In the run up to the UK’s referendum on 23 June to retain European Union membership, PBI asked select experts in the wealth management industry to give their viewpoints on how the ‘in’ or ‘out’ votes could impact the sector and the UK on the whole
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The run-up to the referendum deciding the fate of UK’s membership in the European Union (EU) will be reaching its crescendo in upcoming weeks as UK residents get ready to vote on 23 June.
The ‘Vote Remain’ and ‘Vote Leave’ camps have been loud and clear about the implications of the decision going either way. Leading politicians, economists and celebrities across the entertainment industry have taken sides and made not-so diplomatic predictions to sway voters.
What will the consequences of Britain staying in or potentially exiting the EU be on the wealth management sector? PBI gathers some diverse opinions.
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By GlobalDataMaking the UK attractive for the wealthy through Brexit
Caroline Garnham, CEO of Garnham Family Office Services
George Osborne, Chancellor of the Exchequer, has predicted that Brexit could cost the UK £200bn in lost trade and a further £200bn in foreign investment within 15 years. The announcements started with the Prime Minister stating that he had secured ‘fundamental reforms’ in the EU, which meant he could confidently put his weight behind the decision to remain in the EU. But the British people know that the EU is not set to change despite the claims to the contrary. The polls have not budged.
Our little rain swept island has created more jobs than all the other European countries put together and we are now the fifth largest economy in the world. We need to look at how countries outside the EU have fared and take a leaf out of their book.
Switzerland, for example is outside the EU and yet it has twice the GDP per capita than we have in this country. Can we take some of its policies and adapt them to our country?
First we could change our attitude towards the wealthy who are keen to live and buy homes in the UK. Rather than encouraging them to leave their wealth offshore we should legislate to incentivise them to bring wealth into the UK. This could be achieved simply by introducing an exemption from UK tax for all monies brought into the UK, which are invested or managed in the UK.
This exemption could then be extended such that any monies, which were brought into the UK but not managed or invested, should be charged to income tax – regardless of source. This would wipe out a lot of wasted time and effort in trying to work out the source of funds and the correct amount of tax payable. It would also be much fairer; taxing monies which are spent in the UK.
In line with this thinking, I would extend the exemption of the excluded property settlements to trusts with UK trustees which are managed or invested in the UK. The UK is the founder of the trust, and we should do what we can to make sure we capitalise on our creation rather than provide opportunities for offshore financial centers such as the Bahamas, Jersey and Cayman Islands to thrive.
In this way excluded property trusts would be much more transparent to everyone, would create jobs for our trained and skilled professional members and bring more monies into the UK to be managed. All disputes affecting such trusts would also have access to our UK court system and skilled lawyers.
The government could further encourage wealthy foreigners as well as those who are already living in the UK to bring monies into the UK by introducing an amnesty for all non-doms who are concerned that inadvertently they have not declared all monies which are offshore but the source of the funds is uncertain (but not illegal).
This would be particularly attractive in the build up to the Common Reporting Standard in 2017 when taxpayers would prefer to locate their wealth to a jurisdiction where the administration and compliance rules are well understood and properly applied.
What the country will decide on the 23 June, I have no idea, but I am concerned on two counts. First, if the country votes marginally to stay in, the uncertainty about the future of the EU will remain. Second if we vote to go out, do we have the political innovation in government to make going it alone the success I think the British people are capable of?
The adverse impact of Brexit
Guy Stephens, managing director, Rowan Dartington Signature
If we vote to leave, this will be an unexpected result and the most likely outcome on 24 June will be significant weakness in Sterling and a strengthening in Gilts as an interest rate cut becomes likely, as promised by Mark Carney, the Governor of the Bank of England.
The UK equity market will likely fall sharply and the analysis will begin as to which assets, sectors and companies stand to suffer the most. Note, there will be little time spent on where the gainers are, as human behavioural bias will focus on the negative. We are already seeing a buyer’s strike with regard to commercial property causing fund managers to move their fund pricing to a bid basis.
The motivation from Brussels to afflict as much frustration and obstacle as possible will be irresistible. There is every possibility that Boris Johnson and his band of Brexit brothers will achieve little during the two year period, so that Brussels can send a message to other potential EU defectors, be careful what you wish for. Meanwhile the UK will sleepwalk into default trade agreements which are most definitely inferior, and why would the EU attempt to prevent this.
As for the UK economy, it is difficult to see any positives during this period of uncertainty and negotiation. Those in the leave camp talk about the EU needing us more than we need them. However, when it comes down to terms of trade, one of the key aspects of free trade and the common market is no tariffs and a fair playing field for all businesses without any nationalistic anti-competitive behaviour – whether that be state assistance or barriers to trade within the EU.
Member countries in the EU will now be free to favour their own business sectors within the EU, and disfavour those in the UK, just as they are able to do in respect of any non-EU country that wants to import into the EU.
The UK will be on the outside, small and suddenly unimportant. The EU striking a deal with the US will rub our noses in our decision and cause further disadvantage to our trading position.
In a nutshell, the much criticised predictions of economic recession could well come to fruition as foreigners view the UK, no longer as the gateway to Europe, but as the ostracised member in exile where existing trade agreements are all up for negotiation. Not an attractive place from which to trade with Europe. We may be able to negotiate our way through this, but it will be a long and arduous process.
Time for investors to ‘Brexit-Proof’ portfolios
Nigel Green, founder and CEO of deVere Group
As Britain prepares to vote in next month’s referendum on whether to stay in the EU or leave, it is crucial that investors consider ‘Brexit-proofing’ their portfolios.
I will look into the main points for both sides of the debate, which is set to step up a gear as we move towards decision time:
Vote Leave: The Leave Campaign is intent on regaining sovereignty over policy-making. The spotlight will be placed on who will be able to live in the UK, and as such, have access to public services. This Campaign wants the government to make the decision on who can enter the country to work, by adopting a points-based system.
Should Vote Leave triumph, Britain would be in a position to enter into beneficial trade deals with other comparable countries and regions. The UK’s trade deficit with the EU could indeed signal that Brussels will permit Britain’s exports to have similar access to the EU as we have currently.
There are claims that the EU is a spent power led by an elite group, and involvement from Brussels generates needless costs to the economy. Indeed, Vote Leave proponents consider the £8.5bn EU membership payment could be better allocated elsewhere.
Vote Remain: The fact that the EU is Britain’s chief trading partner; the main source of direct foreign investment, and, of course, the world’s biggest free-trade area, is a major argument for Vote Remain.
Any disorder to the relationship with the EU could, therefore, cause severe damage to the economy. It is doubtful that the UK would be allowed the equivalent access to the EU market they previously had, for fear of other euro-cynical countries to follow suit.
On the subject of immigration, Britain’s economy benefits from their being in the country. In addition, the border controls do not permit immigrants with criminal records to enter.
Furthermore, the EU membership payment allows the UK access to the policy-making table and assist in setting the rules. Although the need for change within the EU is recognised by the Vote Remain campaign, there are reservations that even if Brexit goes ahead, Britain could still be obliged to follow EU trade rules, as well as pay an annual fee. However, in return, there would be no voice in Brussels or opportunity to advocate reforms.
Brexit-proof: Up to now we have seen the referendum and subsequent campaigning has already generated a considerable amount of uncertainty – particularly as numerous private sector firms are shelving or delaying investment due to the vote.
Indeed, it can be reasonably assumed, that this uncertainty and volatility will strengthen should Britain vote to leave the EU. Undoubtedly, Sterling, UK equities and government bonds will be exposed to additional pressure.
It is, therefore, advisable to perhaps rebalance portfolios to lean more towards international stocks, bonds, and possibly property.
That said, irrespective of Brexit, it is a good idea to consider a portfolio rebalance. Investors will be in a much more beneficial position to mitigate risk in times of turbulence, and take advantage of the inevitable opportunities if they invest over geographical regions and different asset classes.
It is a fallacy that investing internationally poses more of a risk. Quite the contrary. The more diversified the portfolio by going global, the great the reduction of overall risk. It is also a misconception that only sophisticated, experienced investors should focus on international investment options. There are a large number of well-managed retail funds offering global stock market exposure, using a wide variety of approaches.
