WealthBriefing.com: UK wealth sector has no need to get into a Brexit panic; uncertainties show value of advice

17 May 2017

The wealth management industry in the UK hasn’t reason to be scared about Brexit although some firms may struggle to get the talented staff they need to sustain growth, a roundtable discussion in London heard recently.

The industry should be able to adapt to the changed landscape caused by the UK’s departure from the European Union, although the sector will need to start making decisions relatively quickly, as the two-year period between the triggering of Article 50 and the actual departure deadline will pass rapidly, the roundtable, held by Multrees Investor Services, heard. Multrees is a specialist provider of consolidated reporting, investment administration and custody solutions.

The roundtable, at which your correspondent was present along with some other journalists, included speakers from Multrees, Lincoln Private Investment Office, Sandaire and Stonehage Fleming.

“Why would we change a lot if we don’t have to? If we maintain strong compliance and regulatory standards here, that should work. I’m not sure that the wealth management industry is going see a lot of clients withdrawing money from here and going to the EU,” Nigel Pilkington, chairman of Multrees, said.

Discussants seemed to broadly agree that the wealth management industry enjoyed a cluster of mutually-reinforcing benefits to being in London – language, law, communications proximity, timezone, culture, liquidity, relatively-light taxes and political stability. In combination, these factors gave London a formidable advantage in wealth management, even if certain regulatory and other complexities arise because of Brexit.

Ross Elder, managing partner of Lincoln, said there was a relatively tight timetable for the industry to consider; when holidays and other issues are taken into account, the UK doesn’t have two years to prepare for Brexit. “I don’t believe it is feasible for [the industry] to do it in that time,” he said. Perhaps paradoxically, the uncertainties of the present time underscore the need for high-quality advice.

There is considerable uncertainty, judging by conversations in the sector, but it is unclear that Brexit will be a negative overall for the industry, Alexandra Altinger, chief executive officer of Sandaire, told the roundtable.

Stonehage Fleming’s Matthew Fleming, a partner at that firm, said that an issue he wanted to focus on was what he called “the marginalisation of a generation” - referring to young adults feeling that they were being sidelined by developments such as around Brexit. “Some of them are feeling quite bruised by the experience and trying to understand where they fit in,” he said.

On another “international” theme, attendees at the roundtable were asked how the UK’s clampdown on non-domiciled residents, along with tax changes to foreign-owned properties and other developments, might have affected the UK’s status as a place where high net worth individuals want to live. Altinger said that she has found that there appears to be a stronger emotional connection to the UK among such international wealthy persons than had been appreciated. There hasn’t been a large exodus of people, she said. “We haven’t seen clients leave [because of changes to non-dom laws]. There are just not that many other options,” she said.

One of the ironies of Brexit, said Chris Fisher, chief executive of Multrees, is that the uncertainties and changes will give wealth management advisors a chance to prove their worth. “You have to look at this as an opportunity,” Fisher, who said he had voted for Remain in the 2016 referendum, said.

Fleming said he took a different view to some on the controversies of the moment: “We are looking after clients where they are thinking in terms of the next 50 years rather than the next three years.”

Regulation and governance

Discussion took a turn away from Brexit and tax to the current waves of regulatory activity and compliance burdens associated with it. Altinger noted that the UK in some ways is at the forefront of understanding around “conduct risk”.

It is an issue of business research and development to be able to keep pace with the flow of regulation affecting financial services, Hugh Mullan, Multrees non-executive director, said.

The regulatory trend has helped drive some wealth management firms towards companies such as Multrees, Fisher argued. “The pace of change of regulation is not going to let up any time soon,” he said, referring as an example to the upcoming updates to European data protection regulations.

Lincoln’s Elder said: “I think that's the risk on the front end side is that the regulation puts off wealth management firms from giving what is their best advice and opinions to their clients."

Active management

Turning to the age-old debate about the pros and cons of active investment manager versus the so-called passive approach, Sandaire’s Altinger said that she expected to see some return to the active approach, but not a full-scale return to traditional active management. It has now become easier than ever before to custom-build indices giving exposure to specific strategies in a relatively cost-efficient way, she said.

Finally, attendees at the roundtable discussed the current trend of interest in private capital markets, both on the equity and the credit side. An issue is that with more money entering these sectors, there is likely to be some compression on returns, as was seen over a decade ago in the hedge funds space.