A liability perspective: what would Brexit mean for financial advisers?
You cannot pick up a paper or check the news without seeing some reference to Brexit and the case for either staying in or leaving the Euro zone.
My own position is a rather underwhelming enthusiasm to stay put. There is no doubt that the Eurozone is not perfect - far from it. And the bureaucracy, the cost, slowness of change, imposition of regulation (particularly relevant for advisers) and difference in views between member states are all frustrating. But query whether these frustrations exist within faster waters than if we cut ourselves adrift.
Whether we're safer in or out of Europe is beyond my grasp. And there are no end of stats about the economic benefits of being in or out. Lots has been made about taking control back of our borders and it is difficult to know how much weight should be given to this issue. It is obviously highly relevant given what is happening in Syria and the level of net migration but any immediate benefits given the relevance of immigration today has to be balanced against tomorrow's topical issues and whether we would be better in or out in those unknown scenarios of the future. An impossible question to answer.
For Britain, the renegotiation (if legally binding according to Mr Gove...) cements its unique relationship with Europe. This in itself is attractive for those wanting to trade with Europe but maybe from the fringes - a decent place to be.
As interesting as I find my own views on staying in or out there appears to me to be only one certainty with Brexit and that is uncertainty. Which brings me at long last to the relevance of this financial services blog!
History tells us that uncertainty is not good for financial advisers as an industry. Markets become erratic, advisers are advising in the context of a less predictable future and people are more cautious about investing their hard earned cash (particularly if they are seeing losses). All in all, advising clients in an uncertain world is more difficult.
There are advisers out there who will say I have it all wrong and that uncertainty is good - it creates an opportunity for bigger gains. And that might be right. But the dilemma I understand most advisers face at the moment is that most investors want a return over and above their risk appetite (however wealthy or sophisticated they might be). That pressure on advisers will only be exacerbated in an uncertain world post Brexit – even more so if erratic markets mean people see their unlocked pension funds fall even more in value creating worry about long term security. Losses are a factor that trigger complaints. The stats show a correlation between the FTSE performance and volume of complaints. And whilst much of our regulation comes from Europe, I wouldn't expect much change in the approach of FOS or the FCA.
So what should adviser firms do in the event of Brexit. Well probably not much different to what they're doing at the moment and have been doing during the recent uncertain times following the 2008 crash. Advisers are probably well equipped to cope with advising in uncertain and difficult times and we're seeing a real improvement in documentation and the quality of firms' suitability letters which helps no end when it comes to responding to claims and complaints.
We still believe the FCA needs to reconsider its current approach to consumer responsibility and this was a point made in a FAMR response paper we were involved in drafting. In our view, Brexit would add to the mounting rationale for the FCA revisiting consumer responsibility (the most notable other rationale being pension freedoms).
I'm prepared to accept that staying in fails to deliver any promise of greater rewards. But having grappled with RDR, MiFID II, the credit crunch and the seemingly continuously changing world of pensions (of which expect more post budget!), firms well deserve a period to bed down the changes these events have brought without the uncertainties associated with Brexit.