Advisers should place more emphasis on the cash and deposit segment of portfolios as part of clients’ investment strategies and try to avoid parking cash, according to one executive.
Steve James, head of adviser distribution, investor sales at Commonwealth Bank of Australia (CBA) Institutional Banking and Markets (IB&M), said this would allow advisers to bring the deposit conversation into the overall strategy, rather than a deposit being considered purely as a parking-type facility.
“Unfortunately with a lot of parking-type facilities, you often end up parking for a lot longer than you originally thought – therefore you’re at the mercy of interest rate risk,” James told selfmanagedsuper.
“It gives advisers more choice in how they want to manage their clients’ deposits.
“And it’s very topical – advisers are asking questions and clients themselves are curious as to how they can lock more certainty into their portfolio, which really does play to the fixed interest space very well.”
In April, James told selfmanagedsuper that CBA had launched two offerings, Deposit Plus and Flexible Rate Deposit, to allow advisers to apply a view on interest rates for SMSF clients and actively manage this segment of their portfolios.
James, who has key experience in the independent financial adviser space (IFA), said there was talk of making institutional-quality product in the fixed-interest space available to the IFA market when he joined CBA IB&M last June.
“We’ve met with lots of groups, big and small, and lots of advisers, and we learned that there was a great need for advisers to have more choice in how they managed clients’ interest rate exposures, and certainly a lot more advisers are thinking about the long-term implications of interest rate risk,” he said.
“These products are becoming more sought after.”
However, cash and deposits were still not often considered in an overall plan, James said.
“But they should be,” he said, adding that depending on that strategy, advisers spent a lot of time choosing the right asset allocation balance and then carefully choosing products.
“But it does seem to me that on the cash and deposit side clients and advisers alike often are looking for better opportunities, and you get this tension between sticking to a pretty tight asset allocation strategy versus looking out for better opportunities.
“So they tend to roll the deposits short, but if someone’s been in a super fund for the past seven or eight years and they’ve been rolling every 90 days, they’ve rolled from 7 per cent into 2 per cent and they could end up rolling into 1 per cent potentially.
“That’s not really a great experience for the client.”
CBA IB&M believed it could demonstrate through its institutional interest rate risk management products that there was another way, James said.
“In the same way you might help a client decide whether they should have a fixed or floating rate home loan, you can now do a similar thing for the deposit side of the portfolio,” he said.
“Where we want to talk equities or managed funds, there’s always been lots of support.
“But where we want to talk interest rates, the truth is there probably hasn’t been the same degree of support.”
CBA IB&M had built a data feed into Xplan and would make the two deposits available to other products and platforms, he said.
“We are actively looking at some additional functionality for those deposits … that will further enhance the benefits of these products to retirees,” he said.
“We’re now in hard launch mode and we’re getting really positive feedback.
“We’re also looking at a range of other products outside our deposits for the IFA market and their client base.”
