Cash is a vital component of portfolios but its importance is often
obscured by the focus on sexier sectors such as equities. IFAs can earn
their clients useful income and themselves goodwill by helping
to manage their cash better.
Banks earn 9.3bn from customers who “can't be bothered” to move to a more
competitive deal, according to a report from Datamonitor. The report
supports the argument that customer inertia in the retail banking sector
remains high and that the root cause is
The findings reveal that, for members of the major British banking groups,
customer laziness in changing products accounts for:
4.2 bn of mortgage revenue.
3bn of savings account revenue.
2.1bn of unsecured personal loan revenue.
Datamonitor's findings come following a survey of 2,500 customers that
found, across the three major retail banking product areas, customers had
not changed their product provider because:
It would be too much hassle or effort.
They couldn't be bothered.
No particular reason.
Datamonitor analyst Godfrey Sullivan says: “Customers are still lazy when
it comes to managing their finances. Des^_pite new entrants offering
excellently priced products, in terms of market share, the traditional
banking players still dominate retail banking. These findings show sheer
customer lethargy is a central factor. The fact that such a large
proportion of their revenue is based on this customer inertia is
worrying for the major banks.
“There are a number of powerful forces that are seeking to erode this
customer inertia, ranging from the Treasury and Don Cruickshank to an array
of new banking players. It is only a matter of time before these forces
begin to reduce the role of customer inertia. However, as these findings
show, this may be a much
harder and longer process
than was first
IFAs can certainly cash in on the inertia by encouraging clients to move
for better deals and charging for the work involved.
But there are also the clients for whom safety is paramount and cash is
the main component.
Chamberlain de Broe consultant Michael Bakowski
investors are among those who can benefit from using the ancient Egyptian
pyramid as a model.
For the ultra-cautious inv^_estor, the pyramid is flat with the bulk of
the structure in safer investments. For the adventurous investor, the
pyramid would be taller, elongated by greater exposure to mut^_ual funds or
stocks and shares.
Bakowski says cash is an under-rated investment. Apart from ensuring the
investor's pyramid stays solid, it can also be used to take advantage of
investment opportunities. If stocks fall far below their realisable value,
the risk in buying may reduce to the investor's preferred level.
Cash deposit and savings accounts are central to the UK investor's psyche.
According to Mintel, during much of the past decade, gross savings flows
ran to about 50bn a year.
But, after a relatively high savings ratio during the early 1990s, the
savings ratio has declined sharply over the past couple of years as
consumer confidence has recovered strongly. Mintel forecasts the savings
ratio will reach a cyclical trough this year, with gross savings reaching a
low of little more than 30bn.
Total deposits accounted
for just over one-quarter of
financial assets in 1992, falling to about one-fifth in 1999 but there are
still nearly 16
million adults who are estimated to have cash and
savings dep^_osits Some three-fifths of acc^_ounts can be valued at less
than 50,000 and very few households have more than 10,000 in savings.
Significantly for IFAs, the 10 banks which comprise the major British
banking groups account for about 75 per cent of private deposits held at
banks and about 70 per cent of all lending to the private sector. In
aggregate, Mintel estimates the value of individual bank accounts at about
one half of the total value of all private sector deposits with UK banks.
The Mintel report says: “Lessons can be drawn when comparing brand share
of deposit and other accounts. The mortgage banks (former building
societies) continue to display their roots, by commanding
a much greater
for deposits than for other accounts. Yet it appears that
the leading banks have lost market share considerably, while the leading
mortgage banks have lost market share much less rapidly, with both losing
to competition from new entrants.”
The appeal of new entrants provides opportunities for IFAs and so does an
apparently declining interest in cash-servicing by established financial
institutions. Mintel says a general theme drawn from ann^_ual reports is
that savings deposits are no longer a central element of many banks,
mortgage banks or building societies.
Mintel says: “Since access to wholesale money market funds means mortgage
banks and building societies are no longer so reliant upon retail funds,
this trend might be expected, but the extent to which it has taken place is
There is also a focus on
a more upmarket audience, with greater
equ^_ity-based investments and away from deposit-style
But around three-quarters of the working population hold a deposit or
savings account with their main bank or building society. Around one in
five also holds a deposit or savings account with another bank or building
society. A recent Mintel survey found that 14 per cent of adults had opened
a deposit account in the previous 12 months.
For IFAs looking to gain client confidence by suggesting better returns,
it is useful to
know that active savers tend
to be younger. They are
more likely to be setting up savings accounts, although not necessarily
depositing large sums
Mintel says: “An analysis of financial products indicates that respondents
who own plastic cards of some kind are considerably more likely to be
active savers. The ownership of savings accounts is also more keenly
associated with active savers.”