Brexit tops risks to client savings and investments

Brexit tops risks to client savings and investments

Brexit negotiations present the biggest risk to client portfolios, ahead of rising inflation, according to advisers.

In a poll conducted by FTAdviser Advantage, 59 per cent of respondents voted for Brexit negotiations, compared to 33 per cent who thought the prospect of rising inflation would impact most significantly on clients’ savings and investments.

None of the respondents identified a hike in interest rates as the biggest risk.

Patrick Connolly, chartered financial planner at Chase de Vere, was not surprised at the outcome of the poll.

“It is a total unknown. We have no idea what form Brexit will take or the implications which will follow,” he pointed out.

“This uncertainty is likely to last for some time, but it’s important to remember that other threats exist including global economic risks and political risks, which could both move markets.”  

This week, the government announced it had launched a financial services Brexit taskforce.

But The Share Centre’s chief executive Richard Stone believed the prospect of an interest rate hike in the UK was the bigger of the four risks.

“The ‘ups and downs’ of a negotiation process will inevitably drive news flow and potentially therefore impact markets. 

“The bigger threat, in my opinion, to market values is rising interest rates which will likely dampen asset prices,” he stated.

“Combined with rising inflation, and there is an argument that increasing interest rates may even be inflationary in itself in the near term, it means that personal investors will continue to see real incomes under pressure and disposable income being squeezed – either by higher inflation or higher mortgage repayments, or both,” Mr Stone explained.

Neil Adams, head of pensions at Drewberry, pointed out the risks to portfolios posed by Brexit and inflation are linked.

“Inflation has spiked compared to pre-referendum levels thanks to a plunging pound. Currency risk has become a notable issue, but aside from this a well-diversified portfolio should limit the risk from ongoing Brexit negotiations,” he suggested.

Inflation spiked back up to 2.9 per cent in August, having fallen back down to 2.6 per cent in June, where it remained in July.

Mr Adams said: “Rising inflation typically comes with rising interest rates. However, while rising interest rates are good for those with cash savings, the yields on bonds will be less attractive as interest rates rise. 

“For bond investors, interest rate risk may be higher up the scale than is indicated by the survey.”

The poll revealed only 8 per cent think the European elections and populist movement in Europe will be a risk to investments and savings.

Jonathan Cooper, senior paraplanner at Drewberry observed: “The poll likely reflects the concerns currently at the forefront of advisers’ and clients’ minds. 

“Regardless of the global and domestic economic climate, a properly diversified portfolio that addresses an investor’s own goals and needs should go some way to combating the continual flow of portfolio challenges such as those represented by this recent poll.”