Simon Merchant on why cash is the inevitable asset class and why opportunities in cash cannot be ignored
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Cash is king. The adage could not ring truer in the current volatile market conditions. Even in the face of eye-watering inflation, investors have been building their cash stockpiles and holding this liquid asset class as an integral part of their portfolios.
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This article is not financial advice. If you are unsure about your personal investments, consider getting in touch with a financial adviser.
Flagstone Investment Management is authorised by the Financial Conduct Authority (Reference Number 605504) under the Payment Service Regulations 2017 for the provision of payment services.
In this guide, Simon Merchant, co-founder and CEO of Flagstone, the UK’s leading cash deposit platform, discusses why cash is the inevitable asset class, why the problem with cash is not holding it but inertia in the market, and why opportunities in cash cannot be ignored.
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In this guide, we explore the fund’s strategy in detail and analyse how it seeks to tackle the uncertainty of today’s market while also matching investors’ sustainability expectations.
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“Cash is an inevitable and low-risk asset class and, assuming it is protected, you absolutely know that your principal investment is guaranteed. You can be confident that £100 at the start of the year is going to be at least £100 at the end of the year” says Simon Merchant, co-founder and CEO of Flagstone.
sell property or save for a child’s education. At the other end of the spectrum, when retirement is on the horizon, investors are often increasing their weighting in cash to protect their wealth.
ash is with investors at every step of their journey. Savings are the logical entry point at the beginning – we all need to start somewhere. As we meet life’s milestones, cash is a cyclical asset that people move in and out of as they buy and
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Opportunity in the inevitable asset class
The importance of cash is reflected in the overall size of the cash savings market. In the UK, the market is huge. According to the Bank of England, total cash savings are £2.6trn and of that, £1.7trn is held by households. From a long-term investing and savings perspective, cash has always had a necessary and inevitable place in a diversified portfolio.
Those numbers are climbing as investors, shunning both falling equity and bond markets, stockpile cash for its haven appeal. In its latest monthly investors survey, Bank of America described the current mood as “extremely bearish” and found the highest allocations to cash since 9/11.
Despite the inevitability and benefits of holding cash, it is not without risk. The most severe is inflation, which erodes the value of cash over time.
Working together
Yet although the spread between the return you can achieve on cash and inflation is very wide right now, savers are missing a huge opportunity to narrow the gap by failing to take advantage of the best offers. Merchant highlights inertia. “The opportunity is there, and the opportunity is absolutely growing. We are seeing new rates in the market daily that are constantly moving in that upwards direction,” he says.
A continued upward trajectory could make cash an attractive option. “Today we're in a market where the highest 12-month term rate right now is 2.73%, while the base rate is at 1.25%,” he says. “If the base rate goes to 2.5%, imagine where fixed term deposit rates go: north of 3%. If they are north of 3%, then cash becomes a difficult asset class to continue to ignore.”
has helped drive risk asset valuations ever higher despite the damage wrought by COVID-19, compressing yields and making portfolio income distribution objectives harder to achieve in both equities and fixed income.
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A state of inertia
He believes that from an adviser’s point of view, there is a large opportunity to broaden the focus and think of cash as a strategic asset class and part of a holistic, diversified portfolio.
Cash has been an area that financial advisers have historically ignored. Yet it is an easy entry product and is easy for advisers to talk to their clients about. The opportunity here is for advisers to look at clients’ wealth holistically and offer cash as a haven with a respectable rate of return.
“There's a considerable time-versus-return barrier for people, which is why we've got that nearly £1trn sitting in current accounts earning very little,” says Merchant.
A competitive advantage for advisers
“Unless clients have been introduced to Flagstone, they tend to have their investments in one place and their cash elsewhere. And never shall the twain meet,” says Merchant.
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Cash’s haven appeal in turbulent times also gives investors flexibility in volatile markets. “If you are liquid and you hold cash and you want to invest, then you can do so,” Merchant says. “If you're fully invested in the stock market and the stock market is down, then selling and investing in other asset classes doesn't always feel like a very comfortable thing to do,” he says.
Simon Merchant, co-founder and CEO
Cash is an inevitable and low-risk asset class and, assuming it is protected, you absolutely know that your principal investment is guaranteed
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£1trn is invested in current accounts with High Street banks, meaning that cash is currently earning around 0.1%
Out of the £1.7trn cash that is held by individuals or households, £260bn is held in accounts that earn no interest at all
£1trn is invested in current accounts with High Street banks, meaning that cash is currently earning around 0.1%
£1.7trn
How much of that £1.7trn is held in accounts that earn no interest at all
£260bn
The amount of cash that is held by individuals or households
0.1%
£1trn is invested in current accounts with High Street banks, meaning that cash is currently earning around 0.1%
The importance of cash is reflected in the overall size of the cash savings market. In the UK, the market is huge. According to the Bank of England, total cash savings are £2.6trn and of that, £1.7trn is held by households. From a long-term investing and savings perspective, cash has always had a necessary and inevitable place in a diversified portfolio.
Those numbers are climbing as investors, shunning both falling equity and bond markets, stockpile cash for its haven appeal. In its latest monthly investors survey, Bank of America described the current mood as “extremely bearish” and found the highest allocations to cash since 9/11.
£1.7trn
0.1%
£260bn
How much of that £1.7trn is held in accounts that earn no interest at all
£1trn is invested in current accounts with High Street banks, meaning that cash is currently earning around 0.1%
The amount of cash that is held by individuals or households
Gary Kirk, co-manager, TwentyFour Sustainable Multi Sector Credit Fund
ESG will drive
asset performance, particularly among institutions that have to stand up and be accountable to
their members
He believes that from an adviser’s point of view, there is a large opportunity to broaden the focus and think of cash as a strategic asset class and part of a holistic, diversified portfolio.
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“What we give the customer is one platform where they're able to access a broad range of market-leading products to diversify their cash deposits, get the greatest amount of Financial Services Compensation Scheme (FSCS) pickup and also get the best rates that are on offer,” says Mark Hicks, Head of Bank Partnerships.
“We are completely committed to ensuring our wealth manager partners and IFAs receive both value and exclusivity when they register with us,” says Claire Jones, Head of Relationships and Business Development at Flagstone. “We help them reach and acquire new high-value clients by offering market-leading and exclusive rates, greater financial protection, and increased visibility of their clients’ cash assets.”
Without a cash deposit platform, cash can be split across numerous banks, but it is difficult to have a holistic view of the client’s cash portfolio.
Out of the wilderness
“Rather than sending them off into ‘the wilderness’ of managing different bank accounts and trying to keep within the FSCS levy limit, Flagstone means that they can deal with it all in one place, giving them and us more control,” she says.
Hicks explains that advisers have access to Flagstone accounts on a read-only basis. “That gives them access to the deposits their clients have on a real-time basis, giving visibility of when maturities are coming up and a strong overall view of their clients’ cash portfolio,” he says.
Gadsden adds: “I like the fact that the values are reported on clients’ Wealth Accounts so I can see how much they hold in case we need to give advice on future investments or IHT planning. I also get copied into any transfers they make between or from their accounts so that I can keep an eye on things.”
Clients can spread their cash across a number of banks in one simple portfolio, enabling advisers to seamlessly secure, grow, and manage their clients’ cash.
In a competitive market, these benefits enable advisers to add value to their clients through understanding the full picture of their wealth, provide holistic advice, and increase influence while offering an opportunity for growth coupled with greater protection of their cash. In doing so, they could open business opportunities such as acquiring and retaining high-value clients.
Becoming a Flagstone referrer
In Europe there is so much going on. At the moment, there are so many different directives, initiatives, labels and so on all operating at once that it can actually distract the businesses and institutions trying to implement the right changes. From my point of view, there needs to be overarching regulation that provides effective guidance to both bond investors and issuers alike.
In Europe the industry has been relatively proactive on ESG factors; the US, by contrast, has been so far behind that ESG wasn’t really on our clients’ radar there until more recently. But with President Biden’s focus on climate change, it has stepped up a gear and that’s really positive.
How important are the recent regulatory changes in Europe and the US?
Market outlook
Integrating ESG:
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Through strong and strategic relationships with both high street banks and banks that are not usually active in the savings market, Flagstone solves the problem of inertia in the cash market by offering exclusive rates that are not available in the direct savings market.
Flagstone gives clients as much flexibility as they want to have. They can move their cash around as often as they want to, and they can decide how many banks they want to spread their deposits across.
Lynne Gadsden, Managing Director of Grovewood Wealth Management, is one adviser who has accessed these benefits through Flagstone. “A lot of higher-net-worth clients like to hold some cash back. Sometimes it can be a considerable amount, for example if they have just sold their business and wish to purchase a new house in the future.
lagstone provides a safe place for investors to protect and grow their cash. Delivering access to over 200 savings products on the platform, customers can expect a cash solution tailored to their personal needs and savings horizons.
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Clients can spread money across any number of banks and receive FSCS protection of £85k (individual) or £175K (joint), each time
Accounts range from instant access to fixed-term deposits, allowing a tailored approach to client needs
Rates are constantly updated, and Flagstone’s market-leading position ensures competitive rates
Manage accounts across sterling, US dollar and euro
Secure
Flexible
Competitive
Currency options
Key factors
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How the platform works for clients
Become a Flagstone client. Minimum deposit of £50K
Flagstone provides partners and IFAs with an ideal opportunity to increase the range of services they offer, concludes Jones. “This allows them to advise clients on how best to manage their cash and solve the problem of cash inertia that can lose clients substantial amounts in potential interest income.”
Claire Jones,
Head of Relationships and Business Development
We are completely committed to ensuring our wealth manager partners and IFAs receive both value and exclusivity when they register with us
Flagstone ensures that all its UK partner banks are authorised and regulated by the FCA and are members of the Financial Services Compensation Scheme.
Peace of mind with FSCS protection
As part of the platform’s operating framework, Flagstone has a holding account which all deposits feed into. This account is either with HSBC or with Barclays, which are strong Tier 1 banks in the UK.
“Because of the legal structure that we have, each of our eligible clients is able to get FSCS protection on the holding account and on all the underlying banks as well,” says Hicks.
Clients do not have any credit exposure to Flagstone. Funds are safeguarded in client trust accounts and protected by the FSCS if the client is eligible.
Mark Hicks,
Head of Bank Partnerships
We give the customer one platform where they're able to access a broad range of market-leading products to diversify their cash deposits
Once your clients have signed up, you can view your clients’ deposits and stay current with the best interest rates on the platform and any upcoming maturities. Referrers will receive a 15% commission from all referred clients’ annual management fees.
Getting started is easy
Open an account
3 / 3
2 / 3
Refer
You are now ready to refer clients and following your referral, you will have read-only access to their overall investments.
1 / 3
Register
Financial advisers, consultants, planners, and wealth managers can take this first step by providing some basic information and even without referring a client at this stage.
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Complete a single application to cover all deposits
Transfer deposit to your account
Choose the best savings account for your deposit from up to 50 banks
Move, place, or spread your deposits from one central hub
Enjoy FSCS protection up to limits where eligible
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5
4
3
2
1
Onboarding from anywhere in the world for offshore clients through Flagstone International*
Global reach
Control
Clients have 24/7 access and immediate visibility and control of money
Holistic view
Access to consolidated information across all cash-deposit accounts, including a single tax certificate at year end
2 / 2
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*Launching Q4 2022
need to start somewhere. As we meet life’s milestones, cash is a cyclical asset that people move in and out of as they buy and sell property or save for a child’s education. At the other end of the spectrum, when retirement is on the horizon, investors are often increasing their weighting in cash to protect their wealth.
ash is with investors at every step of their journey. Savings are the logical entry point at the beginning – we all
C
“Cash is an inevitable and low-risk asset class and, assuming it is protected, you absolutely know that your principal investment is guaranteed. You can be confident that £100 at the start of the year is going to be at least £100 at the end of the year” says Simon Merchant, co-founder and CEO of Flagstone.
Through strong and strategic relationships with both high street banks and banks that are not usually active in the savings market, Flagstone solves the problem of inertia in the cash market by offering exclusive rates that are not available in the direct savings market.
Key factors
Onboarding from anywhere in the world for offshore clients through Flagstone International*
*Launching Q4 2022
Global reach
Control
Clients have 24/7 access and immediate visibility and control of money
Holistic view
Access to consolidated information across all cash-deposit accounts, including a single tax certificate at year end
Clients can spread money across any number of banks and receive FSCS protection of £85k (individual) or £175K (joint), each time
Secure
Competitive
Rates are constantly updated, and Flagstone’s market-leading position ensures competitive rates
Currency options
Manage accounts across sterling, US dollar and euro
1 / 2
1 / 7
3 / 7
3 / 7
3 / 7
6 / 7
Flexible
1 / 7
Clients can spread money across any number of banks and receive FSCS protection of £85k (individual) or £175K (joint), each time
6
Enjoy FSCS protection up to limits where eligible
5
Move, place, or spread your deposits from one central hub
4
Choose the best savings account for your deposit from up to 50 banks
3
Transfer deposit to your account
2
Complete a single application to cover all deposits
1
Become a Flagstone client. Minimum deposit of £50K
How the platform works for clients
“Rather than sending them off into ‘the wilderness’ of managing different bank accounts and trying to keep within the FSCS levy limit, Flagstone means that they can deal with it all in one place, giving them and us more control,” she says.
“Rather than sending them off into ‘the wilderness’ of managing different bank accounts and trying to keep within the FSCS levy limit, Flagstone means that they can deal with it all in one place, giving them and us more control,” she says.
Gadsden adds: “I like the fact that the values are reported on clients’ Wealth Accounts so I can see how much they hold in case we need to give advice on future investments or IHT planning. I also get copied into any transfers they make between or from their accounts so that I can keep an eye on things.”
3 / 3
Open an account
Once your clients have signed up, you can view your clients’ deposits and stay current with the best interest rates on the platform and any upcoming maturities. Referrers will receive a 15% commission from all referred clients’ annual management fees.
2 / 3
Refer
You are now ready to refer clients and following your referral, you will have read-only access to their overall investments.
1 / 3
Register
Financial advisers, consultants, planners, and wealth managers can take this first step by providing some basic information and even without referring a client at this stage.
Getting started is easy
Clients can spread their cash across a number of banks in one simple portfolio, enabling advisers to seamlessly secure, grow, and manage their clients’ cash.
Simon Merchant,
co-founder and CEO
Cash is an inevitable and low-risk asset class and, assuming it is protected, you absolutely know that your principal investment is guaranteed
Clients can spread their cash across a number of banks in one simple portfolio, enabling advisers to seamlessly secure, grow, and manage their clients’ cash.
In a competitive market, these benefits enable advisers to add value to their clients through understanding the full picture of their wealth, provide holistic advice, and increase influence while offering an opportunity for growth coupled with greater protection of their cash. In doing so, they could open business opportunities such as acquiring and retaining high-value clients.
Becoming a Flagstone referrer
As part of the platform’s operating framework, Flagstone has a holding account which all deposits feed into. This account is either with HSBC or with Barclays, which are strong Tier 1 banks in the UK.
“Because of the legal structure that we have, each of our eligible clients is able to get FSCS protection on the holding account and on all the underlying banks as well,” says Hicks.
We believe it's essential for investors to realign their portfolios to the transition in order to safeguard future returns
Thomas Hohne-Sparborth
head of sustainability research
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2: ‘ESG: What makes 34…our chosen score?’, blog post, 20 May 2021.
Market cycles | Fund performance | Asset selection Portfolio construction | Measuring sustainability
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“More than happy to give a testimonial for Flagstone.
After all…I am also a client myself. So not only am I happy
to recommend to clients, but I choose to use it to keep money
that has been earmarked for non-investment purposes and
short-term use, which otherwise would receive much lower rates
of interest from my bank and more importantly receive a small
amount of FSCS protection.
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Charlene Malik, portfolio manager
INTEGRATING ESG
TwentyFour Sustainable Multi Sector Credit Fund
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Alistair Wilson, partner
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Trusted by leading wealth managers
Daniel Mason,
Principal Adviser, Lewington Wealth Management Limited
Principal Partner Practice of St. James's Place
Wealth Management
“I find the platform easy to use and therefore it is simple to explain how
to use it to clients. All feedback from clients so far has been extremely
positive, not only the ability to use it once they’re up and running, but
also how easy it is to complete the application process, which can be
done in a matter of days.”
Adviser testimonial
Adviser testimonial
Lynne Gadsden FPFS,
Chartered Financial Planner and Managing Director of Grovewood Wealth Management
“My clients have loved it and one has used it a lot as they wished to hold back about £2-3m which they have in a mix
of single, joint and company accounts. Their accountant has become quite involved with it too as he helps them transfer the monies within accounts when the fixed rate terms finish.
I know he has been really impressed and has even recommended it to his other clients.”
5
No administration fee is charged for deposits between £50,000 to £249,999
4
This administration fee applies to all individual, joint, company, charity and trust clients
3
For US dollar accounts this fee is $500 and for euro accounts it is €500
2
For deposits of £250k or more, a one-time setup fee of £500 will be payable and automatically taken from your initial deposit
1
Annual management fee of between 0.15% p.a. and 0.25% p.a. depending on the value of deposits
Breakdown of fees
How it works
Nominated account
Holding account
Deposit accounts
1. fund
2. deposit
3. mature
4. withdraw
£
£
£
£
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Adviser testimonial
Lynne Gadsden FPFS,
Chartered Financial Planner and Managing Director of Grovewood Wealth Management
“My clients have loved it and one has used it a lot as they wished to hold back about £2-3m which they have in a mix
of single, joint and company accounts. Their accountant has become quite involved with it too as he helps them transfer the monies within accounts when the fixed rate terms finish.
I know he has been really impressed and has even recommended it to his other clients.”
How it works
Nominated account
Holding account
Deposit accounts
1. fund
2. deposit
3. mature
4. withdraw
£
£
£
£
5
No administration fee is charged for deposits between £50,000 to £249,999
4
This administration fee applies to all individual, joint, company, charity and trust clients
3
For US dollar accounts this fee is $500 and for euro accounts it is €500
2
For deposits of £250k or more, a one-time setup fee of £500 will be payable and automatically taken from your initial deposit
1
Annual management fee of between 0.15% p.a. and 0.25% p.a. depending on the value of deposits
Breakdown of fees
our illustration tool
explore our tool
Adviser testimonial
Lynne Gadsden FPFS,
Chartered Financial Planner and Managing Director of Grovewood Wealth Management
“My clients have loved it and one has used it a lot as they wished to hold back about £2-3m which they have in a mix of single, joint and company accounts. Their accountant has become quite involved with it too as he helps them transfer the monies within accounts when the fixed rate terms finish. I know he has been really impressed and has even recommended it to his other clients.”
Lynne Gadsden FPFS,
Chartered Financial Planner and Managing Director of Grovewood Wealth Management