There is just one week to go until the EU referendum, and nearly everyone I speak to – from advisers to friends and family – appears to be suffering from Brexit fatigue.
Advisers, in particular, tell me that most of their discussions with clients at the moment revolve around how best to ensure investment portfolios are robust enough to withstand the market impact of whatever outcome we wake up to on 24 June. What is more, for those advisers with clients domiciled overseas, a vote to leave may have further consequences for their business model, depending on timings and the kind of outcome the UK negotiates with the EU.
At risk of prolonging the agony, we recently commissioned a survey by NMG on advisers’ attitudes to all things EU. In respect of voting intentions, a small majority (four in 10) would vote to remain, with the remainder either voting to leave, as yet undecided or preferring not to say.
The survey also found that nearly a third of advisers have clients that live outside the UK but within the EU, either permanently residing outside or splitting their time between their UK residence and their residence elsewhere. Thirty-seven per cent of these use the passporting arrangements to carry on business in another member state without the need for separate authorisation; the rest only advise such clients when they are back in the UK or do not give advice that is covered by a passport.
Although currently a significant amount of UK financial legislation derives from the EU, if the British public vote to leave it is likely the UK would have to accept EU-level legislation aimed at market harmonisation to gain access to the single market. However, this will depend on the nature of the negotiated settlement. With this in mind, those advice firms with clients outside the UK but within the EU should be paying more than the usual attention to the outcome.
Our survey also found remarkably low self-declared awareness among advisers of the latest developments on Mifid II – one of those EU directives that will significantly impact the financial advice sector. Only 8 per cent of those surveyed said they felt “very” or “quite aware” of the current proposals. This is in keeping with anecdotal evidence from conversations with our members.
This is understandable. EU directives are not known for being the most accessible and reader-friendly documents and we have only just seen much of the secondary legislation from the Commission. It also often feels as if the EU is very far away, while UK-level developments in the form of the pension reforms, for instance, seem more immediately tangible and relevant.
That said, key legislative developments such as Mifid II and Priips will alter current requirements in a number of ways. Although we have yet to see precisely how the FCA will interpret Mifid II, advisers will soon, for instance, have to engage with manufacturers on product governance, potentially reporting information on target markets, as well as keep records of telephone conversations and electronic communications with clients.
We are currently working with Tisa and a range of both product manufacturers and distributors to influence the FCA regarding the most sensible way to take the Mifid II proposals and others forward. There will also be an opportunity for advisers to feed in their views directly to the regulator when the consultation paper on the implementation of Mifid II comes out in Q3 this year.
Although it may be tempting to defer engaging with EU policy decisions for a variety of reasons, I would urge all advisers to start to think about the new EU legislation regardless of the outcome of the upcoming referendum.
Caroline Escott is senior policy adviser at Apfa