Emma Ann Hughes  

Deliver Brexit reality or risk regulator's wrath

Emma Ann Hughes

Emma Ann Hughes

Three months after the European Union referendum it is no longer acceptable to just advise clients concerned about how Brexit will hit them in the pocket to "keep calm and carry on.

At a Russell Investments-sponsored Financial Adviser masterclass event earlier this week, Brian Steeples, past president of the Personal Finance Society, told a packed room of intermediaries to make their clients aware of the “new normal".

Three months in from Brexit, we are now in a close to zero interest rate environment.

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Mr Steeples said: “It is not that long ago that we had interest rates of 6 per cent. On the face of it that makes you feel much more comfortable because you have a 6 per cent return but you had 5 per cent inflation and global growth was maybe 7 per cent.

“Taking things in isolation is not really that useful. You have got to look at the combination of things. At the moment, we have inflation of 0.5 per cent or 0.71 per cent. Is a return of 2 or 3 per cent good or better than it was when you had 6 per cent returns?

“We have entered a new paradigm. There is lower growth, lower inflation and lower interest rates. Manage it in that context.”

I totally agree with Mr Steeples.

While it was sensible to see what way the land would eventually lie post the Brexit vote, now should be about managing your client’s future expectations in this new world.

A lot of common sense was delivered by the various speakers at the latest Financial Adviser masterclass, which was held in Edinburgh on Tuesday (20 September).

Lessons were delivered, such as 'know your client', communicate in a language they understand and reassure them that markets go up as well as down.

I believe this alone won't save you from the future wrath of the regulator or from being on the wrong end of a Financial Ombudsman Service decision in the future.

The sad truth of financial services regulation is while there is no rule stating you should be able to predict the future, I can think of many examples where the powers that be have looked back and judged past actions with the benefit of hindsight.

I personally believe in the future the ombudsman and the City watchdog may raise their eyebrows if advisers today - in a low interest rate environment - fail to communicate the fact investors should expect far lesser rates of return than they did in the past unless they are willing to take on a great deal more risk.

Delivered correctly, I believe this message is a dose of reality rather than a cause of trembling and concern.