Sententia Articles March 2019

In this Issue

/ Brexit: the impact for Advisers, Clients and Fund Managers

The ongoing uncertainty around the UK’s withdrawal agreement leaves much in the air. What can we do to prepare for an undefined Brexit scenario? This article explores the mechanisms that will start turning on 29 March 2019, and their relevance to adviser firms and fund managers. Read the full article.

/ Retirement Outcomes Review

One of the lesser reported outcomes of the FCA’s scrutiny on post-freedom pensions is the changes to the ‘wake up’ process – the regulatory mechanism by which consumers are prompted to consider their retirement options. More than ever before, investors are being encouraged to seek free guidance, with providers being leaned on to deliver this message. Read the full article.


Brexit: the impact for Advisers, Clients and Fund Managers

At the time of writing, the proposed withdrawal deal continues to be a cause of much disagreement in the House of Commons, with fresh upheaval coming in the form of an exodus of nine Labour MPs. These MPs quit the party as a result of disagreements with Jeremy Corbyn and unease over the direction in which they felt the party to be heading. Of these nine, eight have now joined the Independent Group along with several ex-Conservative MPs.

It will remain difficult for any organisation to fully assess the implications of and prepare for Brexit until there is certainty regarding a withdrawal agreement or a no deal scenario. However, the FCA have been providing information for firms, fund managers and platforms alike, outlining some of the steps they might need to take ahead of Brexit. Here is what we know from them to date:

Adviser Firms

  • Implementation period - The UK is due to leave the EU on 29 March 2019. The terms of the implementation period have been agreed by the UK and the EU, and specify that the period would apply from the end of March 2019 until the end of December 2020. EU law would still apply during this time, and firms and funds would continue to benefit from passporting between the UK and EEA. However, until the withdrawal agreement is finalised, the terms of the implementation period could change.
  • Legislation changes - The FCA have stated that they do not plan to make any over-arching policy changes. However, there are open consultations about making changes to the Handbook and Binding Technical Standards. This will just ensure that guides and standards are kept in line with expectation post Brexit.
  • Temporary permissions - In December 2017 it was announced by the Government that they would introduce a temporary permissions regime to cater for a no deal scenario. The regime allows for European Economic Area (EEA) firms to continue to operate in the UK for three years after the UK leaves the EU. It also allows for EEA domiciled investment funds to continue marketing in the UK for this period under a passport. Firms who wish to apply must do so during the registration window which opened on 7 January 2019, and will close on 28 March 2019. More details can be found via the FCA here.
  • Client base - The majority of UK advisers will be servicing UK-based clients, however there will be some that have clients who live or work in the EU. The FCA has asked that advisers look at these clients and assess whether or not they might be able to continue to offer financial advice post 29 March 2019. It might be that the firm needs to register for new permissions to service such clients. Affected firms should refer to further information available from the FCA here.
  • Technology and service providers - It is also important to check with any software, technology or service providers that your business uses as to whether or not they operate from the EU or elsewhere, and whether they will still be able to provide the services you require post Brexit.


Fund Managers

Brexit could have a significant impact on fund managers as they are often either based in the EU wishing to passport into the UK, or based in the UK wishing to passport into the EU. This means that a number of fund managers will be reviewing their corporate positions, and some have already begun to open offices in popular EU locations such as Dublin, Paris and Luxembourg.

The EY Financial Services Brexit Tracker has been keeping track of company plans and moves. Since the EU Referendum, 36% (80/222) of UK financial services companies tracked have said they are considering or have confirmed relocating operations and/or staff to Europe. This rises to 56% (27 out of 48) amongst universal banks, investment banks and brokerages.

30% (67/222) of companies tracked have confirmed at least one relocation destination in Europe to which they are moving or considering moving or adding staff. Dublin is the most popular destination, followed by Paris and Luxembourg.

The list of asset managers/intermediaries who have confirmed plans to open offices in other EU countries as a result of Brexit includes:

  • Baillie Gifford (Dublin)
  • Aberdeen Asset Management (Dublin)
  • Ashmore (Dublin)
  • First State (Dublin)
  • Legg Mason (Dublin)
  • Hermes (Dublin)
  • Baring (Dublin)
  • BlackRock (Paris)
  • Polar Capital (Paris)
  • M&G (Luxembourg)
  • Columbia Threadneedle (Luxembourg)
  • Jupiter (Luxembourg)
  • Janus Henderson (Luxembourg)

This comes as positive news for investors as it means fund managers are taking the necessary steps to ensure that they can still sell to and service investors in both the UK and EU.

Source: Ernst & Young Global Limited

Investor and business sentiment

Since the Referendum result was first delivered in the Summer of 2016 pundits have talked about ‘investor sentiment’ and whether retail and institutional investors are feeling positive about the UK in a post-Brexit landscape. There has been an ongoing focus on the strength of the pound.

Most clients have been aware of Brexit for the last two and half years and therefore are expecting some changes and volatility in the markets. Some advisers and DFMs have made small changes to client portfolios in order to minimise any potential sudden impact, but ultimately most are focused on a long term strategy.

Although the market has reacted with volatility and fund managers have made changes, investor sentiment remains positive but still uncertain. State Street have been carrying out a ‘Brexometer Index’ survey each quarter to monitor the changes in investor sentiment, looking at economic growth, business operations and risk, to name a few. In Q4 2018, 38% of respondents had a positive outlook for medium-term global economic growth - a slight fall from 43% in Q3. Q4 also saw a fall from 83% to 80% in the number of investors anticipating that Brexit would have an impact on their business operating model. View the report in full here.

How does your company intend to change its holdings of UK assets (equities, bonds or alternatives) in the next six months?


Source: State Street Corporation

We will continue to monitor changes and announcements that might affect our users. Please be sure to read our Adviser Update for important platform changes.


Retirement Outcomes Review

Are clients engaging with their pensions early enough?

The FCA’s current “wake up” process, intended to get investors thinking about accessing their pensions benefits, is tied to an intended retirement date. This makes some sense for occupational schemes with a natural retirement date, but for the majority of savers now using SIPPs and personal pensions to access their benefits flexibly, the concept of a scheme retirement date is out of touch with reality. Without a natural retirement date, scheme administrators are required to use the state pension age as a default trigger. By this point, most investors will already be engaged with the process of drawing benefits.

The regulator has recognised this issue and created a new model for engaging consumers. Policy Statement 19/1, part of the FCA’s Retirement Outcomes Review, details their new wake up process, which all pension providers must implement from 1 November 2019.

The policies outlined in the statement are primarily about improving consumer engagement with retirement income decisions. After consulting with the pensions industry on when best to engage people in retirement decisions, the FCA has decided that 50 is the most appropriate age to ‘wake up’ a consumer and start them thinking about their retirement choices and how best to meet their retirement objectives. It’s also the point at which they can start to receive guidance from Pension Wise.


Advice vs guidance

The new wake up packs will contain prescribed wording that will make investors aware of the guidance services available to them. Although wake up packs currently include this kind of signposting, from November there will be greater emphasis placed on the availability of free impartial guidance.

The Department for Work and Pensions’ new Mid-Life MOT website has already come under fire from Advisers for promoting The Pensions Advisory Service and The Money Advice Service as offering free ‘advice’. Using the word in a common parlance context is perhaps understandable on a website that’s designed to be straightforward for consumers, but clouding the FCA’s clear delineations is potentially unhelpful. The protection that comes with regulated financial advice is of great value to consumers, as are the personal recommendations offered by Advisers. The new wake up letters, whilst perhaps intended to promote the guidance services, do at least offer an opportunity for the definitions of guidance and advice to be clarified with the consumer.


Hammering the message home

The new ‘wake up’ process is more like a snooze button, with letters triggered at least every five years from age 50 until the client’s fund is fully crystallised.


An additional letter will be triggered around the client’s intended retirement date. This means that for a client in phased drawdown or accessing their benefits flexibly via Uncrystallised Funds Pension Lump Sums (UFPLS) the letters will keep on coming for as long as the fund lasts. Over the course of their retirement they might receive six wake up packs from every scheme of which they are a member. A client with three pension pots could therefore receive around 18 identically worded wake up packs.

Awareness of the guidance on offer will therefore be widespread and long lasting. Clients seeking advice will do so knowingly and after careful consideration of their circumstances; potentially they may also seek advice following guidance from one of the Government’s free-to-use services.

Full details of the Retirement Outcomes Review PS19/1 can be found here.