Platforms and SIPPs - cash are they not interested!

On the 12th December 2023 the FCA have written to adviser platforms and SIPP operators to ask why the interest rates on cash balances are so low in comparison to the Bank of England base rate (currently 5.25%).

The Dear CEO letter points to consumer duty and the cross-cutting rules that expect acting in good faith, are not being adhered to and that customers cash balances are being used to help some providers profitability rather than their client’s interest - with some paying as low as 0.83% on a well-known adviser platform! The FCA have sampled firms and they have found the majority (71%) of the 42 firms retain some of the interest they earn on customers cash balances, between a range of 10% and 100%.

Of platforms which retain interest, the FCA state 61% also charge a platform fee on the customers cash they hold. The reasons platforms are giving for the retention of interest is to cover costs of managing the cash or to discourage the holding of long-term cash in platform accounts, which feels like an excuse rather than a good reason particularly when they may also charging for this purpose, and only 48% of firms they sampled gave examples of any actions they are taking regarding the retention of interest considering consumer duty.

Advisers also need to take some responsibility with making sure their clients are in the best platform or that funds in cash accounts are invested or they could use a cash management platform which offers competitive interest rates. Advisers also need to carefully consider consumer duty rules and how this impacts their clients as the FCA are in review mode seeing how advisers, as well as providers, are treating their clients fairly.

The FCA also has serious concerns with the practice of some firms which both retain interest and take an account charge or fee on the customers cash (double- dipping). This practice may be particularly likely to confuse customers and the FCA do not consider this to be acting in good faith - that is honest, fair, and open dealing and acting consistently with the reasonable expectations of customers.

The FCA expect firms to

• Review their approach to the retention of interest and take appropriate action
• Ensure their approach represents fair value
• Cease the practice of double- dipping
• Review and update their terms and conditions regarding cash balances
• Make communications clearer regards cash interest
• Make sure products are designed to meet client’s needs

The FCA expect this to be done by 31st January 2024 and providers to have made the changes by 29th February 2024 and if they are not happy with the response, will act under consumer duty.