Advisers should be encouraging their clients to position portfolios not just for Brexit but for any exogenous market shock, Paul Fidell has said.
The senior business development director for Prudential said: "Brexit is a big event that is impacting on the outlook for investment markets but it is one of many events that are happening all the time.
"So the question is, how should advisers be positioning portfolios for any set of circumstances? And the answer is they should be focusing on the outcomes the customer expects and needs to achieve, and work back from there."
He told FTAdviser we had to consider the conditions that have been driving investment markets over the past 30 years or so, which have seen markets doing well, no longer exist.
Most people who are investing for a reasonable time frame should be looking to diversify - this is one of the best ways to manage investment risk.Paul Fidell"We are now looking towards an environment that is much lower in terms of investment returns. So advisers and their clients will have to be more realistic about their expectations and what they think they can achieve from the investment portfolio, and then deliver the portfolio that will meet the client's objectives."
Home bias is also something people should be aware of, particularly in a post-Brexit world. Mr Fidell said: "Most people who are investing for a reasonable time frame should be looking to diversify - this is one of the best ways to manage investment risk."
According to Mr Fidell, investors should be asking whether they should have all their eggs in one basket - in the UK, for example, if people are UK based - and diversify accordingly.
According to Mr Fidell, there are some key points to remember when it comes to diversification, which he said was "easy to say, but not necessarily easy to achieve".
True diversification, he explained, required the use of non-correlated asset classes, which means advisers may have to "think beyond the conventional asset classes of equities, fixed interest, property and cash".
However, as this can take portfolios into the "realms" of other asset classes, such as infrastructure and private equity, Mr Fidell said this could present other issues for advisers to consider, such as the scale of investment sometimes needed to gain entry, significant skills and knowledge of alternative asset types and questions around liquidity.
When it comes to Brexit's potential effect on the UK market, Mr Fidell said: "The economy has been surprisingly resilient but Brexit has had a major effect on currency volatility.
"Now if I am a UK-based investor, holding sterling and no other foreign assets, that does not matter, but it has an impact in terms of imported goods becoming more expensive, which could push through price increases that will affect household expenditure.
"On the other hand, I might be investing in companies which are exporting and therefore benefiting from a weak sterling. So there is a double-edged sword here."
With Prime Minister Theresa May announcing that Article 50 is set to be triggered on Wednesday (29 March), Mr Fidell said advisers faced both challenges and opportunities when it comes to advising on clients' pensions and investments.
He added: "The opportunity for advisers is to engage and have conversations with their clients around these things, and asking 'are we positioning your investments in the best way to deal with these circumstances?'
"We know Article 50 is going to be triggered and it has been priced into a lot of asset values already.
"But we don't know what the next two years are going to look like in terms of negotiations".
He commented that human nature means we are going to feel more negative and pessimistic about what Brexit might bring.
However, he added: "We just don't know. We can't plan for unknowns. We can put portfolios in a certain shape to deal with a degree of unexpected events, but you cannot plan for all these eventualities.
"It is all about engagement and having a conversation with the end investor."
simoney.kyriakou@ft.com
