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When Cash is no Longer King

With the prolonged global low interest rate environment, the attractiveness of cash holdings for wealth management firms is also at an all time low. UBS Group AG, in fact, announced yesterday that it is increasing fees for “international wealth management clients located abroad and holding deposits in Switzerland” in the face of persistent low/negative interest rates.

Beginning in 2021, the bank will charge 330 Swiss francs monthly for those not living in Switzerland on cash deposits of 500,000 francs or less. That is the current approximate total annual fee for that level of cash deposits, so this represents a twelve-fold increase. The goal is to “encourage” clients to move cash into longer-term investments. Other Swiss banks also have fees in place to offset the costs of negative interest rates. Credit Suisse charges clients on deposits of more than two million francs/one million euros.  

U.S. private banks and other wealth managers, at least for now, still consider client relationships based on overall assets and have not disaggregated the cash portion of a client’s relationship for fee purposes. It is possible, however, that the “lower for longer” environment could drive private banks to do so. One could, of course, argue that motivating investors to put their funds to work to achieve long-term goals is a good thing, but there are more collaborative, educative ways to do so. 

For RIAs and other wealth management firms that take a holistic approach to looking at a client’s total financial picture, this represents an opportunity to engage in positive dialogue regarding the impetus for UBS’ move. While the end goal of holding less cash may be common for all organizations and their clients, the means by which they accomplish this move can be a relationship-building move for those that do it in a client-benefits oriented way.