WealthBriefing hit the financial centre of Geneva to canvas sentiment of operating in a post-Brexit environment. This piece focuses on the key arguments discussed in the already-independent Switzerland.

Despite June’s Leave verdict, the UK has far more to offer as a financial centre than access to the EU for overseas investors, an expert panel told WealthBriefing readers at an exclusive event held in Geneva last month. With the shape of Brexit yet to be decided, access to the single market as well as freedom of movement – for promising financial services employees in particular – will define the force of the impact on wealth management services.

The Referendum result declared on the morning of 24 June sent markets into stasis, and remained fairly lifeless over the summer, with reluctance for substantial changes in buy or sell positions as the UK’s financial future became unclear. Yet, as Rod Lockhart of Lendinvest Capital pointed out to the audience, the pent-up demand that built during these first few months of uncertainty meant that “small to medium sized businesses now just need to get on with things” – rather than a lengthy (and costly) period of hesitance while the shape of Brexit is finessed.

For the time being anyway, some areas of international investment into the UK have actually benefited from Brexit – arguably, however, because of the devaluation that hit the pound in the wake of the Leave decision. Attorney and manager at Fragomen Worldwide, Christine Sullivan, noted that her law firm specialising in guidance for HNWs on citizenship and migration had observed a creeping rise in the amount of Chinese and Russian individuals who may have been deterred by the recent higher threshold rise from £1 million ($1.25 million) to £2 million for a Tier 1 Investor visa, which is now more attractive with current conversion rates.

The UK has a lot more to offer investors than solely its place within the EU, the panel noted, debunking hearsay that Frankfurt will soon become the financial capital of Europe. Even the growing financial hubs of Hong Kong and Singapore are unlikely to overtake the UK in the near future, Jeremy Leach of MPG suggested. Despite their strengthening in the past few decades, the long distance and expansive time difference will mean these Asian powerhouses will not be able to woo over European clients en masse any time soon.

“We don’t expect change in attractiveness of the UK because high net worth clients were never going there solely for access to Europe – they go for the ecosystem, schooling and environment,” Sullivan said, drawing attention to the UK’s overall political stability.

However, there are two defining uncertainties for wealth managers trying to put plans in place for navigating Brexit that arguably have been the focal point of most political noise surrounding it: the notorious Freedom of Movement and Single Market dilemmas.

As an attractive destination with a stable political and economic backdrop, Paul Astengo of Gibraltar Finance argued, there will be a strong draw for international individuals to want to base their careers in the UK – a choice obviously made by swathes of ambitious workers within the financial services sector.

However, the direct impact on the future residency of these employees in the face of Brexit is highly complicated, Sullivan explained, and calls into question the definition of EU citizenship that has, until now, granted rights beyond those of its individual nations. In this “unprecedented” situation where these rights may be removed for EU citizens in the UK and British citizens in the EU, much clarification will be needed to protect not just the principle of these rights, but in actual practice, to protect individuals who had come to work in the UK or had left the UK for elsewhere in the EU prior to the Brexit announcement.

What will remain problematic for wealth managers is whether they will be able to attract in young talent early in their career to nurture through the rankings. While under the EU there is no restriction as to what income is required for a job in a new country of residence, individuals may be subject to earning over a certain threshold to have their immigration approved. Sullivan highlighted that with a third country relationship to the EU, certain salary or education levels must be met.

“The higher the threshold of an immigration scheme, you’ll start to see where the gaps are when you’re not being able to bring in skills and talents,” she said.

Tax

Unlike Switzerland, whose diminishing banking secrecy has left it struggling to find a replacing unique value proposition, the UK has long been able to offer investors the draw of its own currency and now sovereign control, Jeremy Leach of asset management firm MPG argued.

In particular, he discussed recent talk of cutting corporation tax levels down to 10 per cent to ensure London’s ability to remain an attractive financial centre, especially as the UK has the ability to use its GDP as a sustainable value proposition.

On a personal level for high net worth migration, however, Sullivan explained how the tax implications of the UK outside of the EU will hold little sway over those weighing up residency destinations, as instead lifestyle, security and family often dictate decisions of this nature. 

As appealing as low levels of corporation tax may be for budding entrepreneurs looking for a home for their operations, Astengo explained, emotional ties will always determine these decisions for wealthy individuals.

Funds and Domiciling

For asset managers themselves, Astengo stressed that they have two tenable options for their operations while waiting for the shape of Brexit to be decided, let alone the two years post-Article 50 triggering to tick over. 

“They can sit and wait and see what happens, or they can make sure they have the right licencing and framework in the EU as it remains, and also outside of that,” he said.

Lockhart, whose firm has funds domiciled in both the UK and Luxembourg, expressed how this has afforded flexibility with its business strategy going forwards by “hedging their bets” for the passporting of funds in the EU, and will continue to invest in both jurisdictions throughout the current period of uncertainty.

Leach stressed that a physical presence within the EU will be paramount for firms intending to still do business within it, and should “pick one European centre to position themselves”.

His firm, MPG, for instance, chose Malta for the strength of its financial services centre and regulator, and was a cost-effective European base. Its product range focuses on UCITS, alternative investment funds and asset-backed securities, all of which have their own directives for European marketing.

“There’s uncertainty as to whether passporting will remain and no one should sit on their hands and wait. It’s time to be proactive,” he said.

However, Astengo highlighted that the relationship that will remain between the UK and EU and how future business will be conducted runs both ways.

With the EU giving its member states the problem of how they can keep the level of business that they already do with the UK in place, he discussed Gibraltar’s ability to offer “reverse passporting”, as European investors can gain access into investing in the UK through its overseas territory.

It is clear here that while the shape of negotiations of Brexit is still yet to be defined, the long slog of the two years of exiting post-Article 50 triggering cannot be a cause for wealth managers to become complacent. Strategies must be agile to deal with whatever outcome is reached in terms of the single market and freedom of movement. Yet, throughout all this, the UK still has much to offer the world in terms of its financial services industry, and its position as a potential home for many international HNWs looking to migrate their wealth to stable shores.