# Cash at risk of losing ‘safe haven’ status as inflation bites
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2017-05-10
Category: FINANCE
Category URL: https://financedigest.com/category/finance
Meta Title: Financial advisers predict rise in inflation will prompt
Meta Description: 70% of financial advisers expect clients to switch capital as inflation erodes cash value. Study by Investec Wealth & Investment shows changing perceptions.
URL: https://financedigest.com/cash-at-risk-of-losing-safe-haven-status-as-inflation-biteshtml

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- 70% of financial advisers think the projected rise in inflation will encourage their clients to consider switching capital out of cash
- 64% think low savings rates coupled with rising inflation will change client perception of cash as a ‘safe haven’
- RPI plus a percentage target seen as the most appropriate performance benchmark

Seven in ten (70%) financial advisers predict an increasing number of clients will consider switching some of their capital out of cash and into other asset classes in response to [rising inflation](https://www.financedigest.com/greek-eu-harmonised-inflation-rises-in-september.html "Greek EU-harmonised inflation rises in September") and its impact on eroding the value of their cash savings.

According to a new study1 commissioned by [Investec Wealth](https://www.financedigest.com/rathbones-snaps-up-investecs-uk-wealth-arm-in-all-share-deal.html "Rathbones snaps up Investec’s UK wealth arm in all-share deal") & Investment (“IW&I”) among 108 financial advisers, almost two thirds (64%) believe that the continuation of low rates on cash deposits during a time of rising inflation will alter clients perceptions of cash as a ‘safe haven’.

CPI inflation has risen sharply over the [last year](https://www.financedigest.com/crypto-investors-step-up-risk-management-after-last-years-meltdowns.html "Crypto investors step up risk management after last year’s meltdowns") from 0.3% in February 2016 to 2.3% in February 20172 while over the same period, the FTSE 100 has grown by roughly 22%3.  Moreover since June 2016 and the Brexit vote, average Cash Isa rates have halved from 0.87% to 0.43%.

In light of this, IW&I’s study reveals which performance benchmark resonated most strongly with the respondents’ clients.  The most popular benchmark supported by 43% of advisers is RPI plus followed by [Bank of England base rate](https://www.financedigest.com/investors-trim-bets-for-peak-bank-of-england-rate.html "Investors trim bets for peak Bank of England rate") plus (33%) and CPI plus. ARC performance data and discretionary fund manager (DFM) internal performance indices were the fourth and fifth most popular benchmarks respectively.

**Mark Stevens, Head of Intermediary Services at Investec Wealth & Investment**, said: “Whilst interest [rates had remained at historic lows for eight consecutive years alongside negligible rates of inflation](https://www.financedigest.com/boe-flags-risk-of-recession-and-10-inflation-as-it-raises-rates-again.html "BoE flags risk of recession and 10% inflation as it raises rates again"), cash has retained its reputation as a safe if rather unexciting asset class. However, with [inflation rising](https://www.financedigest.com/world-at-rising-risk-of-recession-as-inflation-hits-consumers.html "World at rising risk of recession as inflation hits consumers") significantly in recent months, many advisers believe their clients’ patience with cash will start to wear thin as they see their deposits shrinking in real terms.

“It’s likely that as clients [become receptive to moving](https://www.financedigest.com/bangladesh-moves-up-the-ranks-and-could-become-the-24th-largest-economy-by-2036.html "Bangladesh moves up the ranks and could become the 24th largest economy by 2036") higher up the risk ladder in order to generate positive returns, the role of the adviser becomes even more important. Aligning their clients’ risk appetite and capacity for loss, whilst optimising the client’s [investment strategies](https://www.financedigest.com/the-10-year-model-and-beyond-why-you-should-take-a-long-term-outlook-to-investment-strategy.html "The 10-year model and beyond – why you should take a long-term outlook to investment strategy") is not new, but given the increasing role that inflation will play in determining returns, client expectations will require careful consideration and management. It is not surprising that RPI plus emerged as the most popular benchmark with many clients as it is a familiar and simple measure. However this creates another opportunity for advisers to work closely with their discretionary investment [manager partners to deliver inflation-adjusted returns for those investors](https://www.financedigest.com/activist-investor-elliott-management-takes-stake-in-salesforce-sources.html "Activist investor Elliott Management takes stake in Salesforce -sources") with large a portion of their assets held in cash.”


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