The European dream of managing investments in the EU has become more challenging but Ireland continues to benefit.
A full fiscal quarter into the UK’s new third-country status with the EU, and wealth managers are keen to articulate how they are positioning themselves to pick up new business.
UK discretionary investment managers can no longer serve financial advisors and their clients operating in Europe without a physical presence there, creating plenty of opportunity for client assets and investment teams to change hands.
“One of the main reasons we left Rathbones is that they haven’t got an EU proposition and a MIFID licence,” Maurice Keane, managing director and head of International business at Tilney Smith & Williamson, said, explaining some of the new dynamics.
He and Jeremy Bezant joined Tilney’s business team last year to focus on developing relationships with IFAs through its newly acquired Dublin subsidiary. The firm gained the Irish wealth business after merging with Smith & Williamson last September, giving the new venture an important gateway for booking investment transactions and providing international IFAs with wealth advice.
Roughly half of financial services firms have moved some operations to Europe because of Brexit. According to EY’s brexit tracker, the decision to leave the single market has caused £1.3 trillion of assets so far to leave UK shores for Europe.
Through March 2021, Dublin remained the most popular destination for staff relocations and new European offices; 36 financial services firms have established new operations there in the wake of Brexit.
While some UK-based discretionary investment managers have lost ground in Europe, Tilney Smith & Williamson has been using its Ireland base to pick up new business.
“There is a lot of scope,” Keane said, and as the model grows, “the whole business plan will be under review at all times.”
Ireland’s legal and regulatory framework is similar to the UK's, and for UK-based asset managers it offers a good cultural fit.
As the chances of a favourable financial services agreement between the UK and the EU has become a guessing game, firms have been weighing up what to do in the mid and longer term.
The two sides have agreed a memorandum of understanding in recent weeks but this is a long way from the UK being granted equivalency rules. The MoU merely commits the parties to meeting twice a year to share any regulatory changes that might impact either jurisdictions and to create a framework for negotiating new terms, however long that might take.
Any UK manager that hasn’t made contingencies and is holding out for favourable terms is likely to be disappointed in Tilney’s view.
“It is a big risk and a lot of firms, larger ones like M&G and a few others, have just gone with the decision to say 'I will set up a European business in Europe',” Jeremy Bezant said.
The firm says its position is "preferable," with booking volumes to support that. Assets under management at the group have risen by 220 per cent since last August, with new monies mainly coming from international IFAs and pension trustees from around Europe, with a big market in Spain and Portugal.
“Unless there is an absolute shock on equivalence, we don’t see that slowing down at the moment,” Keane said.
The group has also seen some transfer of allegiances from UK-based asset managers into the brand.
“The IFAs we are working with are now saying, can you be our DFM for everything? You’ve got the UK, you’ve got Jersey, you’ve got Ireland, and you can do different currencies; you’ve got funds as well as direct personal investment management solutions. You also do sustainable, so you have everything I need,” Bezant said.
The degree of certainty offered by the Ireland franchise, and the fact that Ireland is known as a centre for wealth and funds, has made it an attractive pan-European destination. Its corporation tax for the time being remains highly competitive at 12.5 per cent.
“There are a limited number of firms sitting in our situation, and some of these big pension trustees, individual clients, and IFAs are making the calls,” Keane said. “Also, once the relationship is embedded, it becomes really sticky. We rarely lose a relationship to a competitor,” he said. Pension trustees in Cyprus and Malta are among those seeking its services.