Let’s talk about money

We convened a roundtable discussion on the topic. Debating the issue were Peter Beavis, sales director at Cater Allen, Adrian Lowcock, senior investment adviser at Bestinvest, and Nick Rice, editor of Investment Adviser, while Jon Cudby, editor of Money Management, asks the questions.

Jon Cudby: Can cash holdings really offer anything more than a safety net to offset more high-risk investments, and do they need to?

Peter Beavis: Yes I think they can. I think there is a general lack of awareness that there are a range of different cash vehicles, which can support enhanced interest rates over various periods of time. And the accessibility of these is now much greater than it has traditionally been, so certainly from Cater Allen’s perspective we see this as the forgotten asset class, which could very simply add value to clients’ portfolios and income streams.

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JC: Adrian, in terms of your clients, do you think they would understand the demand for anything beyond a simple bank account, like structured deposits or any other vehicles out there?

Adrian Lowcock: The thing is, you’ve got to look at what you’re using cash for. So if you’re using it in a portfolio and it’s a strategic allocation and you don’t want to invest in particular portfolios, then you can use different vehicles; you can use structured deposits, zeros, even short-dated high-yield bonds or corporate bonds. But when you’re looking at where cash plays a role, it’s not just a case of having cash in a portfolio, you also need to be able to have a cashflow, particularly as more and more people are seeking income from their portfolios.

JC: Do you think they can offer something that traditional investment vehicles – say a money market fund or cash fund – can’t offer to an investor?

Nick Rice: Absolutely. Cash is really the ultimate safe haven and I think we have to look at cash in the context of the fact that, particularly after the financial crisis, the number of safe havens for clients’ money is diminishing. For instance, government bonds, which were traditionally considered a very important safe haven, now look very overvalued. But also if you have exposure to cash, like with any investment, you want to have diversified exposure and that’s where I think cash management comes into play.

JC: Is there a worry that, post-RDR, fee-based advisers are not going to be able to convince clients that cash management is a service that’s worth paying for, considering the returns are going to be lower than the headline-grabbing rates of more high-risk investment vehicles?

PB: The great thing about cash deposits, from my perspective, is that they are very visible; you can see very easily and very simply the rate of growth being attached to a given deposit. So, from a client’s perspective, it’s simple to work out whether there is a value gain or not. The other part is that it won’t necessarily have to be the adviser that is undertaking this work. A lot of the work will take place in the back office, and therefore the costs of the back office will be lower than perhaps employing an IFA to undertake that work.