Advisers predict Osborne’s pet projects set to suffer post-Brexit

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Now that the initial shock of the UK’s decision to leave the European Union has died down, markets and the wider financial services industry are waiting with bated breath to see how the Brexit negotiations play out.

Money Marketing has produced a research report which aims to explore what advisers make of the post-Brexit landscape, and how this is feeding into the retirement and investment advice they give to their clients.

With Theresa May’s Government in place to oversee and secure the UK’s withdrawal from the EU, advisers believe this represents a chance to review the programme of pension policy reform set into motion by former chancellor George Osborne.

Advice firms are less than convinced that key initiatives such as the Lifetime Isa, the creation of the secondary annuity market and reforming the pension tax relief system should continue.

We are in the very early stages of what is likely to be a protracted, complex process, one for which there is no blueprint. With that in mind, many advisers are waiting for more details on the direction of travel on Brexit before overhauling their advice processes.

However, there are already signs at the fringes that advisers are beginning to adapt the advice they give to clients in light of Brexit.

Who we surveyed for this report

Do you research/advise on pensions business?

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All respondents in our survey currently advise on pensions or are involved in researching the pensions market. The majority of those surveyed (64 per cent) are advisers, with paraplanners, administrators, and those involved in compliance, technical services and pensions guidance roles also represented.

The Brexit impact on firms and policy

Do you think Brexit will have a positive or negative impact on future financial services legislation?

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Given the raft of unanswered questions in the wake of the Brexit vote, it is interesting to note there is some optimism that the UK’s withdrawal from the EU will end up benefiting financial services policy in the future. Around 30 per cent of respondents believe Brexit will have a positive impact on the regulation governing financial services, which rises to over a third (34 per cent) among the advisers surveyed.

Which business type do you think will be the most negatively impacted by Brexit over the next year?

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Following the rollout of pension freedoms, demand for advice was already high even before the EU vote. Coupled with the need to make sense of what Brexit means for clients’ portfolios, advice firms are confident their business can withstand any fallout. Just 8 per cent of advisers believe the advice profession will suffer a Brexit hit.

Banks are forecast to be the worst affected, with 59 per cent of respondents believing this to be the case. This may reflect an awareness of the difficult environment lenders find themselves operating in, with interest rates bumping around a little above 0 per cent, and the pressures that puts on margins for mortgages and savings.

What impact do you think Brexit will have on existing pension policy?

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Over half of those polled (55.4 per cent) expect pensions policy to be reviewed ahead of the UK leaving the EU. This expectation is supported by the fact there is a new Cabinet team in place, and particularly by the appointment of Philip Hammond as chancellor and Richard Harrington as pensions minister. Of those who are expecting a pensions overhaul, 42.5 per cent believe pension policy will stay as it is this year, but will reviewed before the EU exit.

What future for Osborne’s pet projects?

Do you think the new Government should…

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Advisers believe the Government should take the opportunity to revisit some of the key planks of pension policy set in train by the previous government and by former chancellor George Osborne.

The overwhelming feeling among respondents was the Government should ditch plans to create a secondary annuity market, with 64.7 per cent of firms calling for secondary annuities to be scrapped.

There is also a sense that the launch of the Lifetime Isa, originally set for next April, should be reviewed. Over half of those surveyed (52 per cent) would like to see the Lifetime Isa abandoned. The ongoing question of whether and how to reform pension tax relief continues to divide advisers, with 51 per cent believing now is the time to create a more sustainable system and 41 per cent arguing to maintain the status quo.

Risk appetite among advisers post-Brexit – and how they are adapting their advice

What do you think the impact of Brexit will be on your investment strategies with clients?

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Around three in 10 respondents (29.5 per cent) expect to position clients’ portfolios for a lower level of risk on the back of Brexit. The proportion falls to less than half (14.1 per cent) for those planning to chase higher returns with the accompanying higher levels of risk.

Post-Brexit, do you envisage any change in your…

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Most advisers polled do not expect their advice to change significantly to reflect Brexit, whether this is retirement advice or investment advice. However, there are some advice firms that do plan to adapt their advice, with 30.5 per cent of respondents planning to change their investment advice and 23.9 per cent looking to change their advice to retirement clients.

What advisers say about post-Brexit advice

Advisers who plan to change their retirement advice to clients are wary about the risks of clients retiring now amid potential market fluctuations. The recurring themes among advisers are about taking a more cautious view on the required levels on income and the investment strategies needed to deliver this, as well as taking a longer-term view on retirement more generally.

The picture is more mixed on the benefits of guaranteed income. For some advisers, annuities still provide the security clients will be looking for. However, for many advisers, the concern is the post-Brexit environment will lead to lower annuity rates and volatility for clients in drawdown.

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Concerns around volatility are also borne out among advisers adapting their investment advice to reflect Brexit. Again, caution and cash are the key watchwords, alongside the perhaps inevitable reductions to UK exposure.

Given advisers will likely be chasing returns over longer time horizons, they are braced for some challenging conversations with clients.

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How do you envisage clients’ attitudes towards risk changing post-Brexit?

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Almost half of advisers believe that Brexit will result in clients opting for less risk than before the vote. Just 7 per cent think clients will look to capitalise on Brexit and will be keen to take on a higher level of risk.

Rate cut is not enough to shore up economy

Will an interest rate cut boost the UK economy?

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The Bank of England has taken the unprecedented move of cutting interest rates even further to 0.25 per cent, as well as announcing a separate set of stimulus measures. But ahead of the Monetary Policy Committee’s decision, advisers were largely sceptical about an interest rate cut delivering the boost that is needed following Brexit.

Almost seven in 10 advisers (68.3 per cent) do not believe a rate cut will kick-start the economy. With the exception of the August rate cut, interest rates have stayed stagnant since March 2009, and advisers say the prolonged low rate environment has created a kind of “immunity” to further cuts. One adviser commented: “The low level of interest rates is a statement on the economy, not a lever.” Other advisers echoed this sentiment, saying the rate cut is “too little too late”.

Do you expect post-Brexit market volatility to continue into 2017 and beyond?

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Despite the conviction among advisers that their advice is unlikely to change in light of Brexit, there is still consensus that the vote to leave the EU will continue to move markets over the coming years. A massive 86.8 per cent are expecting market volatility to continue beyond next year.

The old adage that markets do not like uncertainty seems to be driving this belief, alongside the expectation that Brexit negotiations will be protracted and complex.

The model the UK chooses to adopt for leaving the EU, the interaction between European and UK financial services regulation, whether the passporting regime will remain intact – these factors and more are expected to feed into markets next year and, most likely over a longer time period.

What advisers are saying on how Brexit will move markets

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Methodology

Money Marketing, in partnership with Scottish Widows, carried out a research project to examine the implications of the Brexit vote for pensions and investment advice.

A total of 258 respondents set out their views as part of a comprehensive online survey, which was carried out between 26 July and 8 August 2016.

Two-thirds of those surveyed are advisers, with the remainder involved in pensions research and working in roles such as paraplanning or technical support.