One of the major developments in personal finance planning over the past 20 years has been the growth of the investment platform market. In the good old days, advisers would have their preferred providers and when presenting you with a summary, your holdings were collated on a spreadsheet. You might have had a couple of Prudential policies, that a chap in a brown suit came round and sold you one dreary winter evening in the dim and distant past, some personal pension policies that you bought from a Jack the Lad working for a sales organisation up in the heights of Centre Point, plus various other odds and sods you had picked up along the way. What this meant was that every month or so one of these companies would send you policy statements that were out of date the day by the time you received them. Managing this hodgepodge and then using it as the basis for sensible decisions about your planning was a fraught undertaking.
Then at around the start of the millennium, investment platforms appeared and have been with us ever since. You can now use the platform as a centralised information point, which can also provide all sorts of associated information. Instead of spending ages trying to get through on the phone to each separate provider’s customer service centre, you can now go online and just click on a tab connecting you to a current valuation for all your pensions and investments, or even a complete transaction history. A click on the same button the next day, and hey presto all the figures are updated!
Not only that, but at the click of another button, you can see your capital gains liabilities, both realised and unrealised, graphs with the performance of your individual holdings, and even the asset split of your holdings, amongst other things. A really big plus is that when doing your tax return, or supplying information for your accountant to do it, the platform comes up with a summary for you of all of your investment and pension income and also your capital gains. No more rummaging around for statements in lever arch files, which you presumed you’d religiously filed when they arrived over the previous year.
The upshot of this development is that the large majority of clients and advisers now use platforms for reasons of administrative convenience, simplifying the planning process and also importantly enabling complete transparency regarding costs and charges.
So why am I telling you all of this? The simple reason is that you may be unaware that there now exists a cash management platform that will similarly allow you to group all of your various cash deposits in the same place.
Our standard advice is that, in addition to shares and property you should hold a significant amount of cash in your balanced portfolio. The problem is that if you are mindful of the FSCS (Financial Services Compensation Scheme) limit of £85,000 per deposit taker, it’s going to start getting messy with larger amounts of money. If you have £1m on deposit, you would need a dozen different banks or building societies to protect your money fully in the event of a bank failing. My above comments about the administrative burden in times past are equally relevant here by the way.
This new type of cash management platform enables you to hold a portfolio of bank deposits tailored to your requirements. You could, for example, have £85,000 in an easy access account with Bank A paying interest of 4.4%, the same amount in a 90 day notice account with Bank B paying 4.75%, and the same amount again in a 1 year fixed rate deposit with Bank C paying 4.95%. There is in fact no limit to the number of separate holdings. The platform allows you look right across the market so you can assess what’s on offer with over 50 providers to choose from. The system also flags up when a fixed rate term product is about to mature, which helps make planning much easier, especially when managing a large cash portfolio.
Clearly there are fees for using the service. Each provider has different arrangements, with the higher the amount deposited, the lower the percentage fee rate charged being the rule. For larger amounts the fees can be as low as 0.075% pa. Given the advantages of the system, the money paid in fees is comfortably compensated by the ease of financial management, the user-friendliness and accompanying peace of mind, thanks to the safety net provided by the FSCS compensation arrangements.
To give a practical example of the benefits of using this type of service, let’s assume you had £1m deposited in your high street bank account earning 1.15% interest. By sourcing better interest rates via the savings platform you could potentially more than triple your annual return and at the same time optimise your FSCS coverage. What’s not to like?
A word of caution: do check that the provider is authorised and regulated by the Financial Conduct Authority.
As ever, please do feel free to get in touch if you’d like to know more about cash management platforms, or if you have any other queries about your financial planning.
Joe Coten is a member of the Personal Finance Society. He may be reached on 0207 588 9626.
joe.coten@elem-inv.com
www.elementaryinvestments.co.uk
