Should Hargreaves Lansdown be passing on rate rises? 

In a results statement earlier this month (February 15), Hargreaves Lansdown reported its revenue on cash rising from £11.3mn to £121.6mn between December 2021 and 2022. 

Cash held by consumers on its platform rose from 9.3 per cent of overall holdings to 11.1 per cent between the end of 2021 and last year.

Part of the profit Hargreaves Lansdown has made has come from Sipp holders’ cash.

The reasons for holding cash in a Sipp can vary, with most advising against big cash positions in the long term because the interest rates offered tend to be low.

Cash can provide security amid volatile markets as well as liquidity if consumers are looking to adjust their asset allocation.

You can't really blame Hargreaves LansdownKarl Pemberton, Active Financial Planners

Last year, a number of IFAs were advising clients to hold more cash in their portfolios in anticipation of a redeployment at the end of 2022.

Most of those will no longer be holding much cash in their Sipps, though a number will keep cash back to cover fees and charges for the next year or two.

There are downsides to big cash holdings in Sipps particularly, as many providers offer lower interest rates on these products.

This is a particular problem at the moment with inflation sitting in double digits which erodes the value of these cash savings.

The longer you are invested in cash, the bigger that risk becomes.

What should Hargreaves Lansdown be offering?

Some think Hargreaves Lansdown should be passing on interest rates to customers, as the company is not providing an increase in service for these customers.

“Market average rates should be the minimum,” said Robert Reid, director at Syndaxi Financial Planning.

However, not all IFAs agree.

We ensure that we offer security to protect clients, while offering a great serviceHargreaves Lansdown

A lot, if not the majority, of Hargreaves Lansdown’s Sipp clients will be non-advised, and so the responsibility lies with them to ensure they are in the best position, said Karl Pemberton, managing director at Active Financial Planners.

“It is a very cheap, transactional service, and that is one of the risks the client takes.

“You can't really blame Hargreaves Lansdown for that.”

Hargreaves Lansdown pays a minimum of 1 per cent on all accounts, and up to 2.4 per cent on cash in Sipp drawdown.

At the beginning of February, the Bank of England raised the base rate of interest to 4 per cent, a 15-year high.

A spokesperson for Hargreaves Lansdown said: “We ensure that we offer security to protect clients, while offering a great service including liquidity to trade and market competitive rates.

“We take an active approach, we tell clients when they are holding too much cash for too long…[and] we do not charge clients for holding cash in investment accounts (or in our Active Savings service) or for adding or withdrawing, or moving to and from other services or accounts.”

Data from the FCA in March 2019 showed that users on D2C platforms tend to have almost double the amount of exposure to cash in their portfolios than adviser platforms (8.8 per cent compared with 3.9 per cent).

The regulator said that 43 per cent of this cash on consumer platforms is held in pension wrappers (with 32 per cent of the overall figure in Sipps).

A third of non-advised drawdown consumers are entirely in cash, with half of these at risk of losing retirement income as a result, it said.

As a result, the FCA proposed new rules to force drawdown consumers to make an active decision to invest wholly or predominantly in cash, and that they should be warned by platforms about the potential risks of doing this.

The remaining cash held is in general investment accounts and Isas, of which three quarters is either newly invested or in accounts that have been actively traded in the last two years, which led the FCA to believe these consumers are “reasonably engaged”.

“Firms also told us there are good reasons why consumers might want to hold cash on a platform outside their pension wrapper.”

Being careful around the boundary

Although Hargreaves Lansdown has said they send out “nudges” if Sipp clients are holding a lot of cash in their accounts, Pemberton said there’s not much more they can do without crossing the advice/guidance boundary.

“HL is just an administrator, the reason they would say it is not their responsibility is because they are delicately trying to be seen to be not advising the client."

If you are planning to hold part of your Sipp in cash, there could be a solution.

“If the Sipp allows it, you can hold third party deposit accounts within the Sipp paying more interest,” said David Penny, director and chartered financial planner at Penny, Ruddy and Winter.

sally.hickey@ft.com