A London-based financial publication, we have strong links with Scotland, in particular Edinburgh and Glasgow where many of our most valued readers and asset management contacts are based. Whatever the outcome of the vote, I’m sure those relationships will continue to thrive.
However, it’s clear to us that, from a financial services perspective, a ‘No’ vote has to be the best outcome.
Having discussed the topic at length with our Scottish readers, it would seem certain that your wealth manager community will unanimously reject independence.
Financial services is a sizeable part of the Scottish economy, employing some 85,000 people north of the border. Scottish banks and asset managers have all had their say about their plans in the event of independence, but there remains a significant risk of job losses in Scotland as firms up-root and set up registered offices in England.
As one Edinburgh-based wealth manager told us: “Any divorce leaves a bitter taste, and I can’t imagine if I lived in England and Scotland votes ‘Yes’ that I’d want my money managed there.”
That may be taking it to the extreme, but lest we forget a large proportion of clients of Scottish wealth managers are based in England, and with Scotland’s ongoing use of the pound far from certain, this could cause considerable upheaval going forward.
The macro perspective
The impact on the Scottish and UK economies of a yes vote could be highly damaging, hitting asset prices ramping up macro uncertainty and ultimately making it much harder for wealth managers and asset managers to invest in Scotland or run successful businesses.
The issue of what a separated Scotland would use as its currency and how it would work has come nowhere close to being fully addressed. Clearly a move to the euro would be welcomed by about as many people as you can count on one hand. It also looks unviable for Scotland to stick with sterling without having interest rate setting powers or the blessing of the UK Government.
Then there are the issues of monetary and fiscal policy. Should a new country with new leadership be sprung upon the world, investors would have close to zero certainty on future policy nor any truly representative historical data to work from.
If Scotland is eventually forced to hurriedly set up its own central bank and issue a ‘new’ currency it could prompt unprecedented capital flight as wealthy Scots fearing the unknown put their money into the safety of the dollar or even the euro, despite its troubles. Could any potential benefits of independence really be worth running these risks?
The fund view
And it is not just from a macroeconomic point of view that uncertainties exist. The funds of Scottish houses are registered across the UK and Europe, and not only domiciled in Scotland. But, this begs the question, will the existing funds need to be re-registered? And, from an ongoing, fund development point of view, further repercussions can be seen.
Fund houses have a hard enough time selling their products to investors without having to factor in political uncertainty or an explanation of how a new structure works. So the less of that they have to do, the better, especially because there are a whole range of existing options in terms of jurisdiction and structure elsewhere that are already fit for purpose.
And, even if we assume that Scotland is able to establish itself as a new jurisdiction (itself a long and difficult road) who will regulate it? It is unlikely, to our mind, that the Financial Conduct Authority would really want to take it on even if they were legally allowed to do so.
Irrespective of whether the vote is ‘Yes’ or ‘No’, the next few months are going to be a period of significant uncertainty for the Scottish fund management sector as it is likely that many contingency plans have begun that would be difficult to wind back. But if it is a ‘Yes’ vote, that would start a process that is going to take a long time to unfold and, if there are any certainties in this, it is that businesses and investors, try to avoid uncertainty where at all possible. These doubts are no reason to disregard change altogether, of course, but we feel today’s financial challenges are better tackled together as a United Kingdom.
Yours sincerely
Portfolio Adviser
