Is platform cash burning a hole in your clients’ portfolios?
Simply choosing “the default option” when it comes to the decision of where to best park a client’s cash on investment platforms could be a missed opportunity when an interest rate which is ~40% higher than the average rate offered by three major platform providers is easily available.
Australian investors have long been chided for not taking enough interest in their superannuation.
One example of this is the still high proportion of workers that simply opt for the “default” super fund chosen by their employer – or industrial award - when starting or moving jobs.
Yet, arguably, the problem of simply choosing “the default option” is one that even affects professional financial planners, particularly when it comes to the perhaps often overlooked decision of where to best park a client’s cash on investment platforms.
As at end-2017, investment platforms had amassed around $820 billion in funds under management [1], a significant part of which is held in cash accounts for asset allocation reasons or when client funds have not yet been assigned to any specific investment.
The cash is invested in bank deposits on your clients’ behalf, but often that client cash is earning rates that are low – at the time of writing some default cash accounts are earning less than 0.30% per annum for investors!
Another option is to invest this cash for your clients directly on the ASX through, say, a cash-based exchange traded fund (ETF), such as the BetaShares Australian High Interest Cash ETF (ASX: AAA).
The AAA ETF holds Australian dollars in bank accounts with several major Australian banks and pays attractive monthly income distributions. And if you or your clients want to redeploy these funds at any time, you can get your money back within two days by simply selling the ETF on the ASX.
Based on the current level of interest rates, AAA is earning an interest rate of around 2% p.a. on its bank deposits, net of all management fees, which is ~40% higher than the average interest rate offered by three major platform providers [2] .
It’s little wonder AAA has now over $1.2 billion in assets under management and a 6 year track record of providing competitive , above-market cash rates, cementing its place as an attractive investment for thousands of investors and their advisers looking to manage their cash holdings.
Of course, brokerage costs do also need to be considered when buying and selling ETFs, so this approach would be less suitable for very frequent moves into and out of cash holdings, with AAA typically being used for a core cash allocation rather than for transaction cash usage.
All up, although cash is often looked upon as a relatively boring investment, it does serve the needs of many investors – at least for part of their portfolio – who want capital stability, liquidity and relatively reliable income returns. Given the current returns on cash are so low, however, it pays to ensure that client cash balances are earning competitive rates, and so
we’d encourage advisers to check the rate they are earning on platform cash and compare to that available via AAA.
At the time of writing, BetaShares Australian High Interest Cash ETF (ASX: AAA) is available on most platforms.
To learn more and AAA and request the Lonsec or Zenith Research click here
[1]Strategic Insights (Plan for Life) Report, March 2018
[2]As at April 2018. Average of current rate offered by three major wrap providers as published on wrap provider websites.
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