Will Covid-19 Lead to a Larger Wealth Gap?

Technology is Helping to Stay Connected

Like many of you I have been communicating with my family a lot more via social media, whatsapp and video conferencing over the last number of weeks. Recently, one of my cousins started a 'Cousin Chat' for our family in a whatsapp group.  One thing that we can certainly be grateful for right now is that this crisis happened in an age where our technology is advanced enough to keep us connected.

Can you imagine if this crisis happened 15 years ago or longer? With family members across the world ranging from Winnipeg to Laguna Beach, Manchester England and all the way to Adelaide Australia and various places in between, technology is helping us all to stay in touch and keep each other entertained.

In a family like ours, we are also often up for a good respectful political debate and I can tell you honestly that we have a wide range of political opinions in our family, something that I am also grateful for. Recently, one my cousins sent a link to a CNBC interview with Social Capital CEO, Chamath Palihapitiya, where he discusses his opinion on whether or not big corporations like the airlines should be bailed out during a crisis the likes of what we are currently facing. Here is the link if you are interested in watching: https://www.youtube.com/watch?v=NvEWez59fbI.

What Happens When a Company Files for Bankruptcy?

Palihapitiya argues that we should let companies die rather than bail them out and that we are essentially only bailing out the wealthy. Research would show that letting companies file for bankruptcy, especially big companies like North American Airlines, will likely have a further reaching impact and that the carnage does not stop with wealthy shareholders. In fact it's likely that employees would see nearly a 70% income reduction over the following number of years after a company files for bankruptcy.[1]  There are many people who are still angry over the bailouts which happened during the financial crisis, and in my opinion rightfully so, but I will leave that for another day.

Covid-19 Fallout Comes With Many Consequences

One of the real catastrophes of these types of events in my opinion goes far beyond the initial event and materializes itself in a larger wealth gap in our society. There will be many consequences from the fallout of Covid-19, many which are yet to present themselves. Certainly we have seen how the stock market can react as at the time of writing this we have seen a large recovery but remain 15% down from our highs. I believe the market will recover as will the economy, we can be confident in that. We don't know when they will get back to full steam again but we do have a high degree of confidence that we will get there and so we believe this creates opportunities for those who are able to take advantage of them.

My key point in that statement is "for those who will be able to take advantage of them." The markets will most likely recover but for many people, their lives will take much longer to get back. The gap between the wealthy and the less fortunate was already a concern for many in our society and I fear that we are going to see that become even more serious after this crisis.

There are many people who are going to need the government subsidy programs to stay afloat as they have been laid off of work. Even for some who are lucky enough to still be working, their organizations may have cut back on bonuses or even hours and they may be forced to dig into their retirement savings. These people are not able to take advantage of the opportunity the investment markets might present which is completely understandable, because priorities take hold. What this leaves us with however is that the only people who might be left to buy into bargain investment prices are the wealthy and thus their wealth will continue to grow while others remain still or even drop.

The Lack of Available, Good Financial Advice

I don't write this to begrudge the wealthy for taking advantage, frankly I have been advising them to do so because it is the smart investment decision. But I do take note of this because it presents an interesting opportunity for our communities and our society as whole. If we start to think of this problem in a different way, as in let's stop trying to blame the wealthy for their success but rather try to help everyone else to achieve more success then we can look at these problems from a different angle.

I know that there are many reasons which lead people down different paths with varying results in terms of monetary success and I am not qualified to speak about all of the reasons which can lead to people live with financial stress, but I am certainly sympathetic to people in these situations. Something I am qualified to speak to though is the lack of GOOD financial advice that is available to all people.

In my opinion it is extremely unfortunate that good financial advice has historically been reserved for only those people that have large sums of money. This is something that impacts us all and is extremely evident today as now more than ever we see just how interconnected our lives our and how when certain groups of people suffer that it has a trickle on effect that can impact all of us. Taking away the many complex issues that can lead to challenging financial situations for people, if we are able to democratize good financial advice starting at early ages then that will have a positive trickle on effect as well.

With stronger financial households, people can better support themselves in tough times like we are experiencing today, which helps our economy to recover faster and ultimately leads to more consumerism and investment spending which helps our economy and markets.

For the sake of keeping this blog post from turning into a research paper, I am oversimplifying this but what I hope is clear is that in time we will need to start addressing the gaps that we are creating for different demographic groups. There are many reasons that these gaps have been created but one of the simplest ways that we can start addressing this is through good financial advice and guidance.

In my opinion it's about time that we started to democratize the world of advice and started offering the same opportunities for success to everyone.

- Grant White, CIM, CFP

Grant White is a Portfolio Manager/Investment Advisor at Endeavour Wealth Management with Industrial Alliance Securities Inc, an award-winning office as recognized by the Carson Group. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families.

This information has been prepared by Grant White who is a Portfolio Manager for Industrial Alliance Securities Inc. (iA Securities) and does not necessarily reflect the opinion of iA Securities. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered.

[1] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2276753