Friday, Jun. 24, was a day that many of us had a rude awakening. The post-Brexit landscape seemed bleak, with worries of the sweeping implications for the future as this referendum played out. What followed next was the largest sell-off in 10 months for the S&P 500, with single-day volumes at the highest in nearly five years. When looking at sector performance, financials led the downside.

The purpose of this piece is not to pontificate on whether it was the right or wrong outcome, nor is it to predict what the future will look like for the UK and EU; and this piece will not forecast where global markets will trade as Brexit is digested.

Instead, the objective of this article is to discuss the personal financial concerns that struck me upon first hearing the news and ultimately, why this entire experience, and ones like it, irrefutably demonstrates the intrinsic value of sound financial planning advice.

My colleague, Alex Phillips, is considered financially savvy by most, having worked at the institutional trading desk of a large U.S. financial institution for almost a decade. Like most people his generation, he appreciates having the ability to control the majority of his finances. However, the part of his liquid assets that he would like a financial advisor to manage might be categorized as a “small account” and may not get the most of the advisor’s attention.

Nonetheless, with a certain amount of confidence in his financial health and diversity, Alex did not think much of the impending Brexit referendum in the hours and days leading up to it. However, once the news of Brexit exploded, he immediately began pouring over his financials to examine what was the impact and whether he could take action to mitigate losses.

“I am not suggesting I should have attempted to hedge out any UK and EU exposure in my investment or retirement accounts by playing around in currency markets,” Alex said. “Instead, this starkly exposed hidden correlations in my life and finances.”

Since Alex spent a portion of his career working in London, he has tax-incentivized, UK-based, GBP-denominated retirement accounts. The equity accrued from a career in finance causes excess exposure to this particular U.S. sector, and some of his U.S. retirement investments have EMEA exposure. Furthermore, his portfolio leverage is more aggressive because of his expected years until retirement. Overall, the combination of these factors hit hard.

“I was incredibly frustrated that I hadn’t realized how much exposure I would have to this impending event. Why hadn’t I prepared for the unexpected outcome by, at minimum, trimming positions or diversifying?” he said. “But it seems that I wasn’t alone when you consider what else happened that day.”

Website traffic at Vanguard and Scottrade among others was higher than normal, as was the actual phone call volume at places that handle retirement money, like Fidelity.
While I can’t speak to what advice was given by any of those financial advisors, let us consider the decision made by one fiduciary on behalf of their clients.

Interestingly, an article from the Wall Street Journal announced that Betterment pro-actively halted trading from 9:30 a.m. – noon EST on Jun. 24 to protect its clients from volatility, which it asserts would cause them to pay higher transaction fees. While halting trading may appear as a crude first step of risk management, as trade-halting in my home country China only added to investor fears, at least it worked in this case to prevent client panic-selling at the lowest point.