James

What would I see with your clients if I were able to peek over the wall into the world of the financial planner?

Karen

There is a lot of taking stock and you know it is not all gloom and doom.  Of course some people are really busy in their work but many others are not; some of them are re-assessing life; going back to basics.  There is now not an egg-laying chicken to be bought in Sussex.

Both categories, though, are largely at home and isolated with their immediate family and in consequence, there seems to be a lot more thinking through this thing about purpose in life .. what is it all for…? And in consequence of lot of clarity building about what matters … what really matters.

James

There is some of that in my world too … sometimes in ongoing cases, it results in people realising that a fight over finances or a parenting arrangement is really not the priority and the whole fight sort of deflates as people think about what matters, which includes closing a deal and getting on with life …

But in terms of the next generation of clients, there are probably also quite a few who are looking at their lives and deciding that this is not the way that they wish to play out the remainder of their four-score-and-ten.  So, sadly just as there is a spike in separations after Christmases and the summer holidays, so we are likely to follow China and have one here, if things do ‘get back to normal’-ish.  But I don’t think that it is about being cooped up with the family so much as having had time to stand back and think about what matters.

Karen

This is the key  part of our work: people think that it is all about risk, returns diversification strategies and protection but a lot of what we are doing with people is thinking about the purpose of money in their lives … not as an end in itself but what opportunities it carries … that’s why I love my job!

James

… the seven stages of money maturity stuff?

Karen

Well yes and a lot of others beyond George Kinder.

James

So it is not all wailing and gnashing of teeth as markets spiral?

Karen

Absolutely not … if you don’t have to sell , the blips, peaks and drops between investment and realisation are just that …but we are surrounded by media ‘noise’ and times like these can be an emotional rollercoaster. This is why understanding when and for what  is fundamental to our work: we need to know what term people are thinking… if they are only going to realise investments in ten year’s time and then realise those investments that have shown an average 6% growth year on year, it really doesn’t matter whether they have done 12% some years and dropped on others – it is a question of whether the resource can meet your plans when you need to realise it. The emotional resilience comes from having a plan that addresses hopes and fears as well as having a guiding hand.

James

Nice if you can dodge the drops, though …

Karen

Of course, we’d all like to have a smooth upward curve on our investments but realistically…?

If clients need to invest in the market the risk has to be within their comfort level (you see this referred to as risk profile – that is regulator speak which means nothing to most clients – rant over!) but its important to go further than that – can they afford to take that level of risk? What does their position look like if the market crashes? And conversely – do they even need to take any risk? Some clients could leave their wealth in cash and still be able to achieve everything they want – it’s interesting you end up having totally different conversations about risk.

At times like these client’s who have a plan, revisited at least annually, that’s been tested for worst case scenarios tend to be able to tune out the ‘noise’ more easily.

James

I guess that was why the collaborative movement was a good fit for the financial planners; the work that the lawyers were learning to do around auditing interests was clearly what you were very comfortable with as you had been doing it for years …

Karen

For sure and because of other things too – we were able to get involved earlier; the numbers were being generated from a neutral source (rather than numbers being generated in competition from each side, which is where a lot of the negotiations seem to get bogged down) and because we were probably better able to help clients focus on where a solution left them individually rather than focusing so much on whether the outcome was absolutely balanced and fair on each side which is where the legal battle so often ends up and that is a tough thing to agree over.

James

We should be doing better at importing those parts into the work that is now being done, collaborative or not.  I guess it would be an easy fit into mediation …

Karen

Yes I don’t know that there is much of that being done right now but it would be a good way forward for many couples.

So when a couple separates, we would see this as just a challenge for the plan; one that requires a lot of recalibrating because goals that were realistic as a couple may need to be abandoned as the resources are shared … but there are some upsides too, in that some couples have really quite different values and approaches and finding the plan that works for them both during the marriage can be tough too; now they can each plan for themselves and they are released from it all being a compromise.

James

… yes we see upsides in the parenting of children – often one partner has been focused on earning but now very much steps up as a parent and each of them can start to provide their own parenting rather than a joint structure that may have struggled to accommodate each parent’s approach.

But going back to the investment drops …

Karen

Yes, provided people are well diversified in good quality assets ie they know what’s under the bonnet – it would be easy to forget the 2008 sub-prime crisis and more recently the Neil Woodford experience, we know that they are going to come through with these assets intact and then they will float upwards with the market as it recovers.

I will send you a chart that shows that over time things broadly come good again.  This crisis will have aftershocks depending on whether we face a longer period of lock-down or further lockdowns as the virus returns before we have an effective inoculation programme but if history is anything to go by…

James

So that would sort of suggest that the lockdown on negotiations, settlement or final financial hearings that some people are advocating is misplaced?

Karen

I think it is early days.  There will be some situations where there is no need to slow up at all … provided that first you have identified whether there are investments that are likely to go to the wall and perhaps secondly ensured that you are doing more of dividing asset categories, there is no reason why people’s lives must be put on hold until there is some sort of magic “the market has stabilised” moment, and it’s impossible to see that until well after the event.

At its simplest, you can see how an equal sharing of a pension for a couple of similar ages in their 50s is unaffected by the market drop.  You would still be doing the same thing more or less.  At the other end, I can see that fixing maintenance to meet needs for someone who may not even have a job in 6 months’ time is pretty problematic.

James

And of course there, with the maintenance, you would have the facility to vary the provision – so I just guess we are going to need to construct solutions that are more robust to meet the changes that may lie ahead.

Karen

Precisely… and help people to recalibrate their goals, but I think also get in some expertise on these investments so that people know what they are dealing with … whether it is bouncy and risky or something more steady and resilient.  There is a place for each and all that we would want is for each person in a negotiation to know what they were getting into.

James

I get it – often challenging if one party has been in charge of complex investments and the other is playing catch up …

Karen

Yup – the catch-up side, at least, would do well to have financial planning expertise into their team at a relatively early stage to help build clarity around the options that are most suited to their goals.

James

I hope that more of us will have that in mind… thank you and stay safe and good luck with finding those egg-laying chickens.

Karen’s follow up email:

Emotions are running high – for those of us that lived through the financial crisis of 07/08 it’s all too familiar. None of us have a crystal ball but the global equity market falls we’ve seen since January of 23% (at time of writing) are still well below some of the biggest market decline’s we’ve seen since 1970.

The table below shows the depth, and recovery time, for the five largest falls in the MSCI World Index since 1970.

Data; Global equities – MSCI World Index (net div.) TR in GBP from Morningstar.

James Pirrie is a director at Family Law in Partnership. He specialises in complex financial issues and non-adversarial and cost effective approaches to divorce and separation including mediation, arbitration and collaborative law. He helps clients take control of the issues that affect them, clarifying priorities, exploring all the options and identifying the best way forward. Contact James at E: jp@flip.co.uk or T: 020 7420 5000.

If you have concerns surrounding your divorce settlement amidst the Coronavirus pandemic, do not hesitate to contact us.

Karen Ritchie is a Relationship Manager at Creaseys Wealth. She specialises in comprehensive financial planning for clients in London and the South East. ie: what does the ideal life look like and how do we use what you have to get you there… Contact Karen at E: karen.ritchie@creaseys.co.uk or T: 07769 200527.

Take a look at Creaseys’ Covid-19 help page here.