CIB Private wealth Article: Is your cash working for you ?

Updated November 12th 2013

If you hold a significant amount of your wealth in cash, making sure you’re getting the best possible return could result in a significantly better outcome for your investment and income stream.

Cash can be held for any number of reasons. It might be a short-term holding, the proceeds from a property sale, or awaiting reinvestment into another asset.

On reviewing clients’ portfolios, we frequently find large cash holdings sitting under an investment platform (an administration service sometimes also known as a wrap platform, master trust or master fund). This is often the case when the portfolio also contains direct shares or managed funds.

It might feel simpler to keep the funds all under the one roof; however there are some commonly overlooked issues that people need to be aware of when it comes to investing in cash via a platform.

  • The platform provider (for example, BT Wrap, Macquarie Wrap, MLC Navigator) charges you a percentage-based fee to administer your money. This is charged regardless of whether the underlying assets are shares, managed funds, at-call cash, or term deposits. This fee might range from 0.3% up to 1.0%.
  • If your financial adviser charges a percentage-based fee, then it is likely that this fee will also be applied on your cash balance
  • The interest rates provided by investment platforms on cash holdings (even term deposits) is generally significantly less than what can be obtained by going to the bank directly – the variance could be up to 1.5%.

The final outcome is that the effective interest rate is dwindled significantly below the market rate. Anyone who holds a significant amount of cash via a platform should think about withdrawing the balance and moving the funds into one of the many high fixed interest or at-call online cash accounts currently on offer in the market place. Many of these accounts have minimal fees (or no fees at all), which leaves you with the interest rate returns the investment has assured you of, and more than likely much higher than that available via the investment platform.

Of course, there are times when it is not appropriate to withdraw funds from an investment platform – for example, when an allocated pension has been put in place. If you currently have substantial cash sitting in a platform, we would be more than happy to review your investment and assist you in finding the right cash alternative.