Retained interest on client cash balances is likely to become a greater focus in platform due diligence as firms assess fair value and prepare for proposed FCA disclosure requirements. P1 has launched a new calculator designed to help quantify the impact on platform costs and client outcomes.
According to findings published by the FCA in 2023, 71% of platforms and SIPP operators retained at least some of the interest earned on client cash balances, with firms retaining around half of that interest on average.
As attention on retained cash interest grows, P1 Platform has launched an online calculator designed to help advisers and paraplanners assess how cash interest retention can affect overall platform costs and long-term client outcomes.
Platform comparisons typically focus on explicit costs such as platform charges, wrapper fees and dealing costs. However, retained cash interest does not usually appear as a direct charge despite affecting the returns clients receive on cash held within their accounts.
P1 said the calculator was developed following work undertaken by Transact, which has brought together information on client cash interest retention across the platform market.
Transact, which passes all interest earned to clients, has said that retained interest should be considered as part of the overall cost assessment when considering platform value and suitability.
P1 said the impact can be material where clients hold cash on platform. By way of example, the firm noted that a client with a £500,000 portfolio holding 5% in cash would have £25,000 on deposit.
If a platform retained 2% of the interest earned on that balance, the client would forgo £500 of interest a year, which P1 calculates as equivalent to an additional 0.10% platform charge.
The firm said this may be particularly relevant where lower platform fees are negotiated, as some platforms may generate revenue through retained cash interest alongside their published charging structures.
James Priday, chief executive officer of P1 Investment Services, said: “Advisers put considerable effort into comparing platform charges, but much of that analysis focuses on published fees. The treatment of client cash is often overlooked because it does not appear as an explicit charge.
“Yet from a client’s perspective, retained interest has exactly the same effect as a higher fee. Every pound of interest retained by a platform is a pound that is no longer compounding for the client.
“This is not a marginal issue. For many clients, the impact of retained cash interest can be comparable to, or even exceed, the differences in platform fees that dominate most platform comparisons today.”
He added: “We built this calculator so advisers can quantify the impact, strengthen their due diligence processes and make better-informed platform recommendations for their clients.”
Tom Dunbar, chief executive officer of Transact, said: “It is great to see new tools emerge to help financial advisers incorporate the impact of cash interest retention into the platform due diligence and selection process. Greater transparency supports more informed decision-making, helps advisers assess fair value more effectively, and ultimately leads to better outcomes for clients.”
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