Brexit-proof your investments

Brexit is causing significant financial inconvenience for UK expats living in Europe. Here, David Morrissey, Director at Smith & Williamson Investment Management (Europe), explains how they can seek to Brexit-proof their investment portfolios amid serious regulatory challenges for many financial services providers.

As a UK expat living in Europe, one might have thought one would be spared much of the inconvenience of Brexit. Unfortunately, this is not the case, as many have found that they are receiving troubling letters from their investment manager and bank regarding the need to close their account before the year end. At Smith & Williamson Investment Management (Europe) Limited we have been helping individuals who find themselves in this uncomfortable situation, as we are licenced to provide advice to EU residents.

The Brexit saga has put UK investment firms and banks in a difficult position in regard to managing EU residents; many have adopted a head in the sand approach in regard to proactively looking at solutions

The UK left the EU on 31 January 2020. We are now fast approaching the end of the transition period which will end on 31 December 2020. Trading arrangements and citizens’ rights agreements will be negotiated during this time. Financial services seem to be down the pecking order in terms of priorities to be agreed. Until 31 December 2020, the UK and its citizens are still subject to existing EU benefits, rules and regulations.

The Brexit saga has put UK investment firms and banks in a difficult position in regard to managing EU residents; many have adopted a head in the sand approach in regard to proactively looking at solutions. This is mainly due to the cost and inconvenience that is involved in establishing Brexit-proof solutions for EU residents. Once Britain is out of the EU marketplace, the banks will be forced to adhere to individual regulations which differ in each country.

What MiFID II means for your money

The second Markets in Financial Instruments Directive (MiFID II) came into effect on 3January 2018 and governs the provision of investment services in financial instruments across the EU. It applies to investment firms, wealth managers, broker-dealers (IFAs), product manufacturers and credit institutions authorised to carry out MiFID activities.

MiFID II sets out the principles of a single authorisation for firms within the EU. This may allow a MiFID investment firm to provide investment services and/or perform investment activities throughout the European Economic Area (EEA), provided it is authorised for these activities in the first instance. This is commonly known as “passporting”. These automatic passporting benefits for UK-based firms are set to end on the 31 December 2020 unless a deal is reached with the EU.

As it stands currently, and unless there is some agreement between now and year end, UK financial institutions will need to have separate authorisation in every EEA country where they operate

Therefore, as it stands currently, and unless there is some agreement between now and year end, UK financial institutions will need to have separate authorisation in every EEA country where they operate.

Obtaining a MiFID licence may be impractical or unviable for many institutions and some firms have been wrongfooted by the lack of progress in negotiations. More worrying is that some firms appear unaware that they may be in breach of EU rules should they simply ignore the situation. Rather than providing clients with a list of solutions and options in the event of a no-deal Brexit, firms are taking a more draconian approach of writing to clients and asking them to politely (and sometimes not so politely) to move their business ahead the end of this year.

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Top Tip

Individuals from outside the UK have always been an important cohort among our users. We’re always really pleased to help those living abroad or coming to the UK since it can be particularly difficult to know what firms’ cross-border capabilities and coverage actually are. The calibre and reach of the wealth managers on our panel means we are almost guaranteed to be able to assist, so please do get in touch to discuss your situation.

Lee Goggin - Co-Founder

Lee Goggin

Co-Founder

De-risking the situation

Clearly this is an unsatisfactory situation for clients. One way to de-risk the situation and provide a Brexit-proof solution is to hold your investments with a MiFID-regulated firm authorised to advise European residents no matter what the outcome of the Brexit challenges. For UK expats this is a particularly attractive option i.e. to continue to be serviced by a trusted and established firm like Smith & Williamson without the risk of your account being closed.

At Smith & Williamson, we have been preparing for Brexit for some time and are in the process of transferring European resident clients managed from London to our MiFID-licenced European regulated Dublin office i.e.  Smith & Williamson Investment Management (Europe). UK expats managed from London or regional offices will now have the benefit of working with a European-regulated entity which future-proofs their account. We work with specialists to provide tailored advice for European residents.

Where clients require more in-depth tax advice regarding structuring of their investments for tax efficiency and other in-depth planning, we partner with specialist advisers like Spectrum IFA Group, who have an established presence in a number of European Countries. Michael Lodhi, CEO of Spectrum, and his team specialise in the UK expat market and have particular expertise in France, Spain, Italy, Switzerland, Luxembourg and Belgium.

Where clients require more in-depth tax advice regarding structuring of their investments for tax efficiency and other in-depth planning, we partner with specialist advisers like Spectrum IFA Group, who have an established presence in a number of European Countries

Spectrum helps clients gain access to secure, tax-efficient, locally authorised vehicles while Smith & Williamson Investment Management (Europe) provides the investment solution as before.

Michael notes: “As a result of our partnership with Smith & Williamson, when the transition period ends (with or without trade agreements), clients can still invest with companies whose names you know and trust, in a tax-efficient manner, in the country they now call home.”

Do reach out to us if you find yourself in this situation of needing to Brexit-proof your investment and do not want to be worrying about this potential cliff edge as Christmas approaches.

Sources:
Central Bank.ie.
Moneysaving Expert.com
Spectrum-ifa.com

Disclaimer
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

Risk warning
Investment does involve risk. The value of investments and the income from them can go down as well as up. The investor may not receive back, in total, the original amount invested. Past performance is not a guide to future performance. Rates of tax are those prevailing at the time and are subject to change without notice. Clients should always seek appropriate advice from their financial adviser before committing funds for investment. When investments are made in overseas securities, movements in exchange rates may have an effect on the value of that investment. The effect may be favourable or unfavourable.

 

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