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Chris Davies: Meeting Brexit business risks head on

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Well, one thing is for sure: after a summer of little movement on the matter there is still a long way to go in terms of leaving then EU. With this in mind, the vast amount of “white noise” around the implications of the referendum outcome is unhelpful to say the least.

We have had views on negative interest rates, low annuity rates, people rushing to cash in pensions and a general crisis in confidence. Indeed, it seems we are now all constitutional experts with opinions on what Brexit will look like.

What we should be most interested in, however, is ensuring the current and potential future risks and opportunities are met head on. In managing change in any capacity, we must be sure of a number of factors before deciding on a strategy going forward:

1. Supplier strategy

What is certain is there is still going to be aggressive activity in the market to secure distribution. One area on the up is direct provider offerings, with the “man from Aviva” being a prime example. Those firms with the resources to go direct along with the rise in financial technology will now gain traction in an uncertain market

2. Competitive rivalry

Tied into point one is the fact more firms are eyeing a vertically integrated model as the most secure in current market conditions. You only have to look at St. James Place to see how profitable and robust this model can be. This will mean the consolidators working hard on M&A activity. In addition to this there could be an increase in orphan client acquisition. Adviser firms need to ensure they have their strategy engaged around their own end game and secure tight terms and conditions to manage client relationships.

3. New entry threats

The evolution of financial technology is well underway and we have plenty of “disrupter” tools that can provide a genuine alternative to traditional advisory firms. With an uncertain future, clients may want to assess options deemed cheaper and easier to access.

4. Buyer power

As per the above point, we now have clients wanting the “what is in it for me?” or “so what?” questions answered quick and fast. Again, technology is one answer but so is an adviser firm’s professional service. Clients want reassurance right now. They will get this from advisers and wealth managers who can enhance their relationships with clear communication channels. They must showcase the value in their propositions by focusing on quality of service and products, diversity of centralised investment propositions and risk management.

5. Substitution threats

Last but not least, as we have seen, new technologies and government sponsored bodies such as The Pensions Advisory Service or the Money Advice Service can be viewed as a threat to existing firms’ propositions, particularly during volatile market conditions.

Direct consequences 

We also have direct consequences that need to be managed immediately:

1. Communication

A client communication plan should be in place already. This means communicating via different channels, including a dedicated Brexit area on your website, social media messaging and tailored review meetings and newsletters.

2. Distribution

Assess and review your firm’s market access exposure. Are any passporting arrangements and adjustments in pricing strategies required?

3. Finance

You also need to think about how Brexit will impact portfolio and discretionary manager investment decisions, as well how short-term volatility impacts the firm and what measures are in place to manage exchange rate risk.

4. Regulation and strategy

When it comes to regulation, what will the impact on Mifid II be? And will the FCA’s role in protecting consumer and calming industry nerves increase in importance?

5. Operations

In terms of your firm’s operations, will there be any impact on outsourced services, legal contracts and mandates? What documentation needs to change and how will cross border data be affected?

There are a whole host of issues that have befallen the UK financial services industry since the referendum. It is those firms that have already made the effort to build strong and trusted relationships with employees and clients that will come through these unchartered waters best.

Chris Davies is managing director at Engage Insight

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