Keeping cash flexible in a managed portfolio

M&G Wealth Platform offers a simple way to keep control of a client’s cash balance when using a model portfolio service, as Mike Gibbs explains.

Using a model portfolio service (MPS) from a discretionary fund manager (DFM) offers a lot of benefits. It allows financial-planning firms to outsource investment management to proven investment professionals and match highly sophisticated portfolios precisely to each client’s needs and risk profile.

But one perennial challenge is how to ensure a client in an MPS always has enough cash.

The rebalancing challenge

DFMs services will usually assign a certain portion of assets in a model to an agreed percentage of cash (typically 2-5% of the portfolio). But the challenge is that every time a portfolio is rebalanced to bring it back to the agreed asset allocation, any additional cash in the cash account will also get swept up and rebalanced.

That’s fine if the 2-5% cash allocation is sufficient to meet the client’s needs. But there can be times when a client just needs more cash. They may need to take larger income payments. Or they’ve put in a request to liquidate some assets to access a capital sum. If the model gets rebalanced before that cash gets paid to the client, they can be out of pocket.

Given that advisers have no control (and usually no warning) as to when a DFM will rebalance the portfolio, the level of cash available can be very unpredictable. So M&G Wealth Platform offers a simple solution.

Cash exclusion facility

For all model portfolios, M&G Wealth Platform includes an option to exclude cash from any portfolio rebalancing.

Simply by clicking the ‘Exclude cash’ button on the client portfolio screen, an adviser can instantly ensure that all cash in that client’s account is ring-fenced and that it won’t be scooped up for any future rebalancing. The exclusion can remain in place until the adviser unclicks the button and can be reinstated instantly online at any time – with no paperwork, no waiting and no fuss.

This can give adviser and client plenty of cash management flexibility:

• They can control how many months’ income to hold/accumulate in cash at any one time – and top up/review this regularly to ensure it stays appropriate
• If a client needs to liquidate a large chunk of assets for any reason, they can do so and leave it safe in the cash balance until they need it – with no worry that it will get swept up in the next portfolio rebalance in the meantime
• Conversely, high net worth clients can hold less than the agreed MPS cash allocation so that more of their assets can be invested
• In volatile times, clients can take money temporarily out of markets – and choose when to re-enter them.

Perhaps most important of all, by having great control of cash, adviser and client are faced with fewer events when auto-disinvestment of holdings has to kick in to meet a client’s agreed income payment. And in today’s uncertain markets where no-one wants to be a forced seller, that has to be a good thing.

More choice for your clients

As many advisers can attest, contending with calls from clients saying they haven’t received a due income payment can take up an inordinate amount of time – as well as presenting reputational risk.

Through services such as the cash exclusion facility and our eight-day income assessment (which assesses whether a regular income payment is in place eight working days before it’s due), we aim to make those complaints a thing of the past. And help every adviser put choice and flexibility at the heart of their proposition. 

If you’d like to find out more about our cash management facility please contact your usual Business Development Manager or use our online contact form to request an email or call back.