Now we know. The referendum on whether Britain should stay in or leave the European Union will be held on 23rd June. So, what would leaving the EU mean for UK investors? Brexit.
I should clarify. I’m not referring to what might happen to UK stocks. The possibility of a British exit (or Brexit) is already baked into current prices, and such is the global nature of the economy nowadays that the long-term impact on the markets may not be as substantial as some are suggesting.
No, I’m looking at this purely from a consumer’s standpoint, and there is no doubt in my mind that the interests of UK investors would be far better served if voters choose to stay within the EU.
This is not a political blog. I personally will be voting to stay in, but this is a big decision for us as a country to make, and there’ll be a whole number of reasons why people will come to one conclusion or the other. I do though fear for investors if we vote to leave.
The asset management industry — and in that I include brokers, consultants and other third parties — is arguably the most powerful industry in the world today. With its vast PR and advertising budgets, it enjoys huge sway over the media. By virtue of its block shareholdings, it exerts a considerable measure of control over businesses.
The industry is also very well connected with the political establishment. As a group, money managers are far and away the biggest donors to the Conservative Party — and that’s not to make a party political point, it’s just a fact. Many MPs have directorships in the City, and many will doubtless end up working there should they lose their seats.
This is also an industry that serves consumers extremely badly. Over meaningful periods of time, only a tiny fraction of funds actually succeed in doing what we pay them to do — namely to outperform the market — and even they tend to recoup for themselves any value they add in charges, leaving nothing for investors. As a consequence, large numbers of people are retiring with nowhere near enough money to last them for the rest of their lives. A recent study concluded that even high-earning Millennials will have to work until they’re 85 to secure a comfortable income in retirement.
I’m not a big fan of regulation. All too often it burdens small businesses (financial advisers, for example) with red tape, while leaving the main offenders free to carry on as they always have. That said, against an industry that refuses to regulate itself, independent regulators are our last line of defence.
True, the European Commission, like our own Government, is too easily influenced by the financial services industry. Lord Hill, the EU Commissioner responsible for financial services is himself a former fund industry lobbyist. In drafting MiFID II, a regulatory framework designed to protect consumers, the Commission has faced concerted lobbying and delaying tactics from industry groups including EFAMA and Britain’s own Investment Association.
But the hard work, thankfully, has been done. When it finally comes into force, MiFID II will compel the industry to be much more transparent, particularly around charges. Denied the protection that MiFID II will afford, UK investors would instead be at the mercy of the Financial Conduct Authority, which is clearly under the influence of the Treasury and set on introducing a much more light-touch regulatory regime.
Ominously, one of the concessions that David Cameron appears to have successfully negotiated with our European partners is the freedom to opt out of any regulatory changes that threaten the City of London’s status as a major financial centre. This may or may not include MiFID II; only time will tell. But the implication is clear — even if we vote to stay in, there appears to be nothing stopping a UK government from denying its citizens the consumer protection we need.
All told, though, UK investors are far better off in the EU than out of it. Around the world, from Scandinavia to Australasia, governments and regulators are slowly coming to the view that the banking and asset management industries needs tighter control. Even in the US, Democrats and Republicans are now united in the opinion that Wall Street has too much power for the public good.
If we really are serious about wanting London the remain the global financial capital, the UK should be swimming with the tide of positive change, not against it.
Related posts:
Has MiFID II been kicked into the long grass?
Time to explode the City of London myth
Vast majority of UK fund managers “genuinely unskilled” — study
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Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.
