The Lang Cat: Rate rises will force platforms to increase ‘dire’ cash returns

Polson-Mark-Lang Cat-2013

Further interest rate rises will prompt advisers to demand higher returns on cash among platforms, a report by The Lang Cat suggests.

The platform consultancy says that of the £19bn in cash sitting on adviser platforms, £35m of investors’ capital is spent on cash account charges annually, with charges often higher than interest rate returns.

The Lang Cat says a further rise of 0.25 per cent will enable most cash holdings to deliver positive returns meaning rates will become a differentiator in platform selection.

Mark Polson, principal at The Lang Cat , says: “We have a dire situation where the effective cash rate is negative for most platform clients. That remains the case following the recent interest rate increase, although we are seeing some welcome movement.

“We are dismayed, though not surprised, at just how much money in the sector is providing a guaranteed negative return. On their own these amounts seem inconsequential – but cumulatively they amount to tens of millions of pounds that are lining someone else’s pockets rather than the customer’s.

“As interest rates start to rise, we think the rates available on these cash accounts will again become a key suitability factor and a differentiator in platform selection. It has stopped being a significant one because the situation is currently so poor across the board.”

The report also shows gross and net inflows of advised platform money were down in the last quarter compared to the previous three months, although this appears to be seasonal as year on year new business is up 50 per cent. Total assets under administration on platforms is now £493.7bn, with retail advised assets accounting for £377.9bn.