Bringing Wall Street to Main Street: Technology innovations that enhance liability matching strategies
Promoted by Cashwerkz.
Institutional investors such as corporations, charities and schools have, for decades, been employing a sophisticated combination of technology and high-level banking relationships to execute their liability matching strategies. The results speak for themselves. Actively managing cash allocations to secure competitive yields aligned with desired tenures provides an optimised level of return. Equally, spreading cash across multiple counter-parties based on their credit ratings manages the risk.
However, despite the needs of retail Self-Managed Superannuation Fund (“SMSF”) Trustees being essentially the same – after all, there will be planned movements of money into and out of the fund in any given year – the pool of over $150B of cash that the Australian Taxation Office (“ATO”) estimates sits inside SMSFs is largely passively managed.
Significantly, and according to deposit fintech Cashwerkz, across the entire market, Australian cash holders forego at least $4.2 billion a year by not actively managing their surplus cash investments to look for the best rate on offer – and this doesn’t even consider the risk factor.
If there are a number of institutions offering the same rate, and the cash holdings in the SMSF were greater than the $250,000 limit of the Federal Government Guarantee, why wouldn’t the SMSF Trustee look to split their holdings across institutions? Wouldn’t this be the prudent thing to do as a Trustee managing money on behalf of beneficiaries?
Typical roadblocks to being more active and risk aware with cash allocations inside SMSFs have been the time and effort to research interest rates across the market, as well as the administrative burden associated with dealing directly with multiple banks.
So what’s the solution here?
Simply put, it’s a process evolution, which utilises technology to generate greater ‘bang for buck’ for both your clients in their return (and risks assumed in exchange for that return) and their Adviser’s office, either in the form of reduced paperwork and manual processes or possibly via an enhanced private wealth proposition that can be taken to market.
The development of technology by fintech firms over the past few years is bringing cash and term deposit solutions that were typically the exclusive domain of the institutions into the retail space - something which private wealth advisers have been embracing at an increasingly rapid rate.
By leveraging this technology SMSF Trustees are now getting greater visibility of what cash products are available and are in a better position to make informed decision of where to invest in line with their own liability matching requirements (be they regular income stream funding, known lump sum withdrawal needs, asset purchases and the like). Moreover, some fintech firms operating in this segment also leverage their own scale and growth in order to secure preferential interest rates from the Banks – again, bringing institutional benefits direct to the retail investor.
Cashwerkz, a leading-edge fintech company has developed a term deposit platform for Australian investors (including SMSFs) to both maximise earnings on cash and manage their risk exposures, whilst simplifying the process (and reducing the time) associated with interacting with the Banks. Managing maturities and investing across multiple timeframes (say by placing a term deposit for each of 3, 6 and 12 months) can all be done at the click of a button.
Cashwerkz Head of Advised Distribution, Rob Hay explains “The combination of low interest rates and an increased administrative burden have made it far more difficult for advisers to manage their client’s cash investments. Cashwerkz provides advisers with a streamlined digital solution where an adviser or an administrator can create a client account within minutes and thereafter focus solely on the needs of their client.”
Rob added, “Investing client’s cash is time consuming and frustrating for many advisory businesses. However with Cashwerkz, once the required consents are on the platform, the adviser can place cash investments and no longer requires direct action from the client. This removes the need to complete lengthy application forms and speeds up the investment process. In addition to the simplicity, Cashwerkz offers advisers a marketplace of trusted term deposit providers, enabling advisers a greater choice in the search for their client ‘s most suitable cash investment options.”
The spread of rates can be quite significant as well. This month alone, Cashwerkz, saw rates ranging from 2.00% - 2.60% for 3 months, 2.00% - 2.75% for 6 months and 2.45 – 2.85% for 12 months. When looking at a $200,000 term deposit for 6 months, that’s a $1,200 difference.
“There is a very big difference in investor outcomes depending on how active they are in managing their cash exposures and, in a low interest rate environment, every little bit counts.”
“Through our cutting edge technology at Cashwerkz, which brings top end of town technology to the retail market, we are helping advisers bring enhanced value to their clients, in a low cost to serve format that seeks to improve retirement outcomes through the provision of greater risk adjusted returns for their clients” said Rob.
To find out more about Cashwerkz, click here.