With the date of the UK’s referendum on European Union membership now set, investment advisers must be thinking hard about the need to sit down with clients and discuss potential implications.
As with any time where politics is involved, these conversations may be tricky. But in terms of the wider implications, Neil Woodford’s view may provide some solace. He has argued that neither referendum option – in or out – carries huge economic consequences.
This view is supported by research Woodford Investment Management commissioned on a Brexit from consultancy Capital Economics. The report implied that huge exposure to City of London commercial property would not be prudent in the event of an exit, as the asset class could fall 15 per cent in this scenario. But that aside, it found Brexit and the status quo to be much of a muchness, with perhaps a slight advantage to leaving.
Markets are more short term in their outlook, of course. Sterling hasn’t had a brilliant time, but then again the UK’s still-embattled exporters may not be complaining too much about that.
There are other opinions. It was fascinating to hear a sceptical cabinet minister criticising the views of a ratings agency suggesting the UK’s credit rating could be imperilled by a Brexit. He did so on the basis of the agency’s disastrous performance prior to the financial crisis.
Conservatives previously set much store in defending the UK’s triple-A status, which depends solely on the views of these same ratings agencies. Indeed, this defence was something of a justification for austerity because, as the government argued, to be downgraded further would increase the cost of borrowing.
But inconsistencies and genuine changes of mind will surely abound across the full range of the arguments as we approach referendum day on June 23. The discussions will not be for the faint-hearted, and the stakes are high in a multitude of ways – especially for the divided Conservative party.
Nor can investment advisers stay silent on the issue. The decision will have tactical and strategic implications for advisers and clients, regardless of the economic consequences. If in the face of a lot of volatility the right thing to do is to adjust portfolios, then that is what advisers must do.
Intermediaries will also have to deal with clients who may feel strongly one way or another. This may even involve diplomatic challenges to confirmation bias.
The puzzle for me is how we have come to this situation. The eurozone is desperately in need of reform, and likewise its relationship with some EU countries determined not to engage in ever-deeper union. The debate is already throwing up more cases where things are simply not working, though a Brexit would not necessarily mean we would be entirely free from the impact of the EU’s, or the eurozone’s, most sclerotic features.