Hello siblings, Mark here back in the Update seat and it’s my pleasure to fly you into the heart of the sun. I mean it’s my pleasure to take you through the festive period and into the dead time, where the Twin Cats of Putrefaction and Redemption rend the still twitching carcass of 2023 into bloodied kibble for the Hell Kitten of 2024 to feast and grow strong upon. Stuff like that. 

Actually, that’s an exaggeration. We’ve got some weighty matters to attend to this week, there will be a Tremendously Festive Update next week, and then that’ll be it for 2023, apart from an annual roundup for which regular readers will have to raid their secret stash of eye rolls to find one big enough. Everyone else – a totally worthwhile read. Something for everyone. Even Hell Kittens. 

We’ve written before about how Consumer Duty is taking the regulator into a new, wow-you’ve-been-working-out thousand-yard-stare reinvention of itself. This is sometimes A Lot for firms who’ve been used to a softer, more pliable, easily ignored version. “It’s like your eyes change, like you’re going somewhere else in your mind! I feel like I don’t know you at these moments!” cries the industry. “It’s for your own good,” says the regulator sternly, as it slaps another Dear CEO letter on the desk.  

And so it came to pass that there really was a Dear CEO letter, and the most recent victim of the industry in-house drive-by is platforms and their treatment of cash as a frankly tremendous source of additional revenue. You’ve probably clocked this, so I’ll spare you the detail and point you at the Dear CEO letter itself here and Nicola Blackburn’s article on Citywire which summarises it nicely.  

(If I’m allowed a quick plug – if you want to find out what each platform does about cash quickly and easily, we’ve got a tool for that. We had all the data we needed to analyse this change in nice shape in less than a minute.) 

Listen: we all know that there’s an issue around cash on platforms. The lang cat wrote about it at length back in something like 2014, and have done so many times since, and others did so earlier than us. For many years the issue of interest retention and double dipping – and please Lord save us from that phrase – was mainly of interest because rates were zero everywhere and many platforms were offering negative interest rates on cash. So if your platform paid (say) base minus 1%, and charged a custody charge, you were getting something like a negative 1.3% interest rate, and that’s before the loss of potential interest that the platform was trousering. 

Here’s the thing though – whenever we tried to get folk interested about it, no-one gave a tin whistle, because rates were terrible anyway, and it was difficult and all that. But guess what? Now everyone’s getting all Hans & Franz and yes, that includes the regulator. I think my point is: this was addressable some years ago before it became such a pressing issue, no? Just saying. 

Anyway, we care about this now, and that’s probably right (though platforms are just one of the scamps tucking into cash margins but that’s for another day). So, what do we know now that we didn’t know before?  

First up, double-dipping = bad. This is fine; I’m not a huge fan of visiting the cash all-you-can eat buffet twice; some diners don’t wash their hands and it’s a bit manky. But much more important is how much the take is. For example, I have no idea how much HL spends on running its cash proposition and treasury function; I assume it’s quite a lot judging by property prices in Clifton. But as one of m’colleagues pointed out, it is in no way 269 million Imperial Credits of the Realm and that’s what’s really important here. 

So it goes. We’re all diners at the late-stage capitalist restaurant lock-in and whether you order off the menu or go for the buffet is second order; the key is making sure people know what’s going on with their money and that you’re not doing anything disproportionate. I think what we have here is a double issue of timing and shareholder pressure; cash was a contributor some time ago and that was fine, then it wasn’t and folk who had taken a margin learned to get on with it even if profits were lower as a result, then cash was a contributor again and everyone breathed a sigh of relief – not least because there is still downward price pressure and it acted like a relief valve.  

At the same time the cost of capital is heading North, shareholders want a return, and this is one of those Superman III things where detriment to clients on an individual basis isn’t big, but in aggregate is. Stuff like this has a momentum to it; it can get out of control pretty quickly and at a sectoral level that’s what’s happened. 

Cue some quick changes (to be fair, at least some of this will have been well planned) and quite a lot of lulzing, rofling and general lolling from those who return full cash margins to the client and just charge custody. Everyone else has until 29 February to make the changes required – as Mike said on the twitters yesterday, Merry Christmas.  

Our regulatory and public affairs team have been working through this, and I’ll leave you with a couple of their thoughts:  

1. Retaining cash isn’t banned, though double dipping (arrrgh) is. 

2. If you’re retaining cash, the following must dos apply: 

• Include cash within your fair value assessments. 
• Clearly disclose this approach to customers. 
• Evidence customers understand this disclosure (as per Consumer Understanding part of CD). 
• And have decent systems/MI in place to identify customers holding excessive cash balances/being in cash for long periods, and a subsequent process to deal with them.  

For advisers reading this, you also have a responsibility to make sure clients know what is happening with their cash balances on platform, and of course to manage cash appropriately. I wonder how many of you could tell me without checking first what your primary platform’s approach is?  

A further thought – if you offered many platform bosses a variable take on cash or a higher platform charge, I suspect many would take the platform charge; in the same way as your businesses trade on a multiple of your earnings, so do platforms, and predictable earnings > unpredictable ones when it comes to valuations. This is one of those Tom, Jerry and Spike moments – you can push the lump on the head down but it’ll just reappear somewhere else. I doubt we’ll see headline platform charges rising, but I also wouldn’t be surprised to see some of the aggressive dealmaking we’ve observed over the last couple of years slacken off.  

So there it is: a big Christmas present for the sector and one which needs built, with batteries and everything in just a few short weeks, otherwise the regulator will be reaching for the ‘special’ drawer – and none of us want to see that. 

#DOUBLELINKS 

• I do enjoy a retrospective and here’s a good one from platform titan Verona Kenny, soon to leave 7IM (but not before they went shopping).  
• All a bit regulatory this week, but you know you have closed book stuff to do, right?  
• New podcat now up on pension dashboards: all you need to know including learnings from other countries. Good listening with a cheeky Baileys and a box of After Eights.  
• And your music choice: well, after last week’s nonsense we need to balance the books. I am still sad about Shane McGowan’s death (and Benjamin Zephaniah, and Andre Braugher, what is it with the good folk dying just now?) but this Nick Cave cover of Rainy Night in Soho at the funeral makes it OK somehow. I am in favour of rainy nights in Soho, and I’m in favour of this.  

May the wind whistle all its charms to you; see you next week for the last Update of 2023. 

Mark