With much talk in the industry around platform cash account rates – plus a warning from the FCA – Darren Winfield, Wealth Insight Analyst, at Defaqto, explains how cash management services could be a solution for clients who are not receiving high interest rates.
The FCA and financial advisers have obvious concerns over the amount of money in cash accounts, with the rates for clients not being representative of current bank of England rates. This prompted the FCA to write to platforms in July 2023 asking them ‘what rates they are offering’ and ‘how much the platform is retaining’. Whilst an investment platform is not meant to be holding too much cash, amounts within the cash account can sometimes ramp up when fees are due or cash is held in case of the need for an immediate transaction.
Platforms which do not pass on a significant amount of the rising interest they receive on cash investment have surprisingly not been too shy in admitting that this has helped improve their profitability.
Hargreaves Lansdown confirmed it made £121 million on cash holdings in the last six months of 2022 and Nucleus also announced big profits which were widely reported as being due to the increase in cash interest being retained because of the hiking of rates.
Advisers need to keep this area under constant review for their clients and consider the other ways to hold cash for clients.
Cash Management Services are an alternative for advisers and their clients. These platforms, designed for individuals, companies, charities and trusts to earn better interest from cash deposits, are spread over multiple accounts or banks to take advantage of the potential for better rates. They also have many fixed term and instant access offerings that are not available on the high street.
By using these services, it allows advisers to look for the best cash rates and there is no need to leave cash in a platform cash account. Users can identify the best rates, access, tax efficiency and spread clients’ cash deposits over different accounts to the FSCS limit in each – as opposed to leaving it all on a platform in one place with no specified date to invest it and no real protection.
Most Cash Management Services have the advantage of a single sign in point for the adviser or client, so all the accounts are accessed in one place, typically online through a web portal or mobile app. This allows for easy management whilst some platforms also offer the use of tax wrappers such as a SIPP, SSAS or ISA. Initial and ongoing fees may be charged by some platforms, plus multiple currencies and Sharia accounts are often offered.
To find the most suitable Cash Management Service for your needs, Defaqto gathers data on the Cash Management Services available in the market and analyses the features and functions of each product. These features include areas such as initial charge, minimum deposit, adviser log in, white labelling, application process and what currencies can be held.
Whilst we have seen some adviser platforms start to offer their clients more than one option for cash, many have unfavourable interest rates with some as low as 0.83% – so, why leave clients’ money in a cash account making no interest?
We see Cash Management Services such as Cascade, Akoni, Flagstone and Insignis all offering adviser services alongside client access, a good range of accounts and all 5-star rated by Defaqto.
So rather than having the headache of what interest rate your client’s platform is offering why not have that conversation with the client and consider Cash Management Services especially in the light of the recent launch of consumer duty and the cash savings market review?