The Financial Conduct Authority (FCA) has issued a ‘Dear CEO’ letter to all investment platforms warning them from keeping interest earned on investor cash held on their investment platforms.
The FCA surveyed 42 firms and found that over 70% of them were retaining interest on their client investors funds held in cash and not passing interest on.
When interest rates were low, fundamentally just enough interest was passed to client investors to cover the management charge only on the fund but now that interest rates have risen 14 times in the last 2 years, to leave based rates currently at 5.25% pa.
The FCA estimates that these 43 platforms have earned an additional £74.3m on interest on cash fund accounts within SIPP, ISA and GIA (general investment account) platforms.
The process of charging for the fund and then not paying across interest earned on those funds is known as ‘double dipping’ and the FCA has ordered investment platforms to pass on a fair distribution of interest earned on these funds.
Already, we have seen 2 or 3 platforms already act with AJ Bell being one of the first to do so. It is now a requirement of all regulated firms to charge fairly and offer fair value known as ‘Consumer Duties’ to its investing clients and we welcome the move.
One well known platform had the audacity to offer a cash back faciility rather than complying with consumer duties and charging fairly with values at worked out on what they should actually be charging and retaining for services offered i.e., charging at value for money levels.