Chris Davies: The industry is braced for a hard Brexit

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The phrase “Beware gurus bearing gifts” is particularly relevant as we head into Brexit. A focus on what the industry itself can influence rather than a reliance on third-party sources will be helpful.

Following the Conservative party conference, we now have the latest on when Article 50 will be triggered and what type of Brexit will emerge. It is looking hard, not soft, which means no access to the single market and the Great Repeal Bill revoking the 1972 European Communities Act to give EU powers in Britain.

So what are the pros and cons for our industry, our business models and our clients?

Industry confidence

There are plenty of “dark nights for the soul” coming up, where businesses will be exploring how to manage a hard Brexit. Some ideas we have floated at board meetings allows firms to assess what-if? scenarios and play them out against the market sentiment. Thus we have:

  • A requirement for ensuring passporting activities remain, which means the Government ensuring the UK has third country rights that fulfil passporting benefits (i.e. establishing a presence abroad)
  • Ucits are integral to the UK wealth management industry, so a fast answer is required on continued marketing of those funds domiciled in the EU
  • Tax affairs require attention. VAT is an obvious issue where the UK could blend in different levels or draft in exemptions. There could be an import VAT for goods to the EU. The EU is pushing for a harmonisation of corporate tax, or a Common Consolidated Corporate Tax Base. UK sovereignty and the push for lower corporate tax rates could benefit SMEs
  • A consistent and committed regulatory environment is essential to manage turbulence and expectations. If the regulator can provide enough carrot (along with a smaller stick) then a predicted brain drain of talent can be avoided and businesses can be confident they can continue to practice in a stable environment.
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Business models

With the onslaught of financial technology businesses adopting “enabler tools” that allow greater reach for distribution of services, there are a number of opportunities and risks to be addressed:

  • With the FCA demanding data storage in the EU, data privacy and cross boarder data management need careful attention
  • Low interest rates and annuity rates means there needs to be a focused and specialised proposition for those firms offering retirement planning
  • There is going to be “distribution turbulence” post-Brexit, so assessment of the impact on investment decisions and capital requirements is vital
  • Client communications need to be smarter than ever before, focusing on the value of the services offered. This means advisers should play on the excellent work they do in developing close client relationships
  • Service and investment propositions should go back to basics, offering quality, value, diversification and “time in the market, not timing the market”.

Client engagement

With the above points in mind, the industry now has a responsibility and an opportunity to meet client concerns and needs like never before. Clients need answers to the question, what is in it for me? A focus on professional best practice, soft skills and specialist services will help them feel heartened by a service that can put their mind at rest. By ensuring efficient and streamlined operational practice firms can now service their clients more efficiently than ever before.

  • Online client portals allow 24/7 interactions with secure and recorded messaging
  • Open APIs allow integration of technology across the business, so data is clean and can flow easily providing meaningful management information
  • Designing a digital client framework to facilitate seamless services online and offline will ensure client concerns and needs are met head on (see the diagram below).

Interpersonal skills are often overlooked and discounted but whether offering online or face-to-face services firms need to ensure their client relationship managers have the very best soft skills. Emotional intelligence is the best benchmark, ensuring self-awareness, self-regulation, motivation, empathy and social skills are constantly utilised.

Chris Davies is managing director at Engage Insight