Hooray, the Fed is lowering rates, and anyone managing Wealth savings can breathe a sigh of relief, right? Not so fast. Let’s take a walk down memory lane to 2019. What happened then could be instructive.
That year, over a three-month period the Fed cut its Fed Funds rate by 75 bp down to a range of 1.5% to 1.75%, where it plateaued for five months until the consequential month of March 2020.
Today, the Fed Funds target is significantly higher to be sure, but Wealth balances are about the same as they were then, and product mix is virtually unchanged (except for short-term CDs, whose balances are almost 60% higher than in 2019).
Here’s the unsettling news. Three months after the first Fed rate cut in 2019, when rates had been lowered by 50 bps, fully 60% of Wealth savings balances had been reduced by only 25 bps or less, 33% of them having been untouched. Seven months after the first cut, when the Fed had made reductions totaling 75 bps, rates on 36% of Wealth savings balances had been cut by 25 bp or less, 20% of them not having been reduced at all.
The lesson? Before you start slashing rates and passing some of that beta along to your clients, be sure you apply the right data and analytics to determine which segments are less elastic than others and have a lower risk of run-off. That way, you can strike the optimal balance of retaining balances without giving away the store.
Wealth Down-Pricing Balance Mix | Oct ’19 and Feb ‘20
Source: Curinos Wealth Analyzer
