Private wealth manager Jonathan Fry has created a service for its clients that is increasingly being used by other advisers to augment their own offerings as it helps to remove the difficulty of undertaking research for clients, and then not being paid for the time.
Dynamic cash management was designed for clients who have around £100,000 or more that they want to hold in cash across a range of interest-bearing accounts, including National Savings & Investments. It takes into account the cash needs of each client and creates a range of accounts to meet these needs and also generate the highest rate of interest possible by searching the whole of the market for the best products.
As it becomes ever more important for advisers to offer a full financial planning service for their clients, providing a means of dealing with cash management is key.
Many clients will have been concerned about the safety of their deposits in light of the near failures of banking giants such as Northern Rock and Halifax at the start of the banking crisis. Before this you probably could have asked most people in the UK about the level of protection under the Financial Services Compensation Scheme and few would have any idea. The situation is very different now and is one of the reasons why the service has become more popular with advisory firms.
Jonathan Fry, private wealth director of Jonathan Fry, said: “The idea came from providing cash management services for our own clients. We realised once the banking crisis started to develop in 2008/2009 that clients became much more concerned about having their cash deposits more diversified and were giving more thought about which deposit-takers to use.
“We were already providing something in the way of a cash management service for our very high net-worth clients and decided to offer it in a more structured way for our other clients. Then we got some interest from other intermediaries.
“The traditional architects of financial services products and solutions have been the major institutions, particularly the likes of Standard Life, Scottish Widows and Fidelity. But there are now more opportunities for advisers to create their own services that clients want.”
The ongoing financial stability of an institution plays an important part in the decision-making process for clients. If they have a large amount they wish to hold in cash it becomes problematic for them to spread their deposits widely enough to ensure they are still protected. Under the FSCS safety net the first £85,000 is protected in full but that covers banking groups, not individual brands.
Clients with significant amounts of cash would have to disperse their deposits far and wide to maintain this protection and it would not only become complicated to manage all of the accounts, it would also potentially give them exposure to firms that may not be suitable.
Mr Fry said: “One of the reasons for using dynamic cash management is because it is hard to have 30 to 40 accounts all covered by the FSCS because you could end up being exposed to more institutions than you want to be. There has to be a position which is intellectually more thought out than relying on the FSCS alone. So our system takes into account the financial strength ratings from the likes of Standard & Poor’s, Fitch and Moody’s through a daily data feed. Then we will apply our own judgement.”
The scoring system for deposit-takers that Jonathan Fry uses works from zero to 60 and any institution with a score below 20 is automatically excluded from the service. Clients will have their money moved out of these accounts and into new accounts which are chosen not only on the interest rate available, but also on the strength of the institution.
Clients have accounts in their own name so they benefit from better rates for retail customers. It also means that the range of accounts they hold can be differentiated and presented to them as a whole at any time with Jonathan Fry’s Omniview tool. They will also get a comprehensive statement for tax purposes at the appropriate time.
Mr Fry said: “The money goes into a hub account and it then gets passed out to various satellite accounts. It is a total whole of market service and all the accounts are in the client’s own name. Each client also has his own hub account.
“At the moment the interesting thing is that the best interest rates are available from retail deposit takers. The institutional rates are actually lower than those available to individuals.”
The indicative rates for personal clients using dynamic cash management are at 2 per cent for no-notice accounts, rising to 3.13 per cent for up to 60 months’ notice. The firm also offers an ethical deposit facility that starts at 2 per cent for no notice, rising to 2.67 per cent for 60 months’ notice.
The fee for the service is 0.3 per cent of the client’s assets and each adviser using the service is paid 15 per cent of this, although they can put additional charges on top.
Mr Fry said: “This is not affected by the retail distribution review because this is not a regulated activity in that sense. It is ideal for those firms who are more switched-on and forward thinking and who are dealing with higher net-worth clients with significant cash balances.”
So far dynamic cash management has garnered £270m since launch and the firm aims to increase that to £1bn in the next few years. While some advisers may be suspicious about using the service of another advisory group, there are some real advantages. For example, by not offering a cash solution to clients the advisers are inviting them to go directly to the banks, and potentially opening them up to cross-selling of other products that the firm could be in a better position to provide. This could result from a cash-generating event, such as a property sale.
Mr Fry said the dynamic cash management service has a stringent contract to prevent this happening so advisers can rest assured that their client is getting a better service and they are able to generate revenue too.
He added: “Although the income from dynamic cash management is not that significant, it provides a service for clients in an effective way. For an adviser, you cannot really hold yourself out as an independent adviser and not advise on cash.”
Alison Steed is a freelance journalist
Key points
* First, the management firm undertakes a review of when a client needs access to cash and the amount needed to be held in cash. A personal illustration is draw up based on these needs.
* If the client accepts the proposed illustration, an account is opened in the client’s name with Cater Allen Private Bank with a first deposit. This is known as the hub account.
* A number of other savings accounts are then opened in the client’s name with building societies, banks and NS&I. The manager chooses accounts with competitive rates that meet the client’s needs for security and access.
* The manager reviews the client’s accounts regularly and switches money as new opportunities arise. The manager may also switch money if new information makes him/her believe an institution has become too risky for the client.
* Clients are able to see where their money is invested by using an online client portal, OmniView. The manager also provides paper statements and an annual consolidated tax statement.
* When the client needs to make a withdrawal, the manager simply transfers the money back to the client’s hub account and then to the client’s personal account.
Source: Jonathan Fry plc
