Financial advisers and wealth managers who advise expatriate Britons living in Europe say it is too early to say for certain how these clients will be affected by last week’s “Brexit” vote, but that there is a potential for significant, and possibly costly, impact.
Just about everything, they say, will depend on the agreement UK officials ultimately hammer out with their EU counterparts over the next few years, apart from some immediate effects. These include a crash in the value of the British pound, which, around noon London time today, was at a new, 31-year-low against the US dollar, at $1.3218.
Those British expats who are retired and living in Europe, or planning to be, could also potentially see their UK pensions frozen at the rate at which they start taking them, as has been the (controversial) norm with respect to such non-EU countries as Australia, Canada and South Africa. However, UK pensioners living in the US do get their UK pensions up-rated at the same time and rate as their UK counterparts, so it is possible that the Government will not change the current arrangement.
Also potentially likely to be adversely affected could be those British expats who are relying on the government in the EU country in which they reside for healthcare, as they are currently entitled to do under the existing EU reciprocal health agreement.
One such expatriate, who has lived in Spain for the past 18 years and who asked not to be identified, told International Investment that the healthcare matter was, “arguably, the main worry for many expats living here”.
“Currently British citizens are entitled to healthcare through the European health insurance card, or free health insurance from the Spanish state, but there are real fears that Spain could stop offering the cover to non-EU citizens,” he added.
“If this happened, for most people it would mean having to pay for private medical insurance, which for many expats could be quite costly.”
The “shock Brexit result”, this expat added, had taken a many British expats in Spain by surprise, “and there is a great deal of anguish among expat communities [here], due to the enormous amount of unknowns.
“There’s a sense of nervousness, which is perhaps unsurprising seeing as Brexit is likely to impact them significantly one way or another.
“In light of the many question marks, Spain’s acting prime minister, Mariano Rajoy, has told expats living in Spain that for now they retain the same rights as before.
“However, this could change of course in the future – and it is this lack of certainty that is of major concern.”
Advisers and wealth managers with affluent clients say these individuals are usually covered by private health plans, and therefore have other concerns, mainly focused on investments, properties and currency rates.
Spectrum: little effect…for now
At the Spectrum IFA group, chairman and co-founder Michael Lodhi notes that the some concerns that certain other advisory businesses have at the moment, about their ability to continue to passport financial services across the EU’s borders, won’t affect his company, which is headquartered in Luxembourg and licensed in the EU, not in the UK or Gibraltar. The company has 12 offices in six countries, and looks after more than 10,000 clients.
In addition, “most of the products we recommend are individually EU-compliant [and] based in Dublin, so no change there” either, he adds.
But what existing EU resident expatriates “and new UK expatriates” will be in need of now, Lodhi continues, is “advice and services, more than ever before; [and] once the UK actually leaves the EU, there will be issues to resolve in relation to healthcare and pensions, for example.
“Many of our clients have opted to transfer their UK pensions to an EU jurisdiction, [via] qualifying regulated overseas pension schemes, the main reason being that they are fed up with frequent changes to UK rules. We now expect even more UK pension rule changes, [and so] we expect more people will be looking to transfer their pensions to achieve a degree of certainty in the future.”
Sam Instone, co-founder and managing director of AES International, a UK-based advisory firm with more than 3,000 clients across Europe, said he’s urging them, and others, to take the long view and not panic – about the pound’s weakness or anything else. He is viewing the current Brexit hysteria in the context of previous crises, and argues that lessons can be gleaned from them.
“Sure, sometimes investors will convince themselves that the world is about to end, and [as a result] will to make poor bets [based] on public opinion,” he told International Investment.
“But ‘Brexit’ is merely noise to the sensible, long-term investor. The clients who were vying to buy pounds as fast as they could on the eve of the referendum are the same clients who are now calling to sell everything.
“Our duty remains to manage this behaviour, and remind [our clients] that their long-term asset allocation and currency hedging plan remains. Sensible investing requires absolutely no immediate action.
“We say, ‘keep calm and carry on’.”
Contingency plan ‘in place’
Gibraltar-headquartered Blacktower, which has specialised in looking after British expatriates in Europe for the past 30 years, has been considering its options “ever since David Cameron decided to provide the UK people with a voice over their future within the EU”, in the words of its chief executive, John Westwood. As a result, he told his staff in a recent note, “we have for some time been putting into place a robust contingency plan” in case the Leave camp won, even though, he admitted in his note, “none of us thought this would take place”.
As a result, the company stands ready if necessary to change part of its licensing structure to another EU nation, Westwood says, in order to ensure that it is able to continue to passport its business without interruption across all of its EU markets.
But “this does not mean we will be closing or even reducing our presence in Gibraltar, in fact, the opposite is planned,” he said.
“Shortly we hope to be moving to larger premises within Gibraltar, and this will…increas[e] our Gibraltar personnel count as a consequence.
“Gibraltar has been Blacktower’s home base for many years, and I have absolutely no intention of changing this in the future.”
For now,Westwood went on, the Blacktower advisory team is being asked to concentrate on “helping our EU-based clients with the inevitable uncertainties this momentous event will bring about in relation to UK and EU financial planning issues.”
Outside of the EU, wealth managers who look after expatriate Brits say their clients, understandably, aren’t as worried as those in Europe. They are, though, eyeing the market with interest, and considering what, if anything, would make sense to do from an investment perspective.
Mark Paine, of Meyado Singapore, says his firm’s “GBP-centric clients” are generally happy at the moment, “as they tend to be holding their assets in Singapore dollars and US dollars, with a view to repatriation down the line”, and the Brexit-weakened pound, therefore, works for them.
Some of these clients are inquiring about taking advantage of the current state of the market and weakness in the pound to buy property in the UK, he adds, or looking to invest in UK-based multi-national companies that get most of their income in non-UK markets, which stand to enjoy “massive uplifts” when they eventually report their results, assuming the British pound remains weak.
Some of Meyado’s more conservative clients are showing an increased interest in gold, Paine says, although “most of our clients have been heavy cash since January, and we are not looking to change that in the short term”.