Commonwealth Bank of Australia’s (CBA) two new deposit products will open up the opportunity for advisers to explicitly manage this part of their SMSF clients’ portfolio against continued interest rate concerns.
Deposit Plus and Flexible Rate Deposit allowed advisers to have a view on interest rates and apply it for SMSF clients, CBA institutional banking and markets head of adviser distribution for investor sales Steve James said.
“With Deposit Plus, the adviser is able to say, theoretically, the rates are going to be soft for the next three [years] and then begin to rise,” James told selfmanagedsuper.
“So what we’ll be able to do is fix [the interest rate] for three years and let two years float, and we price it in such a way that you’re getting a five-year margin over the bank bill swap rate on the money rather than what advisers typically do, which is roll every 90 or 180 days, which is great if you think the rates are going up.
“But if you think the rates are going down, rolling short actually just leaves the client worse off every quarter.”
The fixed and floating nature gave the adviser a lot of flexibility around the future direction of rates, he said.
Further, the duration was one to 10 years, which was ideal for SMSFs as well as the retiree market where the client just wanted certainty for a percentage of the portfolio.
James said the Flexible Rate Deposit started life as a floating rate deposit from one to 10 years and allowed the adviser to choose the client’s investment horizon, after deciding the asset allocation.
“The difference with this product is the adviser can choose the lock-in minimum rate for a period of the deposit or he can choose a maximum rate on the deposit, or he can essentially have a mini and a maxi,” he said.
“The point of that is over a five-year period, the five-year money might pay 80 points over the bank bill swap rate, so if we use 3 per cent as an example, in a floating rate world, the adviser can lock in a minimum rate.
“Assuming rates continue to fall, the adviser can say no matter what our view is rates are going higher, but just in case we’re wrong we want to lock in a minimum rate of 1 per cent plus our five-year margin on top plus for the period of the deposit.”
