By Nathan Fryer
On the 12th December 2023 the FCA wrote to investment platforms and SIPP operators outlining its concerns about the way they deal with interest earned on your clients cash balances.
This was as a result of a survey that was carried out that found that the majority retained some of the interest earned on cash and some also charge a platform fee, a term the FCA referred to as ‘double dipping.’
Rising interest rates have meant that many platforms have reported increased income, with Standard Life Savings Ltd reporting an increase of “£6.4m (5%) largely due to improved cash margin of £7.4m” (Companies House 2023 Accounts)
The FCA have said that platforms and SIPP operators need to ensure that what they are charging customers to hold cash, results in fair value. Firms need to make any changes by 29th February 2024.
So which platforms are double dipping?
According to Analyser, the lang cat’s suitability and due diligence tool which has a magnificent amount of helpful data, the following platforms apply a fee to cash as well as retain some of the interest generated.
abrdn Wrap, abrdn Elevate, Fundment, Hubwise and James Hay.
Some of the interest rates being paid are quite considerably lower than others, for example:
Transact pay 4.84%,
M&G pay 4.64%
Aviva pay 4.20%
None of these platforms retain any margin on cash.
Whereas the following companies do not take any margin on cash but pay the following rates of interest :
Scottish Widows – 2.16% (Do not charge platform fee on cash)
James Hay – 2.43% (Charges Platform fee on cash)
Nucleus – 2.82% (Charges Platform fee on cash)
Aegon – 2.94% (Charges Platform fee on cash)
(This is not the full list)
I might have argued in favour of these platforms if they were smaller entities that perhaps could not negotiate similar interest rates to the likes of Transact, M&G and Aviva, but they are not, these are some of the bigger players either in the market or in the wider financial community. In my opinion, if these platforms are to offer fair value they need to be negotiating hard on behalf of their clients to increase the interest they can pay on cash or not charge a fee to simply hold cash.
All Views are my own and not the views of The Lang Cat and or the FCA.