In light of the UK's vote to exit the European Union, Oliver Williams, head of WealthInsight, assesses the implications for the UK's wealthy
As Brexit’s uncertainty cascades to all aspects of the global economy, HNWIs share with the nation a great deal of uncertainty, albeit of a slightly different variety. Private Banks, many of whom supported the Remain campaign, are doubly challenged with one foot in the volatile waters of the markets and another in the (sometimes equally as tumultuous) world of their clients. Since the equally baffled commentators seem united with the markets in their bewilderment, it seems logical not to add to the literature of frenzy here, but instead to look at some of the certainties concerning HNWIs.
So, in order to aid private client advisors mitigate the bombardment of questions from fretting clients, WealthInsight has prepared a short and a long view on how Brexit affects HNWIs, based on what we know now:
Communication is Key
In times of turmoil, HNWIs expect timely and trustworthy information regarding their assets and portfolios, regardless of the time of day or day of the week. Many advisors were proactive in dispersing advice hours or even minutes following the Brexit announcement, but they should not stop there: As long as uncertainty reigns in the markets and media, HNWI clients will require regular bulletins regarding everything from their citizenship to art collections.
Many HNWIs are poorer post-Brexit
With the majority of HNWIs in the UK (14.3%) owing their wealth to the financial services industry, the billions that have been wiped off markets recently would have directly hurt the pockets of many HNWIs. Moreover, the storm has not yet passed for HNWIs with investments in certain macro funds which have revealed deep losses.
Non-doms thrown into uncertainty
New rules on non-doms – the unique tax status many foreign born HNWIs subscribe to – were announced in the summer of 2015 and where expected to be published following the referendum. Their delay, however, will add to the uncertainty of UK resident and non-UK domiciled individuals in the run up to the new rules coming into force on 6 April 2017.
Luxury Spending may decline as Luxury Assets flourish
This is recessionary behaviour: As 2008’s credit crunch forced HNWIs to clamp down on their luxury spending, it also saw an increase in the art, wine and precious stone markets. Gold is already rising, but if financial uncertainly looks set to stay, many investors will buy into such tax deductible assets as safe investment options.
HNWIs in manufacturing will prosper
The manufacturing industry at-large, could see an upturn in its fortunes as a weaker sterling helps UK exports. Billionaire Brexit supporters, Sir Anthony Bamford and James Dyson will lead the way for a temporary or prolonged boon for British manufacturing business owners, depending on the state of the sterling.
Central-Prime Real Estate could make a comeback
Again, a weaker sterling carries with it certain advantages, this time for central-prime property markets – mostly the areas of London around Mayfair, Knightsbridge and Chelsea. Having seen prices plateau – partially in anticipation of the referendum – the same areas are looking more attractive to HNWIs from overseas as the sterling devalues against their own currencies, notably the US dollar.
Lighter regulation could benefit some HNWIs
The bonus-cap may be one of the more symbolic pieces of regulation imposed on the City of London – and HNWIs – from Brussels. However, other areas of finance many benefit from lighter regulation anticipated as Brussel’s laws are replaced with Westminster’s. One example is the Alternative Investment Fund Managers Directive (AIFMD), which affects hedge funds, private equity, real estate and other alternative investment fund managers. According to Deloitte, most UK-based asset managers think AIFMD reduces competitiveness of the EU’s alternative investment funds industry, while Open Europe thinks it costs the UK £1.3bn a year (based on 2014 estimates).
SMEs and other non-financial industries – from fisheries to farming – may also benefit from a lighter regulation, though immediate changes are unlikely.
Changes in the Private Banking sector
Private banking could yet see better years. In the immediate future, private banking will come into its own as proper financial planning and risk management are required to mitigate current market volatility. Long term, the UK’s private banking industry may appeal to overseas HNWIs as the UK sets its own rules on laws affecting HNWIs, such as anti-avoidance tax legislation. Should uncertainty in the Eurozone surpass that within the UK, British banks may also benefit from capital flight.
HNWIs will continue to come to London
Whatever the outcome of Britain’s negotiation with the EU, it will not diminish of London’s lure among HNWIs (as reported by Spears and WealthInsight, London currently has more UHNWIs than any other city in the world). London’s superior education standards and quality of life will continue to be as much an appeal to migrating HNWIs as its financial prowess. The capital’s strong judicial system is already being used by foreign billionaires to settle disputes in their home countries, while its world class culture and education attracts many with families. London’s financial sector will maintain its allure.
The weather will continue to be as unpredictable as politics