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Oh no it's a 'Yes'! What wealth managers are telling Scottish clients

Last month Brewin Dolphin wrote a letter to the 'Telegraph' saying more clarity was needed on Scottish independence. We talk to three wealth managers on how they're handling this dilemma.  

After years of debate Scotland will go to the polls in a referendum on independence in a little more than four months.

Not so long ago a 'Yes' vote was considered highly unlikely. However, the split has since narrowed to a marginal 3% in favour of those against.

Not only will the political fallout from independence be immense, it could also have major financial implications.

Some of Scotland's leading firms are starting to take action as fears grow.

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BlackRock, the world's biggest fund manager, didn't mince its words when it warned Scottish independence would create 'major uncertainties, costs and risks' for 'mostly' Scotland.

It said investors in UK gilts and equities, especially those in utility, energy and financial firms would be hit hardest.

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Standard Life rained on First Minister Alex Salmond's parade when it threatened to quit an independent Scotland.

'Scotland has been a good place from which to run our business and to compete around the world. We very much hope that this can continue,' chairman Gerry Grimstone told the market earlier this year.

'But, if anything were to threaten this, we will take whatever action necessary, including transferring parts of our operations from Scotland, in order to ensure continuity and to protect the interests of our stakeholders.’

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Meanwhile Dundee-based Alliance Trust, headed by Katherine Garrett-Cox, has started establishing an English corporate presence.

'The referendum in September is creating uncertainty for our customers and our business, which we have a responsibility to address,' Garrett-Cox said.

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Others are playing more of a 'wait and see' game.

These include RBS, which said it remained 'neutral' on the debate.

'We are monitoring the debate on Scottish independence but, as I and my colleagues have said many times, we are politically neutral,' RBS chairman Sir Philip Hampton said.

'We don't support political parties or political movements. We will respond to whatever voters decide and governments agree.'

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Aberdeen Asset Management is also sitting on the fence, with its chief executive Martin Gilbert telling the BBC his firm has no immediate plans to relocate its headquarters.

'It is a decision for the Scottish people and, to a certain extent, there's quite a lot of resentment if a business leader or a company does come out and give an opinion,' Gilbert said.

'So I think it's very much remaining neutral on the subject and let the people decide in September and, once we know that, we will see what is needed.'

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Others are more confident about Scotland's ability to go it alone,

These include First State's star fund manager Angus Tulloch, who penned a letter with a group of financiers, including ex-RBS chief executive George Mathewson, to the Financial Times speaking up for Scottish independence.

The letter was triggered by frustration at the Scottish Financial Enterprise (SFE) - the trade body for Scotland's financial services sector - which had warned all currency options for an independent Scotland would cost more than the current status quo. Tulloch and Co accused SFE of lacking objectivity.

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Brewin Dolphin said all the confusion surrounding independence is making it difficult to plan accordingly for clients.

In a letter to the Daily Telegraph in April, the wealth firm's head of investment management Stephen Ford said while Brewin was maintaining a neutral stance, his firm had a 'duty' to inform clients how they could be impacted by a 'Yes' vote.

‘The Scottish question is already having an impact on how portfolios are managed as some factor in possible liquidity, currency and interest rate risks.

‘We will continue to press for clarification, and to do the best for our customers throughout this period of considerable uncertainty.’

Amid all this confusion, Wealth Manager spoke to the three wealth managers to learn what exactly they're telling clients.

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Stuart MacDonald, managing director, Balmoral Asset Management, Edinburgh

‘The uncertainty over the outcome of the referendum has affected our long-term planning. Although roughly 85% of clients are based in Scotland, roughly 25% of the assets we look after are in London and surrounding areas. The next logical step for us would be to acquire a business in London but we will not be progressing this until the outcome of the referendum is known.
‘What the consequences of Scotland voting for a separation would be are a feature of virtually every client meeting. My colleagues and I build in an extra 15-20 minutes to every meeting as it is something clients are likely to raise.

‘The first policy decision we took was that in no circumstance should we initiate a conversation about the referendum. Our second decision was that in the event a client raised the issue, we would aim to provide a balanced explanation of the issues.

‘The first question clients ask is whether we believe Scotland will vote for independence or not. My own “balanced” response is that although six out of 10 people believe Scotland is better remaining part of the UK, the remaining four that disagree do so strongly. They are likely to vote with almost religious conviction.

‘The most likely outcome is Scotland will vote to remain part of the UK – but if there is voter apathy, there is a possibility the high conviction minority vote (for independence) will win the day.

‘The second question is what would happen to people’s money if Scotland voted to become independent? We are reassuring clients there would be 18 months of negotiations and that a workable solution to the many issues would ultimately be found.

‘The third question is usually “would Scotland would retain the pound?” For this we tend to fall back on the comments Bank of England governor Mark Carney made when he visited Edinburgh a few months ago.’

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Alan Aitchison, executive director and head of office, Quilter Cheviot, Edinburgh

‘Uncertainty is something markets and investors abhor. In the case of the referendum, that uncertainty is being driven by unanswered questions on issues that may affect the economy and investment strategies.

‘We are also being asked questions by our clients and professional intermediaries about regulatory issues in relation to investment and about potential impacts on the wider economy. The difficulty is that many questions will remain unanswered until after the referendum because the answers will only be found through the kind of lengthy and complex negotiations we might expect if Scotland does become independent.

‘We recently conducted a snapshot survey of finance professionals in Scotland and found while most opposed independence, a large number also had an appetite for further devolution of powers.

‘Our position is to be explicitly neutral because we feel it is a matter for individuals. We recognise, however, there is some concern about how independence might impact on our financial and trading relationship with the rest of the British economy. Scottish exports to the rest of Britain are about twice as great as those overseas. Many advisers rely heavily on clients, partners and colleagues in London and elsewhere in the UK.’

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Colin Aitken, executive director at UBS wealth management

‘Our clients in Scotland and the rest of the UK are paying close attention to the political, economic and business discussions leading up to September’s referendum. But they realise it is important to refrain from making any big changes to their portfolios until we know how the Scottish people have voted. Even then, while there will be better clarity on the potential political fallout, it may take time for the impact on business and the markets to be felt.

‘That doesn’t mean we should bury our heads in the sand for the next four months. It is our duty as their wealth manager to assess the potential risks to clients’ investments. We are helping clients consider each possible outcome and the market’s likely response by providing thorough analysis of the consequent impact on sterling, gilts and equities.

‘Crucially, it is not just about the polar ramifications of union or separation. It is important for clients to consider how a pyrrhic victory for the “no” campaign, with “yes” voters achieving a significant proportion of the vote, may well herald further devolution of powers and possible changes to Scotland’s tax regime.’

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