Brexit has triggered some “trauma” among stockbrokers and private client investment managers but is arguably less of a shock than the financial crash, argues the boss of the Wealth Management Association (WMA).
Liz Field says that after last month’s EU referendum her members are rapidly assessing the impact of the vote to leave on their business models and funds.
But with a nod to the “known unknowns” epithet of former President George W Bush’s US defence secretary, Donald Rumsfeld, she says at least the financial industry knew a British exit from the single trading bloc was a possibility and had been devoting much thought to the possibility. “In one respect it is less of a shock this time. We knew it was coming, we knew there was going to be a referendum. We didn’t know the financial crisis in 2008 was coming. That was a case of ‘Oh, my God’. Financial firms had time to do their own contingency planning with Brexit,” says Field.
Even so, she makes no attempt to play down the deep uncertainty following the Leave victory now faced by her members, who look after more than £730 billion of wealth for more than four million retail investors through services spanning execution-only, advisory and discretionary fund management. Field, who became chief executive of the Wealth Management Association just under two years ago and launched a strategic review of its operations, including the massive European regulatory dimension, says: “The uncertainty is huge and problematic. There are also so many moveable feasts. It’s political, it’s economic. We had been in the European Union for a considerable time.”
She says the message from the wealth management industry to clients is “don’t get spooked by what’s going on, hang in there, we have been through loops before”. However, the challenge is that while the UK’s new relationship with the EU is hammered out over the next two years or so British financial firms will still be subject to both UK and EU law. That means WMA members and other financial organisations will still have to bear the cost of complying with a pipeline of Brussels regulation while not knowing how things will all pan out in UK-EU negotiations well down the line. Cost and effort could be overtaken by events.
The WMA boss cites the EU’s Market Abuse Directive, its Anti-Money Laundering Directive, general data protection legislation from Brussels and not least MiFID II (the Markets in Financial Instruments Directive), whose labyrinthine implementation has already been put back by the EU from a target date of January 2017 to January 2018.
“This is all between now and 2018, it’s an odd situation,” says Field. “We are in limbo until we get a new prime minister in the UK and see the lie of the land. Our members are in the same state of uncertainty as everybody else. They need information. We don’t know what is going to be negotiated, but any legislation that was coming we still have to do the work on.”
One issue she knows will be broached at the next meeting with her member firms in Scotland this autumn – there are regional WMA conferences both north and south of the Border twice a year – is Scottish independence, now back on the table, according to First Minister Nicola Sturgeon, following Brexit.
Field, who has 27 years’ experience in the financial services industry, holds a Masters in Occupational Psychology and was CEO of the skills trade association Financial and Legal Skills Partnership, says: “I have not had a chance to talk to our Scottish members about it. It’s early days. But it will be something they are thinking about. They, or rather their clients, were nervous about the last Scottish referendum.” With wry understatement, she adds: “I’m assuming the subject will be raised.”
Quite apart from her professional links with private client brokers and investment managers, she gets up to Scotland “relatively often” as her family is Scottish, living outside Paisley.
Away from European Union matters, what also keeps her member firms up at night? Fields says fighting crime is a key part of the WMA’s remit, and she singles out data protection against the backdrop of high-profile cybercrime committed against some major corporate organisations. These have included Sony Pictures, Hilton Hotels, dating website Ashley Madison and mobile and broadband business, TalkTalk. “It’s a big issue for us. We don’t have money, we have data,” says Field.
She adds that the trade body educates brokers and investment managers on the importance of data protection, and is prioritising educating its staff and clients. She says the wealth management sector is aware that it is just as vulnerable to cybercrime and breaches of data as large corporates. “Our firms know they have to take just as many precautions as large companies do. We are all shocked by how easy it is to duplicate records and do the scams. We are as robust as the banks in trying to combat this. It is an added cost but it is necessary” she says.
It almost goes without saying that the WMA needs to have close contacts with the UK financial markets regulator, the Financial Conduct Authority (FCA), which replaced its predecessor, the Financial Services Authority (FSA), in 2013.
Some would say the smaller private client broker and fund manager sector would be less in the FCA’s sights than some other sectors because it is not so much associated with initiating and marketing new financial products as providing execution-only or advisory securities trading services.
But Field says she still welcomes the “constructive” working relationship with the regulator, and particularly welcomes the fact that – as was not always the case under the FSA, whose tenure preceded her – there is now a specialist supervisory unit at the FCA to look after wealth management and investment.
“That is very helpful. It’s not one size fits all. We are not the same as insurance companies and retail banks. We also try to give the regulator the same degree of granularity (on issues) that we would our members.”
Another keen area of interest to WMA members, says Field, is the breakneck pace of progress of the dynamic FinTech industry – where finance and technology mesh. She says that this is unlikely to abate any time soon. “FinTech is moving so fast. Our firms are wondering what do they invest in to get the biggest bang for their buck.” Such is the impact on the wealth management industry that the WMA is staging a conference on the march of FinTech in London this September.
A further initiative by the organisation recently was the launch of a forum about Millennials, as wealth managers seek how they can attract and engage with that generation of twenty-somethings to late thirty-somethings who may already be reasonably affluent or heading that way. Member firms sent more than two dozen of their millennial staff to the forum in London – “their best and brightest” – with the findings due for publication late this summer. Field says one of the interesting findings was how Millennials “want to be part of a community, such as Facebook or Snapchat”, and how this might affect the marketing of her members’ services.
It is interesting timing, because a recent hard-hitting report from accountancy and corporate advisory giant PwC accused wealth management firms generally of being woefully behind the curve in terms of their digital offerings, which are particularly beloved of the Millennial generation. Among other things, that report said just a quarter of wealth managers offer digital channels beyond email, and a mere one in ten employ social media. That at a time when 85 per cent of high net worth individuals apparently say they use three or more digital services in their day-to-day lives.
Field admits this is “a concern”. But she is pragmatic. She says one reason for wealth managers not being trailblazers in social media, for instance, is the rising cost of technology in terms of regulatory requirements. This exerts pressure on firms’ profit margins and cost bases “where there is very little fat left to cut”. And therefore priorities have to be decided.
She adds: “The regulatory task of technology [in the financial sector] is taking precedence over everything else. There’s a regulatory logjam. The technology requirements of MiFID II, for example, will be enormous. Our members simply cannot do everything at once much as they would love to.”