Skandia has made a play for cash Isa business by changing its policy on its hitherto short-term holding cash account by passing on all interest earned on cash to the client and allowing clients to hold cash on the platform longer-term.
Previously, Skandia clients could only hold money in cash accounts for a matter of weeks, and Skandia would retain 0.4 per cent of interest while paying the client 0.1 per cent.
However, from 6 April Skandia will pay 0.4 per cent interest to clients with cash holdings, and not retain any interest for itself. It will also work as any cash Isa and there will be no restriction in how long cash can be held.
A spokesperson for Skandia added that the 0.4 per cent interest rate will hopefully be replaced by an even higher rate from 1 July, when the changes come into effect.
Because Skandia did not previously offer a cash holding facility, clients who put money into their cash accounts would be prompted to move it after a short period of time. HM Revenue and Customs would also chase Skandia to ensure clients were not holding cash for too long, the company said.
The company added that the changes follow on from this year’s Budget last month, at which chancellor George Osborne revealed that from 1 July people can invest up to £15,000 cash per year in an Isa in a reform designed to boost saving.
Investors will also be able to switch back and forth between the different asset classes at will within a single product, instead of having to disinvest from a stocks and shares Isa if they want to move to cash.
Holly Mackay, managing director of The Platforum, at the time said that the changes could increase advised sales through platforms by £5bn per year.
FTAdviser previously revealed that many platforms were holding back portions of client interest on cash accounts. 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 while retaining a varying amount.
James Hay paid 0.00001 per cent, and claimed the amount retained allowed it to keep the costs of its self-invested personal pensions low and pay for banking facilities.
Of the investment platforms surveyed, Standard Life paid the most with a variable rate reaching 1.65 per cent, although it did admit retaining a “small amount”.
Mike Barrett, Skandia’s platform manager, said: “98 per cent of advisers tell us that Isas are the most effective tax allowances used by their clients. the new rules show the government is acknowledging this popularity and answering demand for further flexibility.
“The charging structure is not only great for seasoned Isa users, but also for those who may have previously been hesitant to invest in the stock market as it allows them to ‘dip their toe in the water’ within a single product.”
Following news that Aegon had simplified how it charges for pensions, Ms Mackay yesterday (2 April) commented that a focus on charges is returning to the platform market.
She said: “Within the space of a few days we see the UK’s largest platform becomes sharply competitive on pensions as Aegon thrust the capped fee concept into the adviser market. In light of these changes, advisers have some important due diligence questions to answer.”
