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I recall crisis management expert Kym Lynch once said of adapting to a crisis: “It’s BAU (business as usual), but not as you know it. You have to do everything better, faster, and the stakes are much higher.”
1. Market Feedback
Intelligence about the impact of COVID-19 on specific financial services sectors, not published by media.
A. Longer range planning across sectors for potential structural shifts
Sources as diverse as fund managers, super fund executives, and small business owners in non-financial sectors are increasingly thinking about longer range planning, adaptation and how – not if - the way we live, the economic and business landscape and consumer behaviour will change.
We've mentioned this in briefing notes before but it’s now a more dominant theme.
Senior people I talk to are mindful that alarming commentary to clients or the market would make a difficult situation worse. The great unknown in your thinking is how long, and how, the health crisis will resolve. Finally, most of you find yourselves in uncharted economic territory.
Questions among professional investors and older retail investors increasingly turn to how governments will emerge from the debt levels created by stimulus. I’ve heard and read references a few times now to the highly effective Marshall Plan which was implemented almost exactly 72 years ago on 3 April 1948 in the wake of WWII.
While there are many unknowns, many of you are looking for and starting to discern things you can plan around. Those include individual business or sector opportunities, re-use of assets, expected features of the economic landscape (e.g. lower growth for a longer term), the security of some income streams (e.g. essential services such as utilities), the potential systemic and structural shifts and what they might mean for investor sectors.
B. Super funds
Despite concerns about liquidity and the long-term prospects for some previously “safe as houses” assets or asset classes, many super fund members' assets have not decreased by more than low double digits.
One driver is the conservatism built into some portfolios (which can in turn correlate with average member age) or the mix in even ‘high growth’ options.
While member engagement levels (inbound inquiries, comms engagement metrics) remain at historic highs, most feedback is that members are alert, but not alarmed.
One notable exception is where there’s a suggestion of a redemption or switching freeze. While some fund managers have become adept at foreseeing and managing investor equity issues in the face of liquidity challenges, this is new for most super funds.
There are good regulatory reasons for this. Fund managers have had to manage through market disruptions and plan for, face or act on redemption freezes, closure, proportional redemptions and other equity issues that arise in a specific fund or asset class.
This is genuinely new for highly diversified larger investors and thus needs careful management decisions and member communication. Critical media won't help in that.
C. Funds management
One emerging theme among professional investors is the difficulty of portfolio construction in an environment where the stability of public health is at question. The very real effect on asset classes is to reduce traffic of all sorts, and reduce commerce of many sorts, although there are some areas that are benefited. The flow on is making it hard for even the most seasoned investors to construct or adjust portfolios.
“Diversification” also just become harder or impossible. There’s some “damned if you do, damned if you don't” element to adjusting portfolios, and staying liquid vs taking risk that might be rewarded.
The general view is that maximising cash is a “no regrets” move. Some are turning their attention to where opportunities will emerge or where assets classes or assets have performed well. Some essential infrastructure has held up well and will continue to do. Some infrastructure seriously affected short term (e.g. ports) may well see a V-shaped recovery when consumers and business return to more normal behaviour.
While professional investors we talk to are looking for opportunities, they appear reluctant to move on them anytime soon. Markets are likely still underestimating how long containment measures will last, and how long it will take to ‘get back to normal’.
As they see better news about ‘peaks’ across many regions, investors can see optimism in markets. Investors believe we’re unlikely to see a general ‘all clear’ and resumption in activity. Rather this will be staggered between regions, countries, industries, suggesting a slower ramp up than originally hoped for.
For local investors, the aim now is to manage liquidity and protect clients’ portfolios from market losses as well as from individuals’ reactions to those, such as selling down at the wrong time.
Liquidity management will be key in the coming months as funds look to navigate the federal government’s COVID-19 assistance scheme where members may apply for early release of their superannuation.
Many clients are looking to their established active managers to access new and/or different products e.g. global fixed interest managers are being asked about high-yield loans and government securitised assets to capitalise on pricing anomalies.
D. Quantitative fund managers
One client is working with a new tech fund that is seeing positive returns. This is a defensive product designed to work on short timeframes.
Overall, investment models won’t change dramatically considering COVID-19. They will look at managing risks, but not changing entire models.
E. Life insurers
This week, the Financial Services Council announced a commitment from Australian life insurers ensuring frontline workers were not prevented (via exclusions) from obtaining life cover due to their exposure to COVID-19.
Many life insurers already do not have these exclusions. They fear, however, that the publicity of this commitment by an industry body will tip their book towards majority high risk members. This means that if they have a heavily weighted book, the insurer may eventually find themselves in a financially unviable situation.
Fears around promising a certain level of cover for a very high-risk group may put their existing policy holders at greater risk
2. Management responses
This section outlines how CEOs and their leadership teams are responding.
A. Record engagement levels
Leadership teams and their marketing teams are thinking carefully about how to use record investor levels as call and click through rates and other engagement metrics are at all-time highs. It may well be that we need new benchmarks for these in this environment.
B. Other PR agencies
Listening to a group of PR agency leaders in a conversation with government yesterday, a few clear themes emerged in terms of best practice responses outside financial services. These mirror what we've seen at BlueChip:
- Importance of solid crisis management plans with escalation levels
- A shift toward command-and-control, where the MD is the temporary and much more involved team leader
- The challenge for some internal teams to adjust to the required pace, given how different it is to business as usual (BAU)
- The relative ease or difficulty of this adjustment correlates to how much change and or live responses management teams have previously seen, and their natural pace
- The strain normal communication mechanisms have been put under across businesses outside financial services. We hear from technology, government, and other areas that the speed and efficiency of information sharing between stakeholders has directly affected how well they were able to respond to the unfolding issues and
- A much greater emphasis on competitors, value chain participants and stakeholders in order to improve the effectiveness of responses.
Digital capabilities
A global fund manager client had been seeking to launch new company intranet in January, but was pushed back. Now would have been ideal for this intranet to be online – instead it’s a good lesson in the importance of forward planning.
3. CEO guidance regarding coronavirus responses
This section provides our guidance on management and communication responses.
1. Collaboration opportunities with competitors/peers
Are there opportunities to use third parties such as BlueChip, member associations etc to connect with your peers? You can set up learning platforms that let you gather intelligence, calibrate your response and find solutions to problems. Normal competitive restraints are being waived for the greater good.
2. Real time information sharing
Are you using technology such as video to its full potential? Many virtual meetings would benefit from greater use of video rather than phone/audio only connections, because humans can better read each other with visual face to face contact.
If you’ve got team members avoiding video, how can you change this? Are they wary of showing their home in the background, and could benefit from Zoom’s virtual backgrounds?
3. Pace – how to speed up BAU sustainably
Collaboration mechanisms, workflow tools and agile methods help your teams with the infrastructure they need to do what they were doing before - but faster and better than ever.
Some teams don't accept that as a starting point and find themselves having to lean into that challenge. When fatigue sets in, teams can be even more change adverse than before and finding it hard to keep up with the pace.
It's time now to:
a. Map and simplify processes to remove "busy work" or non-value adding activity, simplify and automate (such as standard client investment commentary or regular mailings). This will free up capacity for more agile comms elsewhere.
b. Set responsibility for external scanning: we all must pay extra attention to government policy developments (e.g. superannuation, life insurance) in business decisions, communication and media. With policies changing daily or weekly at both state and federal levels, you may need a dedicated information analyst function to stay up to date.
c. Ask what can be done better. And as Kym Lynch would say, faster - and the stakes are higher.
4. COVID19 RESOURCES
- A webcam presentation guide
- BlueChip’s financial services communication resources, including these CEO guidance notes
- COVID-19 Communication Response Kit (free to clients or for purchase)
- Crisis management team set up: roles, disciplines & skills
4. Appendix: How to help us help you
This briefing is collective intelligence gathered, anonymised and shared with you by my firm for the greater good. We’ve taken the view, based on client feedback, that the collective benefit to you all takes precedence over normal competitive pressures at a time like this.
This is an excerpt from one of our client COVID-19 CEO response briefings. For more COVID-19 response resources and guidance, visit our COVID-19 Response page.
If you’d like to discuss adjusting your communication strategy for the current times, please call us or fill out our contact form here.
