We had the good fortune to sit round a few tables this week – round, horseshoe, oval and others – discussing the implications of the Brexit vote for the UK’s retail investment industry. Participants ranged from financial advisers to heads of sales at fund groups and heads of proposition at platforms.
Impact on advisers
We believe that Brexit will increase the demand for financial advice in the short to medium term. Change and uncertainty lead people to call in the pros.
Among the advisers we spoke to this week, the consensus was that there was an initial nervous reaction but that flows aren’t slowing and clients aren’t panicking. Some advisers even tell us they have had new business queries. One adviser had a query from a client who wanted advice on moving a pension to Spain, where he plans to retire in a few years.
The search for income continues. Among the advisers we spoke to this week, this challenge has intensified but not changed. The expectation is that most money will go to UK equity income funds (even for clients in decumulation) – though this has been an on-going shift rather than a result of the Brexit vote. Advisers also said they continue to get more clients asking for some kind of protection for their income.
Impact on platforms
Some adviser platforms tell us that call volumes spiked immediately after the vote but that things have since settled down. D2C platforms similarly saw spikes in activity after the vote and some say trading volumes remain high. Most platforms have seen the shift into cash-like products intensify since the vote.
The bigger problem for platforms is managing suspended funds. This difficulty has been exacerbated by the property fund suspensions, but it isn’t new. One platform boss we spoke to said that there are “soft closes every week.” The challenges posed by liquidity issues have been passed to platforms. Fund managers and DFMs have little incentive to get involved. The platform carries the responsibility and liability to get it right so why not pass it to them anyway? At their current margins, this is not sustainable for platforms.
Issues to ponder
The discussions this week reaffirmed for us that there is value in financial advice. What we are hearing suggests that some investors are reacting to the markets – rather than anticipating them – and making poor decisions. What can we do to help people make better choices for their financial future?
Platforms are performing broad functions. The more one is encouraged to think of them as just a technology utility, the greater is the temptation to drive price down. Recent events show them to be more than just a ‘piece of kit’ which should prompt platforms to re-evaluate the prices they charge in line with this new thinking.
Some platforms may therefore try to increase fees. Will the customer pay or will the adviser fee come under pressure to keep the total cost of ownership the same? Or will the pressure come at the other end of the supply chain, with retail fund managers and DFMs feeling even more pressure?
Finally, MiFID II has been primarily designed for the continental bank distribution model, although the UK influence is clearly visible. We will be subjected to MiFID II in the short term regardless but not necessarily thereafter.
In time, some UK retail investment firms may benefit from being free of it and the UK may want to go in a different direction altogether. Hitherto the UK regulator has gone further than EU rule-makers on many fronts and so may ‘gold plate’ MiFID II, even if we’re out of the single market. So it is essential that we are at the table as an industry, presenting our arguments cogently and consistently to our regulator and the new government – something we haven’t always achieved in the past.
We will be discussing these and other meaty topics at our Platforum 2016 conference on 11th October. Today is the last day to benefit from the early bird discount, so do please register now. We also have some marvellous sponsorship opportunities available – get in touch if you are interested.