Cash management, fees and charges
What this domain tests
How cash is held and remunerated, how the full cost chain is built up, and how costs must be disclosed to clients.
Cash management
- Cash awaiting investment or held as a balance may be client money under CASS 7, requiring segregation, daily reconciliation and a client money calculation.
- Platforms earn interest on client cash and may pass some on. Under Consumer Duty and recent FCA fair value scrutiny, retained interest and “cash drag” must be justified and disclosed.
- Cash sweep arrangements moving money into money market funds must be clearly explained, including any platform benefit.
Fee structures
- Platform charge: ad valorem (often tiered), flat, or per transaction, plus charges for drawdown, transfers out or SIPP administration.
- Fund charges: ongoing charges figure plus transaction costs; total costs must be aggregated in MiFID ex-ante disclosure.
- Adviser charges: initial and ongoing, facilitated through the platform but not paid by it; VAT treatment depends on the service.
- DFM charge where a model portfolio is used.
Worked example
A client invests £200,000. Platform charge 0.30%, fund OCF 0.65%, DFM fee 0.25%, adviser ongoing 0.50%. Total ongoing cost is 1.70%, or £3,400 a year. Against a 5% gross return, net return is 3.30%. Reason: costs compound, so a 1.7% drag over 20 years consumes a large share of final value - which is why fair value assessment looks at the whole chain, not just the platform fee.
Traps that cost marks
- Quoting the platform fee as the “total cost” of the arrangement.
- Omitting transaction costs from cost disclosure.
- Forgetting the FCA cap on early exit charges and the ban on exit charges for personal pensions at retirement age.
- Ignoring VAT on adviser charges or SIPP administration.