More investors now face losing money on their cash holdings on a platform following the Bank of England's interest rate cut, analysis by the Lang Cat has found.
The research showed platforms have either cut the rates they offer investors or put a charge on holding cash, meaning they are in a net negative position.
The Lang Cat’s analysis showed investors with seven out of 19 platforms examined would now be in a negative position on their cash holdings – while a further six were in a neutral position.
Mike Barrett, consulting director at the Lang Cat, said: “The fact a platform might be paying 15bps and putting a charge, puts their customers in a negative position.
“This is where, in our view, the position needs to be more open and honest. Interest rates are down across the board and we would like to see platforms being clear about this.
“Our research shows us that average allocations to cash in advised portfolios is around 6.5 per cent. In other words, that’s over £20bn sitting in cash.
“An average of 6.5 per cent of total on-platform holdings feels like there is some kind of strategic and conscious asset allocation going on.
“If that’s the case, advisers should make it clear to clients that a move to cash, for whatever reason, is more often than not a process of signing up to a loss in very real terms.”
According to the Lang Cat’s research there are only two providers which pay a positive balance on transactional cash and do not deduct platform charges – James Hay and Raymond James.
Meanwhile three more – Elevate, Nucleus and Zurich Intermediary Platform - pay interest and deduct charges but leave the investor with the chance of being in a positive position.
For example Nucleus pays between 0.17 per cent and 0.73 per cent so the investor’s position will depend on the wrapper.
But with all other platforms the investor is either standing still or making an immediate loss.
Aegon, Aviva, Novia and Standard Life are among those who have lowered their rates since the Bank of England put interest rates down to 0.25 per cent.
Investors with all of these platforms are in a negative position according to the analysis, while investors with Cofunds, which doesn't charge or pay interest, are in a neutral position.
An Aegon spokesman said: “Users typically only hold cash to pay the platform charges and it is rare for money beyond this to be deposited in cash. The rates provided on ARC are in line with the market average.”
A spokesperson for Transact said the company has various charges that apply to pooled cash dependent on portfolio value. The charge is tiered and steps down with increasing portfolio size.
They added: "Remember this is pooled cash, and not cash for long-term investment. Clients should keep a minimum cash balance of just 2 per cent of the value of each wrapper in pooled cash to pay for fees and charges.
"Where clients wish to invest in cash then we do offer term deposits, the only platform to do so. A term deposit can be held in all Transact wrappers but there is a maximum term of 12 months for term deposits in the Transact personal pension, executive pension, Section 32 buy out bond, onshore bond and qualifying savings plan."
Spokespeople for Standard Life and Novia said they lowered their rate after the Bank of England took action.
The Novia spokeswoman said: "The vast majority of our clients simply hold a small amount of working capital on the platform in order to facilitate charges, which is a central component of all wrap accounts.
"Clients wishing to hold substantial sums or use cash as a method of investment should consider alternative investment options to holding this on a platform; platforms are not build for this purpose.
"We clearly disclose the interest rates we pay as well as the platform charge."
Meanwhile the Standard Life spokeswoman said: "We emailed details of the changes to advisers who use the platform and information is also available to clients on our website.
"These types of cash accounts are not designed for long-term deposits and are generally used to hold a small proportion of cash to pay charges or to temporarily hold cash prior to investing or making withdrawals."
An Aviva spokesman said its rate on cash reflects the Bank of England's base rate and said it is clear with customers that its products are not cash deposits, with its cash account existing mainly to handle payments in and out of portfolios.
AJ Bell declined to comment. Cofunds did not immediately comment.
Praemium had not commented at the time of publication.
