Running a retirement offering with good cash management

Jason Hemmings from Cornerstone Asset Management tells us why advisers should play an active role helping clients who want to hold cash separately outside a model portfolio. He explains how the M&G Wealth Platform's ring-fencing functionality enables this, without the need to create a second wrap account.

Financial planners need to play an active role in cash management because, while model portfolios suit a lot of client needs, cash requirements are very individual.

For us, this doesn’t mean managing cash within a model portfolio – that’s not our role – the only stipulation is that DFMs have 2% minimum in cash. However, we play an active role when a client wants or needs to manage cash separately, outside of the model. This is where the ability to ring-fence cash becomes crucial, eliminating the need to create a second wrap account which isn’t linked to a model, in order to avoid the cash being automatically invested.

There are many reasons why clients may need to hold cash separately – perhaps they’re planning a big purchase or want to phase into the market. Some may want to accrue natural income, instead of having this automatically reinvested on a rebalance or paid out immediately in cash. And, because the cash ring-fencing can be ‘switched on’ on an account-by-account basis, you only have to use it with those clients for whom it’s relevant.

Good cash management is particularly important if you want to run a compelling retirement offering. It’s one of three key elements as part of our solution for drawdown clients: we hold 12 months’ income in cash, a further three years of equivalent income in a lower risk, low volatility portfolio and the remaining element in a growth portfolio. When the growth portfolio exceeds 1% of its benchmark this automatically rebalances the retirement strategy and tops up the lower risk and cash pots. When it comes to the 12 months of income, instead of having to set up a separate SIPP account to manage this cash we can ring-fence it within the same account, making things a lot simpler for our clients.

Financial planners shouldn’t underestimate the responsibility that comes with managing clients’ cash. But it also adds a new valuable dynamic to financial planning that can help retain clients by bringing money that would have been in a bank account, onto a platform.

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