P1 launches calculator for retained cash interest on platforms

P1 Platform has launched an online calculator that enables advisers to compare the ‘true cost’ of an investment platform once interest retained on client cash balances is included.

Advisers can compare a variety of platforms to show how much interest a client’s cash holdings can generate, how much of it the platform retains, the resulting uplift to the effective platform charge, and the long-term impact on client outcomes.

P1 noted that the launch comes as the Financial Conduct Authority (FCA) is pushing to ensure interest on cash balances provides fair value under the Consumer Duty.

The calculator was created from the foundations of work conducted by Transact on bringing together information about client account interest retention across the platform market.

Transact has argued that retained interest should be treated as part of the overall cost disclosure to clients when assessing value and suitability.

P1 said it supported Transact’s view, adding that while platforms should be able to generate revenue in whatever way they see fit within the regulatory environment, client and adviser transparency was key.

While platform comparisons tend to focus on published charges, retained interest does not appear as an explicit charge and is often left out of due diligence.

P1 stated that this mattered most where advisers had negotiated reduced platform fees, which are often subsidised by the revenue platforms generate from retained cash interest, and this headline fee could therefore understate the platform’s true cost to the client.

FCA analysis in 2023 found that 71 per cent 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.

The regulator’s final rules on this are expected by the end of 2026, with new cash interest disclosure requirements proposed to take effect from June 2027.

"Advisers put considerable effort into comparing platform charges, but much of that analysis focuses on published fees,” commented P1 Investment Services chief executive officer, James Priday.

“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.

“Transact has done important work to highlight this issue and we agree with its analysis. We built this calculator so advisers can quantify the impact, strengthen their due diligence processes and make better-informed platform recommendations for their clients."

Transact chief executive officer, Tom Dunbar, added: "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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