, or the consequences of the public response to COVID-19 for their business, his core advice is the same: don’t panic.

“We can’t deny we’re living in exceptional times,” says Rust, who is a partner at Shepherd and Wedderburn and head of its Private Client and Charities teams. “But what we need at the moment is a steely focus – faced with a crisis of this kind, people often don’t think clearly.”

The firm advises commercial, public sector and private clients across a diverse range of sectors. The events of recent months, with markets plunging dramatically because of the spread of coronavirus and a big fall in the oil price, have had an impact on every business and sector.

One particular area of focus for Rust is advising firms on their long-term strategy for wealth protection and growth. “One aspect I’ve been looking at with a declining market is those businesses, say a high-net-worth family business, that were preparing themselves for sale before this happened,” says Rust.

“They’ve had to call a halt on their plans and will need to start to rebuild their balance sheets when they can. People planning for retirement, maybe through a business exit, are in a particularly difficult situation. They don’t necessarily have a diversified stock market portfolio; perhaps all they have is their business, which they have sweated blood over to grow over the past 30-40 years. They might see their order book collapse or see the prospect of having to make a significant number of their staff redundant.”

In these situations, Rust says, the most important thing is to assist the client to ‘take back control’. Working in conjunction with legal specialists across the firm, accountants and other advisers, Rust and his team talk clients through the options available. They discuss how the business is currently structured and what changes could be made, what the cash flow projections are over the next few months – and further into the future – and stress test how the business would respond to various levels of decline in activity.

Rust says: “By going through the numbers and assessing the situation, individuals can find confidence.” While not financial advisers, Rust and his team advise on the legal aspects of investment and assist others in assessing risk and the suitability of investment strategies for their clients. Extreme stock market volatility has wiped billions off the share prices of many companies – and the pension funds that invest in them. 

Douglas Sinclair, partner and Chartered Tax Adviser in the firm’s Private Client team, says that watching the FTSE plummet was an emotional experience and that he too is trying to support his clients through challenging times. “You can think ‘my investment is 10% less than when I went to bed.’ But it’s about trying to remind individuals why they’re investing,” he explained.

“Usually investors are on a timeline of 5-to-10 years (or longer), and often investing for income – so maybe their capital has gone down but the income ought to stay broadly the same. If you sell out now, the loss has been hard-wired in.”

Others may be trying to benefit from cheaper stock prices, and looking to get access to cash in the hope of making a quick return. Again, the advice is patience. Sinclair says: “That’s not necessarily the wrong thing to do, but can they afford to lose the money they are investing? It comes back to the mantra that you should only invest what you can afford to lose.”

Malcolm Rust, Partner and Head of the Private Client and Charities teams at Shepherd and Wedderburn

Charities and voluntary groups are particularly affected by volatility in the financial markets, which Rust says has been a wake-up call for many investors who have been experiencing fairly benign investment and tax conditions since the global financial crisis in 2008. When advising charities, Rust discusses how well they can weather a shock event; whether they would still have enough working revenue to continue their operations if an income stream such as an investment was stopped for three months or more; and, if not, what contingency planning has been looked at to address this.

Early planning pays dividends in the long-run, Rust explains, and this is demonstrated in another area of Rust’s work: succession planning. “Studies have been conducted that show the effects of poor planning over generations, where say the grandfather built the business, the next generation made the business what it is, the generation after that kept the business going…just, but the great-grandchildren frittered it all away. What we’re seeking to achieve is to break that four generational downward cycle and ensure businesses and individuals’ wealth can grow.”

One important part of this is joined-up Will planning, ensuring inheritance plans are updated regularly, particularly regarding tax rules and
allowances, and that this dovetails with Shareholder or Partnership Agreements. Family Charters are also important documents to ensure issues surrounding succession plans are discussed early and rationally and are understood by each generation. Powers of Attorney is another area that has become far more prevalent in recent years, as relatively young individuals realise it is not only something that should be considered later in life.

Planning ahead can avoid the unexpected need to transfer on control of wealth. Rust adds: “Planning ahead is essential to the approach we take in every area of our business. Making sure our clients are better prepared makes it easier to avoid the stress of fighting fires when the situation calls for cool heads and clear thinking.”


Advertisement feature by Canongate Communications. Published in association with Shepherd and Wedderburn and featured in The Times Scotland. To download a digital copy visit the link here. Visit www.shepwedd.com