The cash interest spread and the fee deduction
Mrs Patel, 68, has £75,000 in cash within her platform SIPP, awaiting a decision on a discretionary managed portfolio. She is risk-averse and expects to rely on the SIPP for income from next year. The platform's cash account pays 0.20% AER; the platform earns 0.75% from the bank. Its terms say it may retain interest and may deduct its 0.35% annual platform fee quarterly from cash. After six weeks, Mrs Patel notices £620 has been taken in fees and only £58 in interest. She complains that the platform is 'profiting from my cash' and that she never agreed to fees being paid from cash; she wants the fee refunded and the interest difference paid. She also asks whether her cash is protected if the platform fails. The platform's cash is held in a client money account at a UK bank, and the platform also offers a money market fund yielding 4.1%.
1. Is the platform's retention of interest fair and compliant?
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Retaining interest is not automatically unfair, but it must be disclosed clearly, agreed in the terms and consistent with the Consumer Duty's fair value outcome. The platform should be able to show why a 0.75% gross margin, with 0.20% paid to the client, represents fair value for the cash service - considering the rate available on similar cash accounts, the client's vulnerability and the length of time the cash is held. If the terms bury the retention in a generic clause, or if the client reasonably believed she would receive the bank rate, the disclosure may be inadequate. The platform should review the spread, consider paying a higher rate or moving the client to a better-paying cash facility, and be prepared to refund the difference as redress if the disclosure was misleading. The interest belongs to the client unless the contractual terms validly provide otherwise.
2. Can the platform deduct its fee from client cash without a specific agreement?
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Client money rules permit a firm to deduct its own charges from client money only where the client has agreed in writing and the amount is properly due. A general clause allowing fees to be taken from 'cash' may be sufficient if it is clear, but the platform should check that the client actually consented and that the deduction did not use one client's money to pay another client's charges. The fee should be calculated on the disclosed basis, with a statement showing how £620 arose. If the terms did not authorise deduction from cash, or if the client was misled, the platform should refund the fee and correct its process. It should also consider whether taking fees from a cash balance intended for investment, without warning, causes foreseeable harm to a client who is about to rely on the SIPP for income.
3. How should the platform explain FSCS protection and the money market fund option?
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Cash held in a client money account is segregated from the platform's own assets; if the platform fails, the client money should be returned, and FSCS protection may also apply to claims against the platform. If the underlying bank fails, deposit protection limits apply to the beneficial owners' shares of the account. The platform should explain that a money market fund is an investment, not a deposit: it aims to maintain capital but can fall in value, is not covered as a bank deposit, and may be covered by investment compensation limits only if the fund manager fails. The higher 4.1% yield reflects a different risk profile. The platform must not advise Mrs Patel which option to choose; it should give clear, balanced information and, given her vulnerability, consider signposting her to advice.