In times of trouble good advice is all the more valuable. As the future of the market remains unclear despite the Prime Minister’s most recent speech, the latest numbers suggest wealth managers are going to benefit from further demand for professional investment advice, writes Bartosz Golba, head of wealth management content at Verdict Financial
Brexit-related uncertainty did not lead to a decline in the value of liquid savings and investments held in the UK by resident individuals. Despite record-low interest rates, Verdict Financial estimates that deposit balances alone grew by 6.3% in 2016 (the highest growth since 2007), as many opted for the safe haven of bank accounts to protect their portfolios from volatility. Yet those who decided to keep their money in other asset classes cannot complain. As the FTSE 100 rallied towards all-time highs, the value of savings held in funds and directly on the stock market surged, making up for any outflows.
But there is a fly in the ointment. Much of the growth was fuelled by a significant drop in the value of the British pound (which was driven by uncertainty), as the FTSE 100 is dominated by firms that primarily do business overseas. But as global investors gradually accept and adjust to the new reality this trend is likely to reverse, or at least weaken.
This is perfectly illustrated by the capital markets’ reaction to Prime Minister Theresa May’s 17 January , 2017 speech, which laid out some of the government’s Brexit negotiations plans. Although she announced that the UK is willing to pull out from the single market, investors focused on her commitment to put the Brexit deal to a vote in Parliament. As this was considered good news the British pound gained, to the detriment of the FTSE 100.
However, the speech provided little clarity as to the shape of any Brexit deal – and this uncertainty is likely to persist until a final Brexit agreement is reached. We can expect many turning points as the negotiations progress, which means further volatility, even if it is unlikely to be on the same scale as the initial shock in June 2016. This is good news for wealth managers, as it will drive further demand for investment advice. And the positive rates of returns delivered during an unpredictable 2016 – just replicating FTSE 100 allowed achieving over 14% growth – are a perfect marketing tool.
The challenge going forward is maintaining these impressive rates of growth to meet clients’ expectations. There is another challenge as well – this time operational – for investment managers with foreign clients. While UK savings grew in local currency terms, the weaker pound offset this growth from a US dollar and euro perspective. Consequently, for some players the UK investment market shrank, meaning they will have to rethink their operations in the country.