The rise in interest rates has been a significant talking point across financial services and rightly so. Much of this has been in relation to the heightened levels of anxiety felt by many clients worried about their investments and long term livelihoods, writes Andrew Waring, director of intermediary at Stubben Edge.
As a result, cash deposits have emerged as a popular alternative solution due to the higher rates.
Advisers are working hard to adapt their thinking and strategies in line with the evolving financial landscape to ensure they continue to add value to client portfolios and hedge against tailwinds.
With rapidly increasing inflation, investments are becoming increasingly volatile. In a recent report by Schroders, 89% of advisers reported making changes to client financial plans due to client cost-of-living concerns in Q2 of last year.
While nearly three quarters (69%) of individuals in the UK are considering seeking professional financial advice due to current market conditions according to Hymans Robertson Investment Services. This only reinforces the critical role that advisers will play in the current environment and beyond.
Ultimately, advisers need to be more cash savvy.
The flight to cash
With the rate rise, which now sits at 5%, adviser platforms have reported a flight to cash over the last year. For a long time, traditional high street banks have long been the go-to option for cash deposits, but the landscape is changing. Major lenders have come under scrutiny for what many believe to be failing in their “social duty”, offering unattractive rates on easy access savings accounts.
Challenger and private banks are therefore stepping up to fill the void, offering more competitive rates and better returns for clients. Meanwhile building societies are proving to be another good alternative. They often announce savings-rate hikes within hours of a base rate hike.
Underpinning all this are cash management platforms that allow advisers and clients to move cash between banks without hassle. These will increasingly become more advanced, more useful; and should be central to any adviser’s long-term planning.
Finding the best rates
Not all cash solutions are created equal and it is essential to find the right fit for each client’s goals and risk tolerance. Younger clients are often risk averse and need liquidity. Older, wealthier clients tend to seek ways to protect their capital while earning modest returns.
That said, there is no magic wand to finding the best rates and no single bank can offer to promise the best at any given time. In some instances, some people go as far as opening and closing multiple accounts, just to chase the best rates.
Despite this, finding the best rates is possible and advisers have a few options at their disposal.
Maximising clients returns in the current climate
Following the appropriate due diligence, spreading cash across a handful accounts is one way of leveraging the opportunities that different institutions offer. Advisers should also look to diversify client portfolios, making appropriate allocations to cash deposits – including easy access cash ISAs – alongside traditional investments like equities and bonds.
Throughout this, IFAs should remain mindful that while cash investments offer relative safety and liquidity, they may not keep pace with inflation, leading to a loss of purchasing power over time. To mitigate, advisers should pursue the balanced approach that includes a mix of cash and inflation-hedged investments.
Choosing the right cash management platform
Any successful investment strategy requires the right platform for ease of execution. The role that platforms will play going forward cannot be overstated. Picking the right platform is as important as the investment strategy itself. Advisers have a plethora of options at their disposal and choosing the right one is key.
A good cash management platform should ultimately ease the pain point that comes with using multiple banks. The platform should ideally remove the complexities that often come with managing cash across these multiple institutions. This includes the ability to move money between them seamlessly.
Furthermore, any useful platform should also offer access to real time market data and insights integrated into its system, offering advisers perspective that enables good decision making as the markets evolve.
There should also be a bespoke offering for advisers that enables them to tailor some of the functionality according to their client needs. In some instances, the ability to white label the platform can be an added plus and useful for certain client relationships.
Finally, the advancement in technology means that a good platform doesn’t have to cost the earth.
Advisers should be able to do more with less. While we remain in a very complex market environment, opportunities abound and advisers are critical to unlocking these for their clients. Using the correct tools alongside a sound cash management investment strategy, as part of a diversified portfolio, means clients will be in safe hands to navigate the choppy waters.
This article was written for International Adviser by Andrew Waring, director of intermediary at Stubben Edge.