In the 2022 Forrester/Dun & Bradsheet study of over 260 decision-makers across the UK, US and Canada, four out of five (97%) respondents stated that their company’s current ESG strategy created a significant or transformational increase in revenue. In comparison, 81% of participants said their company had experienced negative consequences by failing to meet their ESG goals, the most common being increased operational risk (43%) and increased financial risk (38%).

With an increased drive towards sustainability and reaching global net-zero goals, companies must find the right balance of investing in their ESG strategy to drive long-term value, against short-term economic turmoil.

The business case for ESG

It’s crucial that companies recognise the direct value of focusing on ESG in their markets. In order to tackle material environmental and social issues, companies need to scale up their investments supporting these areas. This requires a clear understanding of not only the environmental and social benefits but also the associated financial benefits.

For instance, the NYU Stern Center for Sustainable Business examined the relationship between ESG and financial performance in more than 1,000 research papers from 2015 to 2020. They found that companies were 76% more likely to experience a positive or neutral correlation between a long-term focus on ESG and improved financial performance.

ESG helps illustrate where companies’ expenses are going and where they can improve their resource efficiency. In relation to identifying operational inefficiencies, companies can use ESG-related data to see where they may be spending more money than necessary to clean up their pollution and waste. They can then look into more cost-saving waste reduction strategies. Additionally, many businesses may have untapped financial benefits of ESG strategies that they’re currently not tracking such as avoided cost, where ESG-related data can help identify instances where less money is needed to be spent.

Access to consumers can also be dependent on how companies are demonstrating their ESG efforts. In fact, a 2021 PwC ESG consumer intelligence study revealed that globally 57% of consumers say companies should be doing more to advance environmental issues (e.g., climate change and water stress), 48% want companies to show more progress on social issues (e.g., D&I and data security and privacy) and 54% expect more from companies on governance issues (e.g., complying with laws and regulation and addressing widening pay gap). As a result, ESG reports that successfully meet customer standards can improve the chances of both retaining existing customers and expanding customer base.

Employees are also increasingly concerned about their employers' ESG efforts. For example, a 2020 Reuters survey of workplace culture found that of 2,000 UK office workers, 72% of multigenerational respondents expressed they were concerned about environmental ethics, while 83% of workers said their workplaces were not doing enough to address climate change. With there being significant costs associated with recruiting and retaining talent, it’s important that as with consumers, companies put the effort in meeting employee standards.

Focus on material ESG issues

Companies may be tempted to cover the universe of ESG issues, but this is not the best approach. Instead, they should understand which ESG issues are likely to have a substantial impact on enterprise value and finances of the company as well as the demand for its presence from stakeholders (i.e., material ESG issues).

ESG issues, such as business ethics, greenhouse gas emissions and community relations can be dependent on a company's sector, size, geographic location, among other factors and so it is important that executives understand which areas make the most sense to put their focus and resources into. For example, a company within the oil and gas industry will be focused on methane emissions while a company within the technology industry will not.

Understanding what the material ESG issues for a company are, begins with conducting an ESG materiality assessment. This is where companies can gain input from a broad range of stakeholders as to which ESG issues matter most -or are material. After gaining this input, and understanding connectivity to financial data, the company should obtain consensus with a cross-functional committee of leaders, management and the board.

There is greater value in focusing on doing the best work when it comes to material issues and related performances that matter most to a company and its stakeholders, as opposed to simply doing an okay job at everything. A study from Mozaffar Khan found companies focused on material issues would have a 6% outperformance on stock prices while those that focused on immaterial ESG issues or no ESG issues at all would underperform the market by -2.6%. Overall, it’s in the company's best interest to focus on material ESG improvement.

Data transparency and one source of truth

While ESG can allow businesses to identify cost-saving avenues, they need the right data to provide insights and help inform their decision on new opportunities. The future of ESG reporting will enable connectivity to financials and help companies calculate the impact of ESG efforts as opposed to merely reporting metrics.

To achieve this, companies can harness cloud-based technologies, providing a single source of truth for all financial and non-financial data. This means the data collection and reporting takes place within one central location, where everyone can collaborate in real-time in the same workspace with everything tracked, and everything linked between financial and non-financial.

In fact, Workiva’s 2022 survey found that globally, three out of four respondents expressed that technology was important for compiling and collaborating on ESG data, as well as validating data for accuracy (80%) as well as mapping disclosures to regulations and framework standards (85%).

Propelling ESG reporting into a transparent, innovation-friendly, actionable and dynamic environment will streamline the steps needed for a company to make informed decisions.

Nothing happens in a vacuum

Currently, the recession, geopolitical conflicts and other factors are taking place alongside ESG. This is why it is important that companies effectively weigh where priorities should lay to successfully navigate through uncertainty.

Dedicating efforts to ESG enables a greater understanding of risk and opportunities that can be cost-saving and opportunity-generating. Even amongst economic turmoil, businesses will need to continue to walk the talk when it comes to climate commitments, advancing social issues and addressing corporate governance.

Through effective ESG reporting, having one source of truth will bring together the financial and non-financial data to best inform decisions. With clear and transparent insight across the company, the particular ESG issues that are most fitting can be determined, and this will support in standing up to both existing and future scrutiny.

Mark Mellen is the Director of ESG Enablement at Workiva, the world’s leading platform for integrated regulatory, financial, and ESG reporting. Workiva simplifies complex reporting and disclosure challenges by streamlining processes and connecting data and teams. Learn more at workiva.com.

What are the current trends shaping wealth management in the high-net-worth space?

One trend we’re seeing is the push-pull relationship whereby clients have cash on hand and want to deploy it but they have a mental block that is preventing them from deploying large lump sums of their capital. There is a reservation that real estate is potentially overvalued. There is also a reservation about geopolitical issues that affect the stock market or may affect the market in the future. We also see a lot of fortune-telling syndrome happening.

51% of Canadians still don’t have a will and money is starting to move from one generation to the other. I’ve spent 17 years in the business and now more than ever, money is intentionally being given to adult children. “Do something responsible with this X dollars” say the parents.

We work with people who are about to sell their company or are thinking about doing it and yet they have no idea what they spend each month. The second part of this situation is a spouse who has not worked for many years, who really has never been part of the finances so getting them to look at how much is being spent can be a challenge. We walk clients through an exercise called BAM. BAM stands for Bare Ass Minimum, referring to monthly expenses that exist regardless of your lifestyle spending. The baseline bills. This is the starting point for someone who is considering retiring and it is useful for clients to accumulate and wonder how much they need to build up before selling. They can accumulate a mix of cash, stocks, real estate and business equity to make a total pot, and then use the BAM to figure out how long the money will last spending X per month with 0 return. That is a starting point.

Over the near two decades in the business, I have used permanent insurance where appropriate and some years have not implemented a single policy. In other years I have encountered many clients who have effectively used the permanent insurance solution. Currently in the market with the continuous tax reforms in Canada in the government and limitations being implemented, permanent insurance seems to be more of interest to some clients now. From an estate planning tax standpoint one of the last standing advantages is the Capital Dividend Account. Life insurance death benefit is one of a few items that create a capital dividend account (CDA) which can flow money out of a company tax-free.

With the recent real estate values growing at a fast pace and the continuous business sale activity many clients are utilising reorganisations of the corporate structure. For wealthy families, they likely know they will never run out of money or assets, but if they can organise their companies in a certain fashion and it enhances their tax efficiency or enables a more seamless estate transition while they are alive or dead, this can be effective planning. We are working closely with estate lawyers and accountants to set up structures. Having investment accounts in corporations that have large corp loss carryforwards or shareholder owing allows for effective planning.

Blended families is a real thing. Wealth and blended families can be a challenge but when you have blood children involved in the family business (or family farm) and new spouses (recent or long time). Ensuring there is estate equalisation is key. More time and communication should be spent by adviser teams to get deep into the motivators of founders and also the family members involved. Dr Tom Dean’s book, Every Family’s Business, is a must-read for all family-run businesses.

At Serviss Wealth, we help clients with creating a one-page road map by using a software called Asset Map to provide a visual experience that displays all of a household’s members, entities, financial assets, liabilities, cash flows, and insurance policies.

They need to consider our help with this because being successful and running a profitable business has many dynamics to it. Over the years, successful families accumulate a number of financial buckets, property buckets and insurance buckets. Keeping track can be done by some but many of our clients come to us handing us the keys and delegating, so they can live a certain lifestyle, under a certain premise of comfort knowing their wealth, health and dreams are being constantly checking in on.

The best wealth preservation advice I can offer is to stay broad in your assets.

What are your top financial tips during uncertainty?

• Invest something regularly if you are unsure there is a correction.
• For strategic investors, one idea is to hold some money in a high-interest account and earmark it that if the market goes down more than X% in a month, you invest it.
• Consider your “Wealth Edge” or figure out what your wealth edge is. For some, it is generating a large cash flow in their career. A handyman can add more value to a reno house that they flip or accumulate rental houses. Realtors watch the hot sheets for good buys. If you are a manufacturer, consider owning the property where you operate your business.
• Buy permanent life insurance if you have a life insurance need. Consider having the insurance forever and then plan to spend and give away your wealth in your lifetime (way more fun than leaving all your buildings and stocks to your kids who likely will be 60+ when you die).
• If unsure, pay down debt. Although interest rates are low, debt is debt. When you don’t have any debt, you are free.
• Debt can be used very effectively to magnify wealth but if not deployed correctly it can limit lifestyle and attainment of goals if markets are correcting while you hold the debt. Be cautious here with this one.

The best wealth preservation advice I can offer is to stay broad in your assets. There is so much conspiracy talk out there that XYZ will happen and if this happens, then that will happen so you should own all ABC assets if you want to be protected. Realty is no one knows what will happen and if you look back at history, some assets perform better than others. Some assets benefit from world events and others don’t. Having investment vehicles that are positively affected by inflation that have been around for decades and navigated through trying times has worked out fairly well in the past. Having some cash in high-interest accounts, doing some research on Bitcoin and Ethereum might be worth looking at for a host of reasons. Physical gold and a small amount of physical cash others say is prudent. Lending money to a quality source provides a different exposure and one asset class often overlooked and considered by some as risky is the Small Cap space. And looking at your own business, practice, real estate holdings, invest in yourself. Invest in what you can control. Have you cleaned up your own kitchen as best you can before exploring investments outside of your own world?

Liquidity is a concern or an area that I think many business owners are vulnerable in. A large part of their net worth is tied up in the value of their operating business. We help people find ways to extract the value out of their business but still keep the business a solid going concern for decades to come. And we help them to engage the management team in the process.

Some of the key lessons the past year has taught me is time goes by very fast. Returns for equity in 2021 for the most part were very good depending on your exposure. In late 2020 the world was unsure if it was opening up or closing down. Then 2021 was full of lockdowns, variants, some friends getting ill but not dying. And if a person watched the news, it was very bad. It was negative, scary, anxiety-ridden and not centred around wellness by any means. Yet the market roared double digits plus percent up. So, one may conclude if you are only watching the market you could have made a lot of money, but if you were watching the news you stayed out of the market.

Some of the key lessons the past year has taught me is time goes by very fast.

This is a key lesson that I learned over the last year - the good news is hard to find. If you set goals that need positivity then be aware of your news sources and the amount of time you consume. Think: Does what I am doing right now serve me and my goals?

Case Study

Business partners expanding their business, initiating a succession plan, and taking on debt for the right reasons. A reference to how Dustin facilitates family meetings to bring clarity to wealth transitions be it a business, a cottage, cash or investments.

The common scenario we help our clients with is simple risk management when it comes to partnerships. The file fact pattern is this – two business partners own a manufacturing business. Partner one, John, owns 75% and partner Bill owns 25%. John is older and eventually wants to retire so he is selling 24% more to Bill. To purchase the 24%, Bill needs to come up with $3,000,000 which he does not have in cash. John has no other buyers so he needs to work with Bill and knows the company is more valuable with Bill since he has worked there for 20 years. The operating company is currently debt-free and worth about $12,000,000. This is oversimplified for this case study purpose, but financing was put in place inside the operating company and the $3,000,000 was given from the operating company to John’s holding company. Now the operating company is holding new debt and the share split is 51% John and 49% Bill. So where is the risk in this situation as it applies to if one partner dies? Well, the company now has debt, it would also lose a key contributor to the business which likely would affect the company value, which affects the families of both the deceased partner and surviving partner (who by the way now needs to pick up the slack of the partner who died). Since the goal is to sell this business to a third party within 10 years, the simple solution was to take out 10-year-term life insurance on both partners for the amount of their respective share ownership. In this case $6,000,000 each.

The question really was: John or Bob, if you died, would you want to be partners now with the deceased partner’s wife? Both answered no, so the question was how do we buy out the surviving partner’s wife as quick and easy as possible and know there is near sufficient cash to do so. Taking on large or more debt in the near future was not desired by either partner.

We then discussed if they would like to extinguish the debt at the same time if a partner died. They felt this extra $3,000,000 each was not needed since they usually carry around $2,000,000 in the bank account as afloat. We also discussed having a policy slightly above the value now to account for growth. They felt that if the company grew in 5 years, the debt would likely be a lot less and they would use new financing at that time to solve any shortfall the insurance didn’t provide. The shareholder agreement was also adjusted, and the life insurance was noted in the agreement.

For more information, visit https://servisswealth.com/

What makes Linear’s International Payments team different to other providers in the market?

Linear is a far more diverse operation than the simple FX payments providers in the market. Within Linear and its sister companies, such as Saffron Asset Finance, we can provide access to a much wider suite of financial services that will integrate with a client’s FX requirement. For example, access to SME finance including loans, factoring, forward finance, insurance cover and larger-scale corporate support for growing businesses such as capital raising and bond issuance.

FX payments as an isolated product is not good enough, as it’s merely tackling one issue faced by SMEs in today’s market. Although banks indeed charge an unreasonable rate for FX trades, this is not a strong enough stand-alone reason to provide an FX facility at Linear. International payments are just part of our solution that includes forwards, hedging, trade finance and loan investment capital. That is precisely what we, as a financial specialist and a group of partner businesses, bring together.

From the technology side, one of the key factors in differentiating Linear from other FX providers is not only the experience of our staff but our technology capabilities. As well as an online trading platform, we also offer our clients a mobile app which enables them to convert currencies and make payments whilst they are on the move.

Linear offers a corporate FX service to both new and existing clients alongside its core suite of services. Why is offering an FX service important to Linear and your clients?

The service is important to our clients as many of them need integrated foreign exchange and payments when dealing with overseas business. The FX needs to be seamless and cost-effective; that is what we deliver.

Any one of Linear’s clients may have an FX requirement. As a broker, we have a standard FX trading requirement to manage currency exposure and hedging of positions. These trading capabilities are utilised by Linear and its hedge fund and other financial clients.

For clients, it’s a real value-add as we save them significant amounts on their rates of exchange and give them an effective consultative approach. Helping them with their timing of trade execution, for example, can save them a significant amount on their bottom line.

In uncertain and volatile markets, what is the best way for clients to manage their exposure?

There are some simple rules to stick to so that you don’t have to learn an expensive lesson with your FX trades. For example, don’t try to outsmart the volatility pattern. If you see a good price, then take it. Don't assume that the price will still be available the following day. Take careful consideration to hedge your currency exposure if you have larger long-term contracts. We can help with this.

In the current market, multiple triggers could cause aggressive movements in price quickly. If you are on the right side of the recent aggressive moves, then forward contracts would certainly make sense to mitigate against adverse currency movements whether you are a buyer or seller. Just be mindful of any possible variation margin calls over the duration of your contract and how this may affect your cash flow. Also, make sure all your future requirements are certain before locking in the rate.

FX payments as an isolated product is not good enough, as it’s merely tackling one issue faced by SMEs in today’s market.

In terms of other services provided to corporate clients, can you tell us about your SME lending model? 

We aim to be the ‘go-to’ funder for SME businesses and their advisers. This is a service that can integrate with our FX for larger importers and exporters. We achieve this by providing a mix of our own funding and a ‘whole of market’ solution, with access to a portfolio of other lending institutions including banks, FinTechs and independent providers.

Essentially from a client’s business perspective, they can be assured we can handle the total funding and money handling requirements of their business at whatever stage they are in their life cycle. In effect, we are taking the place of the traditional high-street bank that may have been the only option for an SME in the past. We understand SME clients’ needs and provide a service to advise and support their requirements. Our SME finance partners, Saffron Asset Finance, are gearing up to provide many of their loan services through partnerships that we have formed with local accountancy practices. These practices have an in-depth knowledge of their clients’ needs and can, therefore, assist the clients in submitting loan applications and reports.

Funding options include asset finance (including re-finance to release tied up working capital), invoice finance, bridging/mezzanine property funding and business loans. Whilst we are in a digital economy, we also offer an old-fashioned service approach by helping our customers put together credit proposals and showing that they are a good bet to lend to.

Asset-backed would mean reduced risk. How have you built downside protection into your finance book? 

When lending, we are not simply looking at the value of the asset. Just because there is a good asset to provide cover if anything goes wrong, it is not necessarily the right thing to do. We are responsible lenders and as a key part of the application process, we check if the customer can repay the loan without causing damage to the business, directors or shareholders.

FX payments do not stand alone; they need an integrated approach that includes advice, potential hedging and risk management and in some cases, integrated lending and finance.

Our lending is based upon a percentage of the value of the asset. As a rule, we would not be lending more than say 75% (and often less) of the asset value and ensure that the depreciation curve is in line with the repayment structure. Asset-backed lending does what it says on the tin so there is much lower risk. A worst-case scenario is the amount of human and emotional effort it takes to sort out the problem if a deal goes wrong and the asset needs to be recovered and sold.

As a principle, we also spread our lending amongst a large number of customer types and asset classes so that we have a balanced portfolio and can sleep at night knowing that risk is minimised and our investors are protected. There are internal risk limits on our exposure to any one client, type of client and sector both in terms of percentage and absolute size of exposure.

You have also created two structured products in this regard to raise more capital; what is your overall vision for this?

As I indicated earlier, we see the requirements of SME businesses, partnerships and high-net-worth clients as requiring a one-stop-shop solution. FX payments do not stand alone; they need an integrated approach that includes advice, potential hedging and risk management and in some cases, integrated lending and finance.

In order to provide these services both from our own group resources and partners, we need to be able to deploy considerable capital. Were we to establish a bank, we would be constrained by the very restrictive measures brought in to protect the general public, and for a good reason, based on experience in the last decade. However, by raising funds from experienced investors, corporates, hedge funds and only professionally qualified investors, we can apply a more focussed lending policy that meets the needs of the SME community. These investors have the financial know-how to make investment decisions on our strategies and risk management, thereby creating a powerful source of loan capital for the market. This is an essential service now as we see many SMEs and entrepreneurs are being starved of capital from traditional sources. Our solution is designed to fit all aspects and needs of an SME business in troubled times.

Can you tell us more about the bond programme and preference share issue, and how all these elements come together?

The bond program raises capital to be directed towards the sophisticated SME corporate who needs financing that might require a deeper understanding of financial markets. By raising initially £20m of an issue of up to £100m through the Frankfurt Exchange listed bond structure, which is only geared towards professional investors, we are able to manage distribution to more complex loan structure requirements. Working in partnership with our multiple bank relationships and with many specialist private banks, we can create complex structured products with geared or partnership outcome. This is a specialist lending structure highly controlled by risk management systems.

The Saffron Asset Management preference share issue is the first of a raise to provide substantial lending capacity by partnering with multiple bank partners with whom Saffron already has arrangements. The loan book will focus on the day-to-day requirements of SME businesses and, as I mentioned earlier, it will integrate with international payments for importers/exporters loans for plant, machinery, facilities, development assets, factoring, bridging, forward purchase and stock finance. At Linear, we are in a great position to make a real difference to the SME business lending market.

About Jerry Lees

Jerry Lees has been an active entrepreneur and key to the success of multiple technology and financial businesses. He is the Chairman of Linear Investments and is also on the advisory board at Saffron Asset Management.

A recent American Express’s CFO survey found that 89% of UK CFOs believe that the prospect of unanticipated surprise events is a rapidly growing concern for their company[1].

In light of this, it’s no surprise that the research also revealed that 96% of CFOs think that improving cash and working capital management is more important this year than last year.

It’s not only the big players for whom access to cashflow is vital. For SMEs, it’s arguably even more significant. Having working capital to hand allows SMEs to take advantage of their size and be nimble in responding to growth opportunities.

It also creates a safety net that could make the difference between staying afloat and going under. This is particularly the case for young SMEs starting out, with recent research suggesting just 41.5% of SMEs survive the five-year mark[2].

Of course, despite the best intentions, there will always be hiccups along the way, and occasions when a business must crack down on late payments.

American Express’s SME research with Oxford Economics shows that many SMEs find it challenging to stay on top of cashflow, with 30% of UK SME leaders reporting that getting the funds to drive growth is difficult.

Taking back control of cashflow

So how can businesses keep on top of their cashflow and thrive in the face of political and economic uncertainty?

For any business, the first rule in taking control of cashflow is to keep an accurate record of all payments and outgoings. Without an up-to-date cashflow forecast for the months ahead, it’s impossible to identify vulnerabilities or determine how much can safely be invested in growth opportunities.

The next step is establishing strong relationships with suppliers and customers. For many finance departments, it can be tempting to artificially improve cashflow figures by insisting on longer payment terms with suppliers and shorter payment terms with buyers. But doing so is likely to breed ill-will and resentment in the long term.

Instead, make sure background checks are carried out to ensure you’re working with a trusted and sustainable partner, including credit checks. And then clearly communicate expectations from the outset, to establish a good working relationship based on transparency. It also helps to send invoices out immediately to facilitate prompt payment.

Of course, despite the best intentions, there will always be hiccups along the way, and occasions when a business must crack down on late payments. The most effective way of managing this is to incentivise the other party to pay on time, such as offering a small discount or favourable repeat terms. It’s also important to have an agreed and consistent escalation process in place, in cases where late payments need to be followed up.

 Supply chain financing

Once these measures have been taken, there are also products and services available to businesses to help improve their cashflow. One example is supply chain financing, which enables customers to pay suppliers via a third party. Once an agreement has been reached between the two parties and an invoice approved, the third party pays the supplier their money and the customer holds onto their capital until it receives a single consolidated invoice at the end of its billing cycle.

This process allows suppliers to receive their payment immediately and affords customers more time before the money leaves their account – improving cashflow for both parties. At American Express we offer this service to thousands of our business customers, providing them with critical support to optimise their cashflow.

Companies exercising good cashflow management are better equipped to mitigate against external uncertainty and unlock opportunities for innovation and growth – benefiting the business, its customers and its suppliers in the short, medium and long term.

[1] American Express collaborated with Institutional Investor’s Custom Research Lab on its Global and Spending Outlook, a survey of 870 senior finance executives at large enterprises, 100 of whom are based in the UK. Survey responses were gathered in November and December 2018.

[2] https://survivalcalculator.biz

Small businesses in the accounting & finance (48%) and manufacturing (45%) sectors are most likely to blame market uncertainty as a barrier to growth. In the agricultural sector, this has traditionally been a more moderate issue but this quarter the sector sees the sharpest rise in concerns over market uncertainty – a relative 48% rise in just six months.

At a time when the CBI has predicted a more positive end of year for business outlook, Hitachi Capital’s Business Barometer asked more than 1,200 small business owners which external factors were holding their business back. It found that 75% of small businesses were being held back by factors that were outside of their control, with market uncertainty affecting three in five. A growing number also cited the falling value of the pound as a big concern in the months ahead, rising from 8% in May to 13% in October.

Key sector findings

Although the finance and accounting sector saw the most significant rise in the number of small businesses feeling that growth plans were being held back by market uncertainty, a growing number of businesses in agriculture and manufacturing admit that market uncertainty is a bigger issue now than six months ago (19% to 31% and 33% to 45% retrospectively).

Other key barriers to growth:

• Uncertainty as to the future of the business (17% in May to 20% in October)
• Volatile cash flow (13% in May to 14% October)
• Unpredictable / bad weather (6% in May to 7% October)
• Old or out-of-date equipment (5% in May to 6% in October)

 North East small firms at risk

Small firms in North East were more likely to say this month that they were fearful of market uncertainty preventing them from growing – rising from 31% in May to 53% this month. They were also the most likely to admit that volatile cash flow and red tape acted as significant barriers to growth compared to the national average (23% vs. 14% and 21% vs. 16%).

Age and growth

The research from Hitachi Capital also suggests that the young and most established businesses are most worried about protracted market uncertainty. For enterprises that have been trading for 5 to 10 years, concerns have risen from 29% to 42% - and for those who have been trading for 35 years or more market uncertainty fears have rose from 29% in May to 48% in October.

Gavin Wraith-Carter, Managing Director at Hitachi Capital Business Finance said: “With the upcoming General Election, it seems highly unlikely that there will be a clear position on Government policy or Brexit until after the Christmas break. For many small businesses this will mean planning for a New Year with lots of unknowns as market factors. This could play out with us seeing dip in business confidence at the start of 2020 although, longer term, when the sector has greater certainty to plan against we envisage small businesses will be the first to see change as an opportunity to grow and diversify.”

“One of the remarkable findings from our research over the last year is that, overall, there has been little change in the perceived barriers that small businesses feel they have to overcome to grow their business. Despite a period of unprecedented market volatility and political uncertainty, there has been no significant rise in the proportion of businesses citing red tape, cash flow or access to labour as bigger issues than they were a year ago.

The research found that:

• The most common assets investors hold are stocks and shares (53%), property (41%) and bonds (30%)
  • 20% of investors said they plan to increase the amount of money they have invested in real estate in 2020
  • 61% of investors believe traditional assets like property are best positioned to deliver stable and secure returns during the current political uncertainty
• Art and forex (both 19%), cryptocurrencies (17%) and classic cars (16%) were the least common investments
  • 10% of those who have invested in cryptocurrency plan to reduce their amount of investment in this asset in the new year
  • 64% of investors do not think cryptocurrencies are a safe or reliable investment
• 43% have become more socially and environmentally conscious in their financial strategies
• 42% are holding off making any major investment decisions until Brexit has been resolved

UK investors are turning to traditional assets as a result of the political uncertainty currently facing the country, new research from Butterfield Mortgages Limited (BML) has found.

The prime property mortgage provider surveyed 1,100 UK-based investors, all of whom have assets in excess of £10,000, excluding pensions, savings, SIPPs and properties they live in.

The research revealed the most common assets investors hold are stocks and shares (53%), property (41%) and bonds (30%). On the other end of the spectrum, classic cars (16%), cryptocurrencies (17%), art and forex (both 19%) ranked as the least popular.

Delving into the factors influencing their investment decisions, 61% believe traditional assets like property are best positioned to deliver stable and secure returns during this current period of political uncertainty. One in five (20%) property investors are planning to invest in more real estate in 2020.

[ymal]

When it comes to non-traditional asset classes, nearly two thirds (64%) of investors surveyed by BML do not think cryptocurrencies are a safe or reliable investment. A tenth (10%) of those who have invested in cryptocurrency plan to reduce their amount of investment in this asset in the new year.

Looking into the factors influencing their financial plans for 2020, 43% of investors said they have become more socially and environmentally conscious and this will influence their financial strategy in 2020.

Brexit is also playing on investors’ minds. Two fifths (42%) are holding off making any major investment decisions until Brexit has been resolved, though half (49%) are confident in the long-term performance of UK-based assets. This compares to 23% of investors who are looking to assets based outside the UK for their investments in 2020 because of Brexit.

Alpa Bhakta, CEO of BML, said: “In this era of political uncertainty, investors are rallying towards traditional asset classes like property, which are historically resilient and able to hold their value in times of transition. The fact a significant proportion of investors are planning to increase investment into property in 2020 shows that despite Brexit, demand for real estate remains resoundingly strong.

“Interestingly, the factors influencing financial strategies are also changing–on top of security and stability, investors are also taking into account the environmental and social impact of their investments. This will evidently be an important trend over the coming years, and is something both financial services firms and advisers will need to pay attention to in 2020.”

However, while it is a significant factor, Mark Halstead, partner at business intelligence and financial risk firm Red Flag Alert, says Brexit can also distract from more fundamental problems with a business, such as unrealistic profit guidance given to markets, setting inflated expectations, poor management performance, unsustainable debts reducing ability to invest, or an inability to adapt to changing market conditions.

Financial Distress Has Increased

Of course, Brexit does have an impact on many businesses and is often a contributor to those in trouble.

Importers, for example, are suffering from the falling pound (at least those that haven’t been managing currency exposure) and the lack of certainty over a trade deal makes investment justification challenging.

Our own figures show that since the 2016 referendum, there has been a 40% increase in the number of UK companies in significant financial stress. And the number of those in ‘critical’ financial stress has increased 8% year-on-year. Businesses in the real estate and property, construction, retail and travel sectors have been the most severely affected.

Consumer Spending Remains Steady

However, if we look more closely at different sectors, we see that the impact of Brexit is more complex than it might first appear.

Take retail, for example. The sector has been experiencing a digital revolution that has seen the high street face stiff competition from the internet. At the same time, business rates and rents have increased, and consumer habits have changed.

Brexit has played its part by knocking consumer confidence, but some retailers are doing very well in this environment.

Clothing retailer Primark has no online sales presence at all, and yet it reported a 4% increase in sales earlier this year, while its mid-market competitor Next saw its full-price sales increase 4.3%

Both of these brands have strong value propositions: Primark is known for its heavy discounts on fashion, while Next had a reputation for its home delivery service long before online retail took off.

It’s also worth noting that consumer spending has actually increased during 2019. Although it may have peaked, it remains to be seen if the previous growth is set to continue.

Brexit can even present some opportunities. Low-interest rates have resulted in poor returns for investors, and so lending to businesses is now a viable alternative – helping businesses access capital for propositions that may have been unattractive to investors pre-referendum.

Builder blames Brexit

FTSE 250 housebuilder Crest Nicholson issued a recent statement outlining a decreased profit projection, and Brexit was the headline factor: “During the second half of FY2019, the Company has experienced a volatile sales environment in some of its regional businesses, driven largely by ongoing customer uncertainty relating to Brexit and the economic outlook in the UK.”

Two additional factors cited were a reduction in the value of some London property stock and a large cost associated with remedial works regarding combustible materials.

While Brexit uncertainty does affect housebuilders, it may be a stretch to blame it for huge reductions in profit. Perhaps Crest Nicholson were a little over-ambitious with original house evaluations, and Brexit has nothing to do with the £17m remedial works required to bring properties in line with government guidance.

While Brexit uncertainty does affect housebuilders, it may be a stretch to blame it for huge reductions in profit.

One could also argue that low-interest rates and weak sterling (both driven in part by Brexit) are helpful to housebuilders.

Beach the Brexit-blame

Another company blaming Brexit for not meeting performance expectations is travel retailer On the Beach: “This weakening of Sterling (driven by Brexit) leads to a significant increase in On the Beach prices versus full risk competitors; as a result, the Group anticipates delivering a full-year performance below the Board's expectations.”

Another interpretation might be that the company’s currency hedging strategy, or lack of it, wasn’t robust enough to maintain margins during uncertain times.

Lunar Caravans: Low Consumer Confidence or Overtrading?

Lunar Caravans is another business that has blamed poor performance on Brexit.

Until recently, the caravan, motorhome and campervan manufacturer had been profitable. In fact, in 2017 it reached a peak turnover of £50.6m from the production of around 3,400 units.

However, jump forward just two years, and the company was calling in the administrators, blaming a 20% drop in sales across the leisure vehicle industry caused by reduced consumer confidence due to Brexit.

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But once again, Brexit was only part of the story.

In 2016, the company’s profits were £1.6m; however, this dropped to £725k in 2017 when Lunar’s holding company had to buy back shares from three retiring shareholders.

Then, the company began to see a steady increase in its costs as the pound began to slip against the Euro.

With turnover increasing but profitability declining, the company was beginning to overtrade and struggling to manage its growth.

This reduced the value of the company by £1m and left it with fewer reserves to weather difficult times. And these difficult times soon came.

The company had invested heavily in new products, but several design issues in the new caravans saw a flood of warranty claims coming in from thousands of angry customers.

This further eroded profits, damaged the brand and added to the financial risk associated with the business.

With poor sales and spiralling costs, huge debts accrued, and the company was unable to pay its creditors – by which time the writing was on the wall.

Brexit Alone is Not Toxic

The impacts of Brexit are undoubtedly severe; however, they shouldn’t always be terminal, and Brexit alone doesn’t automatically equate to a toxic business environment.

In many cases, it represents a short financial shock that lays bare a company’s underlying long-term weaknesses and sends it spiralling.

But those businesses which are financially healthy and have competent management who can react to changes in the market stand a much better chance of being able to weather Brexit and maybe even achieve some growth.

It’s been an interesting three years since the 2016 referendum, with the next ten years promising more of the same. Below, Erica evaluates Boris Johnson’s Withdrawal Bill and its implications for UK businesses as well as the society we live in.

1. Diversity of thought is key to long-term success moving ahead

Narrow bands of interest and self-interest don’t create a vibrant society, nor a thriving business. Diversity has to include different thinkers, different ethnicities, ages, gender, problem solvers. Those companies, authorities and organisations who can’t embrace and harness this will become moribund. And rightly so.

2. Digital and real-world complementarity is critical

At the moment we have no idea what any post-Brexit trade deals will look like. Developing aligned business models and associated revenue streams is vital. With entertainment, retail and business services moving increasingly online, reducing trading frictions by evolving new digital services and products from real-world trade is vital. And for those only online, there is a rich opportunity to consider how an IRL leisure or experiential offering can enhance your bottom line.  After all, there is space in abundance available in every single UK high street.

3. Environmental responsibility – get with the programme

In the current Withdrawal Bill, climate and environmental alignment with the EU has been shifted to future trade agreements. That might be fine to discuss then, but your clients and customers will be expecting it from you now. This is not an option.

Responsibility has to be taken at every step in the commercial process and, increasingly, will be an influencing factor in every personal purchasing decision. Get your supply chain to sign up to sustainability/ethical mandates now to gain early mover advantages and positioning to enable trade within even the strictest global environmental trade frameworks. Sustainability should be as important to your business and as measurable as profitability.

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Sabzproperty has a highly skilled technical team of professionals at work with a strong desire to ensure client satisfaction through excellent service delivery. We have a vibrant and engaging property market which offers a large property inventory accrued by competent property agents and developers from different neighborhoods. This has attracted teaming property audience over the years and has birthed the responsive value rewarding network we have today.

4. Uncertainty is the new certainty

Nothing is certain over the next few weeks… who will be in power?  The next few months… in or out?

So you need to understand what deep uncertainty means for your business, your customers and your own personal circumstances. Be prepared to pivot, to take advantage of short term opportunities, to revel in the unexpected. What could this uncertainty allow you to unlock in your relationship with your past/present clients? Where will it allow you to find future clients? What could you develop with or for your competitors? And where might you find new buyers in differing marketplaces you had not looked to before?

And if you are not in the D2C world – look out of the window to ask what you can sell to that person walking past? Thinking the unthinkable has to be part of your new strategy.

5. Tough trading breeds new opportunities

The British are inventive people. Everyone who lives in this wayward nation contributes to its determinedly individualistic approach. We lead the world in creativity – in fact it makes up £101.5bn GVA, the second-highest sector in the economy. In times of economic retrenchment and difficulties that may lie ahead, there will be the potential for green shoots to force their way through, for businesses to grow and develop in unlikely sectors and unexpected ways.

In the 2007/8 recession, people delayed big-ticket purchases and cut back on eating out. This saw a rise in small spends - cupcakes, lip-sticks, feel-good treats. Home baking and entertainment surged with businesses that could supply this ‘batten down the hatches’ mood benefitting. The emergence of shows like The Great British Bake-Off first screened in 2010 after 18 months in development and production captured this back-to-basics mood. Now a highly profitable global tv format sold across many countries, it illustrates how there are opportunities in even the most trying economic circumstances.

As the next few weeks and months unfold, focus on these five points in both your business and personal dealings. Keep your mind alive to opportunities, inventive thinking and potential pivots. Living with uncertainty is something we’re all getting used to within our own lives, the UK economy and planet as a whole.  So embrace it and turn it into positive actions build a commercially inventive road ahead.

About Erica Wolfe-Murray:

Cited by Forbes.com as ‘a leading innovation and growth expert’ Erica Wolfe-Murray runs innovation studio, Lola Media Ltd. With creative head and FD experience, she focuses on auditing intellectual assets/IP to evolve new products & services from a company’s existing business. 

She is also the author of ‘Simple Tips, Smart Ideas : Build a Bigger, Better Business’ aimed at the UK’s 10m+ micro business & freelance sector to help build greater commercial resilience in this dynamic but often ignored part of the economy. 

Sam Smith from finnCap Group says that for small to medium-sized companies with scale-up plans, this more uncertain climate poses questions about whether they can access the financing they need to fund their growth.

However, sources of capital to back growth companies have actually increased. Government supported institutions such as the British Business Bank, regional growth funds, the bank financed BGF and its early-stage-funding subsidiary BGF Ventures are all helping SMEs with their funding needs.  Alternatively, there are Peer2Peer lenders, venture capitalist and private equity houses with significant funds to deploy. Meanwhile, AIM as one of Europe’s best scale up exchanges remains a resilient source of capital. At finnCap, we work with a wide range of these institutions to supply funding opportunities for growing companies looking to scale up and the insights we have drawn from these relationships inform our view of the changing fundraising arena outlined below and how growth companies can best steer through this more complex environment.

Funding outlook more challenging

There are currently clear concerns about financing growth. These stem from a range of factors, including equity and bond market dislocation, the likely withdrawal of the EIB from the UK and largely Brexit inspired uncertainty around GDP growth and Brexit. In 2017 the EIB group lending was €654m to UK SMEs, which was some 42% of the organisation’s total funding commitments.

Meanwhile, banks which, following the 2008 financial crisis, have scaled back their lending to small and mid-cap businesses, are a continuing source of concern. SMEs make up 99% of private businesses in the UK and account for more than half of all employment and turnover. However, lending to small businesses last year remained static, with the £7bn of new loans drawn in the third quarter of 2018 compared with £7.1bn in the previous quarter, according to the most recent data from UK Finance.

Lending to small businesses last year remained static, with the £7bn of new loans drawn in the third quarter of 2018 compared with £7.1bn in the previous quarter, according to the most recent data from UK Finance.

In addition, equity markets remain turbulent with FTSE 100 losing 12.5% in 2018, with most of this downturn occurring in the final quarter of the year, and meaning that the index’s suffered its worst performing year since the financial crisis in 2008. Similarly, AIM also suffered losses in the final quarter of last year, despite outperforming the main market for the first three quarters.

 Government policy driven initiatives offer funding

Although the present financial climate does pose challenges, there is a range of funding alternatives available to companies searching for scale-up capital. Some of these opportunities in the funding landscape have stemmed from Government driven initiatives. As a national investment programme, the British Business Bank (BBB) was initiated to improve the supply and mix of funding available to SMEs through the development of a wide variety of initiatives.  Overall, in the four years to 2018, the BBB has facilitated some £5.2 billion of additional funding for SMEs through its range of programmes and partnerships. This includes the establishment of regional powerhouse funds such as the Northern Powerhouse and Midlands Engine, which offer a mix of equity and debt solutions, with the former providing SMEs with £31m of funding in its first year.

A further potential source comes from the Alternative Remedies Package (ARP), proposed by the European Commission and UK Government, which has the Royal Bank of Scotland (RBS) backing the £775m scheme to provide greater financing options for growth businesses. Some £425m makes up the Capability and Innovation Fund, which helps facilitate and encourage eligible bodies, including challenger banks, to develop and improve their financial products and funding services available to SMEs.

VC investment in UK SMEs was £5.96bn over the course of 2018, which was more than 1.5 times the level invested in fast-growth businesses in Germany.

Alternative sources of capital continue to fill the gap left by banks

In addition to Government supported initiatives, the funding landscape today is far broader than a decade ago with an array of capital raising opportunities to consider for companies searching to scale up. Private equity and venture firms have substantial funds to invest. For example, private equity houses invested some £3.2bn in UK SMEs in the first half of last year, which was up 12% year-on-year and the trend stayed strong over the second half of the year. Similarly, VC investment in UK SMEs was £5.96bn over the course of 2018, which was more than 1.5 times the level invested in fast-growth businesses in Germany.

The alternative lending industry, which includes challenger banks, private debt and Peer2Peer lenders, which emerged following the financial crisis – partly resulting from the unwillingness of banks to lend to SMEs - has matured over the past decade. As an example, Funding Circle as a leading P2P funder has become an increasingly important source of funds for businesses in recent years, accounting for around 10% of all lending to SMEs in 2017, according to the Cambridge Centre for Alternative Finance.

AIM remains Europe’s top destination for fast-growing firms looking to go public

Despite the instability of 2018’s last quarter, AIM is still well-positioned and remains Europe’s top market for fast-growing firms looking to go public. Last year it was responsible for 59% of the funding secured by growth companies across European bourses, raising £5.5bn across 398 separate deals. This compares well with £17.7bn for the entire main market in London.

In fact, AIM has performed well amongst the backdrop of Brexit. There were 42 IPOs on AIM in 2018 raising £1.6bn for growth companies, compared with 49 IPOs a year earlier raising £2.1bn – itself a 97% increase on the money raise in 2016. Furthermore, AIM still after 24 years continues to play a vital role in helping SMEs to scale up, while also including a range of more mature businesses, which have prospered on the market, offering a better balance of risk for investors.

The alternative lending industry, which includes challenger banks, private debt and Peer2Peer lenders, which emerged following the financial crisis – partly resulting from the unwillingness of banks to lend to SMEs - has matured over the past decade.

Scale-up funding still available

finnCap Group plc itself provides private fundraising, corporate finance, debt advisory, sell and buy side advisory and trading services to 125 public and private growth companies, to help them find the right investment for growth and access capital. Since it was established in 2007, finnCap has helped raise more than £2.6bn of new capital to support corporate clients.

finnCap Group plc’s listing on AIM last December illustrates our confidence in the market as a source of growth capital for companies and its key role in helping to further their growth. AIM also remains the first choice to raise capital for a wide range of companies from across the economy, with the sheer diversity of its constituents a key strength.

The broad range of alternatives and continuing attraction of AIM should be a salient reminder that scale-up capital is still available and Britain and the country’s growth businesses should be able to play a strong role in powering the growth of a more global Britain.

Website: https://www.finncap.com/

This is according to Henry Umney, CEO of ClusterSeven, as he offers his views on the regulatory and risk management trends in the banking and financial services industry for 2019.

Brexit will confound banks in 2019, whatever the outcome

The UK’s departure from the EU at the end of March will continue to have a significant impact on the banking, insurance and asset management sectors throughout 2019, almost regardless of the nature of the final departure. Brexit uncertainty is presently forcing banks to implement their most stringent contingency plans, in terms of re-locating critical business services, processes, and in extremis, specific roles and personnel. To this end, division of data, processes and responsibility need to be managed carefully to ensure these changes are executed smoothly, efficiently and with full auditability. Further complexity is provided by the UK’s Prudential Regulatory Authority’s (PRA) announcement that institutions will be able to continue to trade as branches of their head office, rather than as a (more capital intensive) subsidiary post-Brexit. This, alongside the European Banking Authority’s (EBA) recent announcement that it sees ‘back to back trading’ between the City of London and the EU as beneficial, suggests that there is a willingness to find a modus vivendi that allows complex cross-border transactions and business processes to continue as normal, almost regardless of the final Brexit outcome.

This complex, conflicted environment will place a premium on understanding how disparate business processes and applications, including how end user supported processes (e.g. using spreadsheet-based applications) are configured, allowing institutions to respond quickly to new developments – and potentially even reversing previous decisions about re-locating people, roles and business units.

Regulators and auditors will demand mature model risk management

In the US, the momentum for a mature approach to model risk management will gather further pace as government frameworks including SR 11 7, CCAR/DFAST stress testing and CECL, for example, are more closely scrutinised and audited by regulators. Increasingly these governance frameworks are being extended to include the tools that feed the models and there is recognition of the significance of the spreadsheets and other end user supported applications to the models covered by these frameworks.

This approach to sophisticated model risk management will find favour with European regulators too, a trend that is already in motion with regulations such as TRIM and SS3/18. This is fundamentally driven by regulators’ collective objective of demanding visibility of critical models and enhancing the operational resilience of financial institutions. Effective data management, including that stored in spreadsheet-based and other end user supported applications, is central to these frameworks.

To meet the excellence in data governance and auditability as demanded by the regulators in the UK and US, financial institutions will be forced to apply the same level of controls to their end user supported application environment – as they apply to their broader corporate IT environment. This reflects that spreadsheets are often the ‘go to’ tool in developing a broad range of business and financial models.

The transition away from LIBOR will present a major operational challenge

Due to the enormity of the transition from LIBOR (London Interbank Offered Rate) to alternative reference rates (e.g. SOFR, Reformed SONIA SARON, TONAR), financial institutions will begin adjusting their processes and systems, in preparation for the switch to new reference rates by the end of 2021. The clock is ticking.

With a parallel universe of spreadsheets connected to enterprise systems such as risk, accounting models and a plethora of non-financial contracts, financial institutions will need to ensure that the relevant changes are also accurately reflected in the spreadsheet-based processes. Given the broad range of potential alternatives to LIBOR, it seems possible that multiple replacements may be in use in different jurisdictions. There will be a premium on being able to identify transactions and contracts quickly and efficiently, and applying the appropriate reference rate, quickly, efficiently – and again with full transparency and auditability.

GDPR has the hallmarks of expanding into a global framework, its compliance will need to be in organisations’ DNA

GDPR has all the makings of becoming a global standard. Already, California is taking the lead with the California Consumer Privacy Act (CCPA), which comes into force in 2020. Other US states are also considering similar regulations to protect the rights of their residents.

With a fine of $1.6 billion levied on Facebook this year, the EU has clearly demonstrated that it means business. In 2019, organisations will have to shift their GDPR focus to ‘sustainable compliance’. They will realise that inventorying IT systems for GDPR-relevant and sensitive data was merely a good first step to meet the compliance requirements on 25 May 2018. GDPR compliance will need to part of their DNA – requiring it to be a ‘business as usual’ activity. With unstructured confidential data (e.g. personal details of clients and employees) often residing in spreadsheets, visibility alongside continuous monitoring, controls and stringent attestation of information will be essential to meeting GDPR demands such as the right to be forgotten and data portability. Automated spreadsheet management will become critical to sustaining GDPR compliance.

The year 2017 has been eventful in terms of the various socio-political and economic developments across the world.  Here is Mihir Kapadia’s quick summary of the year as it was.

The Year of Elections

After 2016 gave us Brexit and Trump, political and economic analysts across the developed world were wary about the possibility of protectionism spreading across the European continent, especially as 2017 was due series of elections in the region. With The Netherlands, France and Germany, the three big powerhouses of the European Union, going to the polls, there was a real threat of right-wing populist parties gaining prominence and altering the mainstream and liberal values of the western developed economies. The fear was legitimate, as EU sceptics appeared to be inspired by Brexit and Trump and were engaging on similar campaign promises based on nationalism and the closing of borders.

The year delivered relief across the continent, as liberal political parties emerged victorious over right-wing populists; however, the political dynamics and discourse in the region were considerably altered. Eurosceptics including Geert Wilders in The Netherlands, Marine Le Pen in France, and the Alternative for Germany (AfD) party gained mainstream prominence and considerable representation in their respective countries.

Germany is currently in a difficult spot, as none of the parties secured a working majority, Angela Merkel’s CDU has been attempting to negotiate a ‘grand coalition’, in an attempt to break the current political deadlock after coalition talks with the pro-business Free Democrats (FDP) and Greens collapsed. While brokering a grand coalition across parties in the parliament can deliver governance, it is too early to comment how strong the Chancellor’s leadership and authority would be.

Trumping the Stock Markets

 While protectionism and populist policy proposals have been part of the 'Make America Great Again' campaign slogans, the larger driver behind the 'Trumponomics' rally has been the hope that President Trump can push through policies to stimulate growth and increase corporate profits. Anticipation of infrastructure expenditures, healthcare reforms and tax cutting legislation helped rally the stock markets to a series of all-time highs. While the stock market has consistently risen strongly since November 2016, despite the fact that many of Trump’s key promises such as infrastructure spending and healthcare reforms are yet to materialise, there are increasing fears that the US stocks are being overvalued. However, these concerns have been there since 2003 when the current long equity rally began.

Meanwhile, the dollar has had a rough year, having lost about 9-10% in 2017, but Trump has probably been happy to see it fall, as it will help boost US exports.

Financial analysts observing the uptrend in the US stock market over the year have cautioned that the markets may already be overpriced. The last time the US economy had a meltdown, it was 2008 and it affected the whole world. The 2008 financial crash occurred because of fragility in the banking system due to poor mortgage lending. The US is currently trending positively on earnings, employment, wage growth, housing and GDP. These indicate no signs of an impending recession; and the Federal Reserve is likely to raise interest rates through 2017 and into 2018. Trump has been indirectly very good for the economy.

Dull year for Gold

 The significant threat globally throughout 2017 has been North Korea's aggressive stance against the US and its regional allies - South Korea and Japan. The year-long nuclear ballistic tests and provocative missile launches rattled Asian markets, but net impact was negligible and equities have risen in Asia and elsewhere. Therefore, safe-haven assets, such as Gold, received little support due to these threats.

Globally, the bullish stock market, rising interest rates and a sense of market security proved to be bad news for Gold, US-denominated assets such as Gold are influenced by the movements of the dollar, and its fortunes are also tied to the dollar among other factors. The US dollar has fallen nearly 10% year-to-date (or YTD) in 2017.

Under a bullish Federal Reserve, the commodity had already priced in the factor of interest rate hikes. Only if the actual rate of increase is lesser than expected, gold prices may benefit and see some relief going into 2018. Investors therefore will keenly observe the Fed’s tone when they discuss the interest rates for next year to understand how they would progress into 2018.

Brexit uncertainty remains

 Brexit continues to dominate the UK’s political and economic spheres and the year began with the invoking of Article 50 by Prime Minister Theresa May on 29th March 2017. Political discussion around Brexit also led the country into a snap general election in June, resulting in the Conservative Party losing their majority, and further splitting the British parliament.

Since the Brexit referendum of 2016, the pound lost 10% against the Euro and 17% against the Dollar. The fall in the value of the pound in fact worked in favour for the stock markets, with the FTSE100 (which largely comprises of exporting organisations) having reached record highs through the year. While the fall in the value of the currency may have helped British exports, the benefit stops there. Rising inflation and weak wage growth in the UK have directly affected the average British household as the period of uncertainty continues.

While Brexit is inevitable, the financial sector, which considers London to be its capital, is keen on retaining its ‘passporting rights’ - the right for a firm registered in the European Economic Area (EEA) to do business in any other EEA state without needing further authorization in each country. In fact, London has been the major focal point for this very reason – an English language capital city, ideally located between the Americas and Asia and acting as the gateway into Europe. Therefore, any indication of a ‘Hard Brexit’ – one which threatens to pull the UK out of the EU without any deal, is of a major concern for the City of London. The pound and the economy therefore are directly affected over this concern as businesses continue to operate over the period of uncertainty.  The UK also faces an upward of £40 Billion Brexit ‘divorce bill’ payable to the EU, which adds another financial liability to the process.

Eurozone recovery at its finest   

 The European Central Bank’s (ECB) president Mario Draghi has expressed the bank’s confidence over the region’s recovery, noting that the momentum has been robust, as GDP has risen for 18 straight quarters. The central bank attributed the overall success this year to improved employment figures in the single bloc, while noting that inflation cannot be self-sustained at this juncture. Mr Draghi used these comments to express interest and possibility for extending the timeline of the slowdown of its bond-buying program, which is slated to start from January 2018.

While the recovery has been robust, the ECB also recognises that it is vital for member states to continue a stable political and economic structure within, and reinforce each of their fiscal structures in order by focusing on both, keeping a buffer rainy-day fund while also working towards reducing debt. While these are words of wisdom for the future, Mr Draghi would also be thankful for the past year as Eurozone mitigated the rise of far right into leadership, especially in France, Netherlands and Germany – the three key powerhouses in the EU. The economy therefore was well protected this year.

10 Years of the Financial Crash

 2017 also marked the 10 years of the great financial crisis of 2008 in October, which had sent the risk assets across global stock markets and economies tumbling. The ten years since the financial crisis of 2007-08 has passed quickly and on a better note than anyone could have expected at that point of time. From the collapse of Lehman brothers in 2008 to the arrests of Irish bankers in 2016, the 2008 depression had brought in a wider understanding of the fragile western economic ecosystems. The crash was a serious wake-up call for governments across the world, thus paving way for bringing in regulatory responses to the banking practices - such as the expansion of government regulation, scrutinised lending practices, and tougher stress tests to make sure they can withstand severe downturns.

The financial crash of 2008 provided a learning opportunity to set things right, and our economic mechanisms today have certainly implemented checks and balances to be more cautious in their functionality. If the crash has taught us anything, it is that complacency can be catastrophic.

It has certainly been an interesting year, and 2018 holds more opportunities for us than ever before to learn and grow.

Brexit, Trump and the chaos in Catalonia are driving demand for multi-currency accounts – and within 10 years they will be the norm, affirms the boss of one of the world’s largest independent financial advisory organisations.

The comments from Nigel Green, founder and CEO of deVere Group, come as deVere E-Money’s global money app, deVere Vault, which has 27 different currency wallets, reveals that it expects to surpass 40,000 downloads and users by the end of the year.

Mr Green asserts: “We’re living in an increasingly uncertain world. Serious, far-reaching and ongoing geopolitical developments are driving internationally-minded people to concentrate on political risk and currency risk.

“Issues such as the deadlocked Brexit talks and what the post-Brexit era will look like, the unpredictability of the Trump presidency, and the chaos in Catalonia as it potentially moves towards independence from Spain, amongst many other geopolitical factors, present huge and sobering questions marks.

“This uncertainty is resulting in more and more people beginning to look at the possible impact such issues have on their wealth and how they can mitigate this risk. Understandably, this is spiking huge interest in and demand for accounts in which you can hold money in different currencies.”

He continues: “Ever since the major and sustained drop in the pound immediately after the Brexit referendum, people have become more focused that they could have currency risk.

“It was a wake-up call to many across the world; it was a watershed moment.”

The deVere CEO concludes: “Multi-currency accounts will be the norm within 10 years – most people within a decade will have the ability to access, use and manage their money in different currencies - for three main reasons.

“First, people have woken up to the fact that even ‘remote’ political risks can be linked to currency risk.

“Second, each year there are more and more expatriates and internationally-mobile people and businesses.

“Third, holidaymakers are increasingly aware of and unwilling to accept the rip-off charges their traditional banks impose on them for using their own money overseas.”

(Source: deVere group)