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The quiet before the Brexit storm

Unease within the British investment industry is increasing: Facing the threat of a „No Deal“-scenario there are continuous speculations about the extent of (anticipated) asset outflows due to Brexit, which companies are going to leave and how many employees they will take with them. Since the referendum the media, investment managers and national trade associations have their finger on the industry’s pulse. They predict: Small investment boutiques without any European representation will be hit particularly hard.

Albeit a looming „No Deal“-Brexit, the German fund sector ‎demonstrates composure. According to a survey by the German asset management body (BVI), three quarters of German asset managers feel only slightly or not at all affected by an unorderly Brexit without a transition period. After all, portfolio manager from the United Kingdom only stand for 7 per cent of the assets in institutional funds and 3 per cent of the assets in German mutual funds.

Only days before the (so far‎) still official exit on 29th March 2019 the disquiet in the UK keeps increasing. This is partly attributable to the British perception of its own fund sector’s significance. According to The Investment Association their 240 members managed more than 7.7 trillion GBP assets for clients in the UK and 1.8 trillion GBP for European clients at the end of 2017. Overall that is equivalent to 35 per cent of the total assets in Europe.

But also does the finance industry fear that Brexit is going to entail an exodus of national and international asset managers of hitherto unknown dimensions. And that (according not only to the British media) would involve outflows of billions (in the hundreds) of client’s assets, the departure of dozens of investment managers and the loss of 10,000 jobs.

Two thirds of UK managers consider Brexit as a competitive disadvantage

It is a justified fear: In a regular survey of the CFA-Institute, the worldwide association of investment professionals, 68 per cent of all in the UK domiciled investment companies said in March 2018 that the Brexit vote has already damaged British competitiveness. So far asset managers as other financial institutes do, too, use the EU-Passporting which is at risk in case of a ‚no deal‘. At present, 244 British asset managers use this passporting in order to be able to offer their products in Europe without any barriers. 139 companies from EU member states use an „Inbound Passport“ for their distribution in the UK in return. That British participants in the financial market would really lose entry to the EU market in a ‚no deal‘ scenario has just recently been made unmistakably clear by the Head of the European securities regulator ESMA, Steven Maijoor, in Dublin.

67 per cent of British CFA members assume that they will reduce their presence in the UK because of Brexit. Of all the companies within the EU (except UK) even 76 per cent made the same assumption in that survey. As the biggest loser in a Brexit without a deal, 85 per cent consider it to be London as financial centre. As Brexit-winners on the other hand, Frankfurt, Paris, Dublin, Luxemburg and Amsterdam, are considered.

A relocation of financial service providers on a grand scale would have serious impacts on job markets of London, Edinburgh or Bristol. After all, 10 per cent of the roughly  94,000 employees in the financial sector come from Europe. So why then, with Brexit as the sword of Damocles, have a lot less jobs been transferred abroad so far than it was feared only two years ago?

When will the removal vans drive up?

Back then, in March 2017, not even nine months after the referendum, representatives of banks, insurers and investment fund companies, mainly situated in London, threatened to move up to 10,000 jobs. But according to a regular research by the news agency Reuters less than 2,000 jobs have been transferred out of the UK to date due to the Brexit (s. infographic 2).

If you are following the British press, the reasons for this hesitation are not explicit. Is it because the withdrawal negotiations even after almost three years post-referendum still do not indicate where the trip is going? Do CEOs and their board members shy away from making a momentous, costly decision? Or do asset managers and bankers struggle to make a move to Frankfurt, Paris or Amsterdam palatable to their families? Some companies have allegedly started to offer generous packages to their employees if they move to another EU country.

The calm before the storm must not hide the fact that particularly big companies have their contingency plans in place, they have rented office spaces in EU countries and have applied for the required licences at the local authorities. In Luxembourg, British asset managers Columbia Threadneedle, Janus Henderson, Jupiter Asset Management and M&G want to expand or develop their representations, according to the Financial Times. And in the Republic of Ireland, at the end of January the Central Bank of Ireland held more than 100 applications of British financial companies willing to relocate.

„Especially small British asset manager without international representation should signal ‘We‘re still open for business!’“

Clients, assets and a good reputation are at risk

A no deal-Brexit would hit particularly hard any British investment boutiques and specialised asset manager who although having clients in Continental Europe have no local representation, yet.

For some of these asset managers relocation would be too expensive or too elaborate. Others fear the administrative efforts when licensing and distributing UCITS funds. And some are still hoping, to get off with a slap on the wrist by Brexit. But such an attitude can be (much) more costly for smaller companies – for them clients, assets and their reputation are at stake.

An active approach which does not exclude professional help and with an open, honest and straightforward communication should at the latest have priority in this critical phase of Brexit negotiations. In the end it is especially important for smaller UK manager to signal to their employees, clients and cooperation partners that despite Brexit “We’re still open for business!“

Investment writing: How fund managers can demystify financial jargon

Logo FondsTrendsBe it MiFID II or PRIIPS, the growing complexity of investment products and their regulation, calls for a new approach to communication. In a by-lined article for FondsTrends, the newsletter of Hauck & Aufhäuser Fund Services S.A., Ross Hunter, Copylab, and Hagen Gerle, Gerle Financial Communications, explain how professional investment writing can help fund managers to communicate more efficiently with their investors. Read the whole article (in German) here.

Big Brexit and small businesses: How to prepare for the unpredictable?

Monkey sitting on a wooden sign with a warning that it is dangerous to feed animalsA couple of days ago I had an argument with my wife in the kitchen. It was, once again, about Brexit. The day before, Theresa May had received a serious slapping by the joint heads of the EU in Salzburg. I had been agonising for some time about what Brexit would possibly mean for us personally, but also for our business as a specialised PR consultancy (of course, I had written an outline of a few pages about it). When I asked my wife to read the outline, she said, while spooning sugar in her tea, “Well, we’ve really got no idea at all what’s going to happen”.

“This is exactly why we have to think about possible scenarios”, I responded.

“But that’s changing every day now! You’re just wasting your time and energy!”

“And that’s exactly why!”

“But what on earth are you going to prepare for!?”

And so it went on …  thank goodness, the steak knives were already in the dishwasher.

At some point we both agreed that we didn’t know any more than all the other owners of small (and big) businesses who don’t sit at the negotiation table in Salzburg, Brussels or London. Also, that it is extremely difficult to plan for a ‘no deal’ exit from the EU in the face of all these, quite frightening scenarios and questions: (How) Will future services for clients in the EU be taxed? Will it be necessary to provide additional qualifications or licences to do business with clients in the EU? What will be the legal status of EU foreigners in the United Kingdom with a company which is registered in England and Wales?

Being a German national who’s been living in Britain with his German family and British business for seven years (pre-Brexit) and considering all these and many more yet unanswered questions, I do feel like someone is taking the mickey out of me.

Not even every 7th small business is preparing for Brexit

Whether EU foreigner or not, we are by far not alone with our thoughts. According to a survey by the lobby association National Federation of Self Employed & Small Businesses (FSB), fewer than every seventh (14%) small business has started to plan for a No-deal-Brexit. More than a quarter (27%) of small British exporters reported falling international sales in the third quarter 2018, up from 19% between July and September 2017. No wonder that the sentiment among small businesses is low – less than a third of them (29%) believes that their prospects will be any better in the next quarter.

Indeed, it’s not all roses these days: Since the EU referendum on 23rd of June 2016 the growth of the economy in the United Kingdom has been lower than in all other G7 states, companies refuse to invest,[1] and Pound Sterling has lost about 9% of its value.[2] This might sound like good news for exporters but at the same time many goods, especially those imported from outside the UK, have increased in price. In August British shop prices rose for the first time in five years, followed by a warning of the British Retail Consortiums that customers should brace themselves for much higher price increases if there is no Brexit deal. In the same month, inflation in Britain jumped unexpectedly to a six-month high of 2.7%.

Big companies in Great Britain have already begun to relocate their European business to the EU. This is particularly obvious in the financial services industry, as can be seen with Standard Life Aberdeen’s move to Dublin, Lloyds of London’s departure for Brussels and M&G going to Luxembourg. Other companies, such as Airbus and BMW, are keeping their options for a move open. Meanwhile, fewer and fewer qualified employees from the EU are coming to Britain – in the NHS the number of nurses from the EU has dropped between the referendum and April 2018 by more than 7,000.

Adding to price spikes and lack of employees are tax hikes. Many councils have increased their council tax and business rates drastically which, according to a recent study by the City University of London, has become a menace to local businesses in itself. Meanwhile, within four years the British tax authority HMRC has dropped the limit for untaxed dividends from GBP 31,800 to GBP 2,000. Dividends make the lion’s share of income for many business owners with limited companies who were previously sole traders with a higher tax rate.

And now, on top of all that, come the unforeseeable consequences of Brexit …

Active surveillance and stamina

So, what can small businesses like us actually do in the face of such an insecure situation which can turn out to be existentially threatening?

Scenario planning is surely one possibility – meaning the mindful dispute about all possible consequences of Brexit for one’s company and its clients. The association of British public relations professionals, the Chartered Institute of Public Relations (CIPR), organised two scenario workshops this year for communication practitioners of companies, associations, institutions and PR agencies in order to run through the implications of a Brexit. However, due to the escalating events of the last weeks (key words here are “Boris Johnson”, “Salzburg”, “Northern Ireland border”), many scenarios fall short of reality or get overtaken in the left lane by them.

Lobbying is another choice. Associations and professional groups that represent a number of similar thinking companies like the FSB or the Institute of Directors (IoD) have a greater gravity in talks with government representatives than a single firm. This is, after all, the intention of many small businesses for becoming a member in these associations and for hoping that they can give their displeasure a louder voice.

Another option that all small businesses have is active surveillance. This is an approach in which a development of possibly great danger is followed closely for some time without the need to act on it immediately. This not only includes noticing any new Brexit related news with critical distance (not every grumbling by a few backbenchers and the headline in the Daily Telegraph the following day will automatically topple the prime minister), but also looking into developments in one’s own industry and among competitors as well.

With regards to the future treatment of companies from a third country to the EU (the UK after a ‘no deal’) both the European Commission as well as the British government have published some quite useful papers. Especially the EU differentiates very prudently, I think, between “preparedness” and “contingency”. And if you maintain the discipline and stamina to follow that approach without becoming either hectic or depressed, you might actually do quite well.

On a personal note

We have decided for our business to at least try to follow that active surveillance, keep an overview of the really important developments and stay as flexible as possible for all scenarios, so we hopefully won’t drown in the Brexit vortex. Especially us small businesses with their tighter financial and staff resources in comparison to many bigger companies have to keep their eyes peeled but mustn’t be confused about every new horror story about the potential fallout of Brexit.

Detailed plans on whether it’s really worth looking for partners in other (European) countries, applying for local registrations, training staff or broadening one’s own business model can only start once it is clear what the future relationship of Britain with the EU (and the rest of the world) will look like.

Actually, that’s a no-brainer.

“See? That’s what I said from the start!”, said my wife putting the kettle on again.

 

[1] Source: Financial Times, 31/07/2018: „The UK economy since the Brexit vote – in 5 charts”

[2] Source: Exchange rate GB/EUR 23.06.2016 and 24.09.2018 Reuters

Brexit scenario planning for PR practitioners

CIPR - Brexit scenario planning rport front page_Page_1What does a successful Brexit result look like from a UK perspective? And how do PR practitioners prepare their clients and organisations for different Brexit scenarios? These were the tasks for a group of 18 PR professionals who met in London end of May for the second “Brexit scenario planning” of the PR industry association Chartered Institute of Public Relations (CIPR). As a Member of the CIPR, I participated in this session, as well, and discussed with colleagues of different institutions about “worst case”, “best case” and “most likely” scenarios. Not surprisingly, the findings for the “most likely scenarios” were not acceptable to the participants in the end. So the groups drew out implications for public relations practice to prepare for Brexit and carry out damage control. Read the complete report of the session here.

Europe in challenging times: Panel discussion in the British Embassy in Berlin

Podiumsdiskussion in der Brit. Botschaft in Berlin (167A4042)It seems to be a platitude that Europe is going through challenging times – in the face of ever so obvious disparities between the Northern and the Southern states, the upcoming exit of Great Britain from the European Union (Brexit) and the ongoing pressure through low interest rates in the eurozone. But which effect do these political and economical centrifugal forces have on pensions in Germany? What are the consequences for independent financial advisors and their clients? Standard Life Deutschland followed these questions in a top-class panel discussion in Berlin which was jointly organised by the British insurer and the British Embassy. Among the participants on the podium were Wolfgang Bosbach, former MP of the CDU and pension expert; Prof. Dr. Clemens Fuest, president of the economic think tank ifo Institut; and Sir Gerry Grimstone, Chairman Standard Life Aberdeen plc. Gerle Financial Communications supported Standard Life in prearing the event with regards to the content.

The last fund manager of London − a post-Brexit Sci-Fi short story

baroudeur regardant le coucher de soleilIt’s the year 2023 and Brexit negotiations have gone terribly wrong. As a consequence, the UK has dismembered itself, an exodus of firms from London to mainland Europe has taken place − and the Shetland Islands are now in third place behind Luxembourg and Ireland for the registration of new funds. A short story by Hagen Gerle, Gerle Financial Communications, and Georg Redlbacher, Multi Boutique Marketers (MBMs)*

A picture from a family holiday in Cornwall, the 2020 stand-up metal award for ‘Best British Alternative Asset Manager (over 3 yrs.)’, a copy of a runners’ magazine – there weren’t many personal belongings left that Adam had to put in his cardboard box this morning. Most of the other stuff had already made its way into his small flat where the big removal boxes were piled up against the wall, or he had simply chucked them in the bin. ‘Travel light’, he told himself. ‘You’ll buy what you need in Helsinki.’ Continue Reading

FONDS professionell: Target missed – PRIIPs are not transparent and incomprehensible

Logo Fonds professionell onlineAt the start of 2018, the new PRIIPs regulation will come into effect. In an exclusive article (in German only) for the German financial trade publication Fonds professionell online, Anke Limbach of management consulting firm Concedro, Hagen Gerle of Gerle Financial Communications, and Peter Clouth of law firm Clouth & Partner have summarised the main points of critisicm about PRIIPs.

upgrade! 02/2017: Two mammoth regulations are waiting for the funds industry

DruckMiFID II and the investment tax reform – there are two mammoth regulations waiting for the German funds industry at the beginning of 2018. The cover story of the latest issue of upgrade!, Universal-Investment’s magazine for its funds partner, deals with the effects of the two regulations for funds sales and investment companies. Once more, Gerle Financial Communications was entrusted by Universal-Investment to do investment writing and editing for the magazine.

 

PRIIPs: There’s something seriously wrong with communications if the information document contains a comprehension alert

logo-concedroThe acronym may sound quite onomatopoetic and leave the impression of speed – in reality, the upcoming introduction of “PRIIPs” for the investment and insurance industry has more than just one catch to it. The most severe critic is that the new basic information documents for Packaged Retail Investment and Insurance Products lack the qualities for which they are supposed to be launched: transparency, comparability and, most of all, comprehensibility. A joint article by Anke Limbach, Concedro, and Hagen Gerle, Gerle Financial Communications. This article is only available in German.

Risk & Compliance: Financial communication in an ever riskier investment world

logo-risk-complianceThe website “Risk & Compliance Platform Europe” is, since its launch in 2014, a trans boundary interactive platform for all professionals working in the field of risk and compliance, both in the financial world as well as in the corporate environment. It publishes in five languages (German, English, French, Dutch and Italian). In its latest newsletter Risk & Compliance published the by-lined article by Hagen Gerle, Gerle Financial Communications, and Ross Hunter, Copylab, about “Financial communication in an ever riskier investment world” (German version only).