Macquarie removes the cash management edge

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Macquarie Investment Services has announced the closure of its Macquarie Gilt Edge Access Account (Macquarie GEAA), though it said it remains committed to the New Zealand market.

Friday, December 10th 2010, 5:00AM 3 Comments

by Benn Bathgate

The closure comes in the wake of a review which found "it is in the best interests of unit holders to terminate the Macquarie GEAA on March 7, 2011."

The GEAA was one of the first cash management accounts in New Zealand and was widely used by advisers.

International Financial Planning director Robert Oddy said "for a number of advisers their clients are going to be disadvantaged."

He said advisers may have problems if they don't act as providers may still pay out clients' money into the account. He also said there was no comparable account available for advisers, with both bank and broker accounts lacking the flexibility of the GEAA for merging client funds and investments.

The company said the decision to close the account - established in 1996 to provide an at-call cash investment with wholesale deposit returns - was based primarily on two factors; a fall in funds under management that resulted in increased servicing costs and competition from banks able to offer higher interest rates.

"The main reason for the decrease in competitiveness is that banks are generally offering higher interest rates on retail banking products than the Macquarie GEAA can achieve from returns provided by the wholesale securities and deposits in which it invests," Macquarie said in a letter to unitholders.

Macquarie also said that with the fund pool diminishing "there would have needed to be an increase in management costs for all unit holders, had the Macquarie GEAA continued."

Oddy said in the wake of the closure it was "disingenuous of Macquarie to say it remains committed to the New Zealand market," a claim emphatically denied by Macquarie Private Wealth head Ian Witters.

"Macquarie Private Wealth is very keen to build its business here," Witters said, adding they had "grown our advisory business by over 25%."

He said the GEAA was launched in a very different market to now when products such as cash PIEs "certainly weren't around" and that the decision to close was simply because it "could no longer be competitive."

During the account's lifetime Witters said it had "done a good job particularly for the independent financial advisers."

He said the group sees opportunities arising in the market thanks to the new regulatory landscape and that "we are actively in the market looking for advisers to join Macquarie. We have plans to continue to strengthen."

Witters believes that while the adoption of new regulations may be painful in the short term, "if they can give confidence to our market then a deeper capital market will be good for our economy."

At November 30 the account had $161.5 million in funds under management and at its peak in June 2008 had $310.2 million.

In order to facilitate the closure of the account Macquarie will automatically close all unit holder accounts which are open or active on March 4, 2011.

The letter outlines two options for Unit Holders; redeem funds prior to termination with the option to transfer into another account or withdraw by cheque, or do nothing in which case the funds will be returned by cheque.

Benn Bathgate is a business reporter for ASSET and Good Returns, email story ideas to benn@goodreturns.co.nz

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