Last week's UK budget has been widely seen as a political budget designed to set the parameters for the country's general election, due next year. Chancellor Alistair Darling's headline-grabbing increase in interest rates for the wealthy (the top rate is now 50%) was certainly a knee-jerk reaction to political rather than economic problems.
But while one government is using a tax rise as a fig leaf to claw back some of the money spent on various bank bailouts, it raises a couple of important questions for wealthy family investors – firstly: did your knee jerk as a reaction to the economic problems rather than a fundamental change to your family's investment philosophy?
According to Britain's Institute for Fiscal Studies, the new tax could actually cost the country money as opposed to raising the estimated £2.4 billion a year. It argues people will be tempted to retire earlier, emigrate, invest in tax avoidance and increase charitable donations. This leads us to the second question: Are you sure that the decisions you and your investment managers have made have not cost your family money in the future?
According to the Merrill Lynch/Campden Research Single Family Office Survey 2009, 65% of SFOs changed their investment strategies as a result of the credit crunch. This is unsurprising on many levels, particularly given the severity of the losses sustained by many families. It is likely that many will have withdrawn from more risky assets – indeed the over-riding investment story from the research was a flight to the safety of cash.
If this is not the case with your family's wealth, then now is the time to step back and reassess. The raison d'etre of the family office is to preserve wealth for generations to come. For those lucky enough to have several generations of family to rely on, their input could be invaluable – they will no doubt tell you that the current crisis is not the first and won't be the last. Now is the time to hold firm and fine tune your investments. Wholesale change is not the answer.
The latest pandemic flu scare provides an interesting analogy. Swine flu is new to most of us, just as the credit crisis looks different to economic crises of the past. However, we can also remember recent scares over SARS and bird flu – yes they affected some people, but the majority have not been affected in the long term, nor have they needed to change their lives. Grandparents will remember the flu pandemic of 1918 which is estimated to have killed some 50 million people, which reminds us that the worst can happen. However, the world gets over it eventually and reinvents itself.
Crucially, we are better prepared today to combat any crisis, economic and medical, than we have ever been. Governments and their latest tax rises will come and go, but family values and investment philosophies are timeless, so make sure you don't make a pig's ear of the wealth invested for your family's future.