It seems we were on the money – no pun intended. In short order, it was revealed that the Financial Conduct Authority had written to 600 investment firms suggesting they return cash to clients that was unlikely to be invested soon. Given what a nice earner it is that could be bad news for the platform industry, as Mary McDougall has written on page 12, and unsurprisingly platforms are kicking back, suggesting it’s beyond their ken to know whether a client plans to invest that cash or not.
It’s a fair point, and indeed a healthy debate broke out on Twitter in response to the development. On the one hand, as one extremely knowledgeable tweeter argued, clients can withdraw that cash at any time, so it could hardly be construed as a rip off, especially – as another added – shifting the cash into another account is hardly worth the time and effort given the paucity of good interest-bearing accounts on the market today. What’s more, it’s sensible to have a decent cash buffer in fragile markets, to protect against further market falls or to deploy should that happen. As one put it: “cash is a position”, and the regulator might assume that platform users are making a conscious choice rather than seeking to wrap them in cotton wool.
But, another suggested, for platforms that claim to put their customers’ interests first, to make so much money from their inertia seems contradictory. Compound that with the higher costs of some of the most popular platforms, not least Hargreaves Lansdown, and the long-term effect could be a much-reduced pension pot. It is in some sense a ‘where are all the customers’ yachts?’ problem – some businesses simply make too much money, because the balance is struck in theirs rather than their client’s favour.
On balance, I think there are merits to both sides of the debate. Platform competition is hotting up and users could easily switch to get a better deal. But inertia is a powerful force in financial services – customers stay put for fear of making a choice that puts their savings at risk; day-to-day costs seem trivial by comparison, even though we know that over the long term they are not. Platforms have done a great job of opening investment to the nation, but as self-directed pension saving becomes even more crucial, it is right that the regulators act to make sure customers stand a better chance of getting those yachts too.
