Most investment platforms are retaining interest from client cash accounts with some paying as little as effectively no interest and only two providers stating they do not earn anything from client cash, FTAdviser can reveal.
Ten out of 12 platforms stated they do retain interest from cash accounts, although the aggregated value of this withheld interest on an annual basis is largely unknown. Senior industry figures have said it could amount to more than £10m for at least one company.
Last year FTAdviser revealed details of retained interest on cash accounts held with self-invested pension providers, which amounts to 40 per cent of total revenue for one firm. A Money Management survey of more than 70 Sipps revealed 55 pay less than the base interest rate, with around 25 paying zero per cent.
Of the 12 platforms who spoke to FTAdviser, seven admitted to paying less than the current record-low 0.5 per cent Bank of England rate.
Standard Life pays the most with a variable rate reaching as high as 1.65 per cent, although it said it does retain a “small amount”. Standard Life pays 1.15 per cent for cash balances above £20, which rises to 1.65 per cent for balances in excess of £100,000.
“We have negotiated a very good interest rate from our bank, on which we retain a small amount. Our focus is on ensuring that our net interest paid to advisers’ clients is competitive.”
Axa Elevate’s account pays base rate plus 50 per cent of any interest it expects to earn above this, with the company retaining the remainder. As at 31 December the firm said it was paying 0.62 per cent, with 0.12 per cent having been retained.
Andrew Smith, chief operating officer at the platform, said: “By spreading our customer’s cash balances across a number of cash and fixed term deposit accounts, we are able to achieve a better rate of interest for them than if we held the money in just one account and we feel that our approach puts us in a competitive position in the market place.”
The remaining three providers that do not pay less than the base rate include Nucleus and Aviva, the only two providers that stated they do not retain any interest on cash accounts. Both pay 0.5 per cent.
Barry Neilson, business development director at Nucleus, said: “We do not, and have never, retained a single penny of interest. 100 per cent of the rate we secure from the bank is distributed to clients. This has always been a big point of principle for us.
“Interest on cash is a return on investment in the same way that growth would be a return on an equity fund. It wouldn’t be deemed acceptable for the platform to retain, say, 2 per cent of the equity funds growth, so how is a return on cash any different? This issue is a legacy of a less transparent and less client-centric era.”
Phil Ralli, head of platform proposition at Aviva, said: “Customers expect the interest they earn to be passed back to them in full, so that’s what Aviva Platform does.”
Hargreaves said it offers rates from five account providers that do not pay lower than the base rate. The firm said the amount paid varies, as does the amount retained.
Danny Cox, head of advice at Hargreaves Lansdown, said: “Retained interest is falling as interest rates offered by banks has been falling, so where previously we could obtain higher rates from the banks for cash those rates have come down, broadly by 1 per cent.”
The lowest rate was that offered by James Hay, which said it pays a nominal interest rate of 0.00001 per cent. A spokesperson added this rate “will never fall below zero” and that the amount retained has enabled it “to launch some of the lowest cost Sipp products on the market today”.
“Due to our size and the total value of deposits we hold with the banks we use in our products, we are able to negotiate a payment from them. This varies between £8 and £12 for each £1,000 held with the banks... [and] helps us to pay for the banking facilities we offer and allows us to reduce the charges across our products.
Raymond James and Royal London-owned Ascentric pay between 0 and 0.05 per cent respectively up to a maximum of 0.4 per cent. Both said the amount retained varies.
A spokesperson for Raymond James said the platform “may earn more, or in some cases less, depending on rates offered by financial institutions, the maturity of any deposits as well as prevailing Libor rates”.
“Revenue earned... will be applied towards the costs we incur to operate our treasury management system, including for example capital requirements, systems development and maintenance, product management and the FSCS levy relevant to the clients’ cash balances.”
An Ascentric spokesperson said: “The deals we have with banks to secure these rates vary day to day. We therefore don’t disclose this amount but equally our relationships with third parties preclude us from doing so. The fact that we take a margin is fully disclosed in our material.”
Novia pays a rate of 30 basis points and retained an average of 10 basis points in 2013, a spokesperson said.
The interest paid on the FundsNetwork CashManager account is 0.2 per cent below the Bank of England rate, with the firm retaining up to 0.4 per cent of the annual value held through the CashManager account by Royal Bank of Scotland.
Skandia Investment Solutions uses its own internal cash facility which pays a 0.1 per cent rate and it also retains an amount, typically 0.4 per cent, but this depends on which external provider it uses “and we use a number of them”.
Cofunds pays 0.1 per cent and what it earns varies, a Cofunds spokesperson confirmed.
