Advisers prepare for Brexit

23 Jul 2019

How can advisers prepare for Brexit?

Brexit has long been a concern for many financial advisers and their clients.

A poll published in City AM in late 2018 found that the majority of advisers had concerns about the impact of Brexit on their businesses, with 63% stating it will have a negative impact.

So, how can you ensure you and your business are prepared for the UK’s probable departure from the European Union? Keep reading for some essential advice.

Ensure your advice remains robust and suitable

In uncertain times, clients look to you for guidance and advice. While this gives you an excellent business opportunity, it also means you bear the increased responsibility of managing your clients’ affairs carefully and proactively – and compliantly.

As an adviser, you have to demonstrate that your advice is in the best interests of your clients. So, during a period of uncertainty such as Brexit, you need to carefully consider all your recommendations to ensure that the advice you provided to clients remains suitable.

You and your business may also need to review your working practices to make sure you have up-to-date documentation that demonstrates all your professional, regulatory and legal obligations have been satisfied.

For example, you might speak to your client over the telephone to reassure them over their investments during this uncertain period. Could your client later argue that this was a personal recommendation or that you created an ongoing duty of care?

Think carefully about international investments

One of the key financial repercussions of Brexit is that there has been plenty of volatility in the currency markets and the value of sterling has fallen.

Many experts have predicted that the value of sterling will continue to fall in the coming months, especially if there is a disorderly Brexit. Indeed, foreign secretary Jeremy Hunt has said that a no-deal Brexit could lead to a sharp fall in the value of the pound.

The fluctuating value of sterling can give advisers a headache, particularly with clients who have internationally-based investments. Volatility can have a knock-on effect on investment income.

In this period of uncertainty, do you have to review your advice to clients and recommend that domestically-focused stocks and funds may be more suitable than those invested overseas?

Prepare your clients for volatility

Preparing for Brexit as an adviser is likely to mean preparing your clients for volatility. Whether your clients have shares or share-based ISAs, they are likely to experience some uncertainty in terms of the value of their investments.

Many clients may decide to be more cautious in coming months, although this in itself can have a negative effect on returns. The Bank of England has already confirmed that it will consider reducing interest rates again if necessary after Brexit and this could reduce returns yet further.

Think about how you will deal with your international clients

Do you have clients overseas, in Europe or further afield? It’s estimated that as many as half of all UK advice firms have at least one client abroad, particularly as retiring to countries such as Spain, Malta, Cyprus and Portugal has become popular since EU free movement was established.

Brexit is likely to stop all UK firms ‘passporting’ their products and services across Europe. This means you’ll have to consider how (if at all) you will be able to continue to advise those clients who live in the rest of the EU.

If you’re a larger firm, you may have offices in the EU from which you can provide advice to your overseas clients. For smaller firms, however, it might be more cost-effective to become affiliated with a network that could help.

By Lyba Nasir