The Investec Bank study covered IFAs’ use of what the bank called ‘default bank accounts’ for Sipp and SSAS wrappers.
It showed advisers typically deposit around 10% of a client’s SIPP or SSAS cash deposits or total cash portfolio into a default bank account, which they use to pay for day-to-day costs and associated portfolio fees.
However, the rates such accounts paid were found to be extremely low. According to Investec, a quarter of advisers had selected accounts that were paying 0.15% or less, while the average interest was less than half of one per cent.
Advisers said they put up with the low returns in exchange for the flexibility such accounts provide because they offer instant access to cash – rather than notice accounts, which typically pay higher interest but typically require a notification period of between one to six months. They also said using these ‘default’ accounts meant they did not have to liquidate other client assets to meet costs.
Lionel Ross, of Investec Bank, said: “IFAs advise their clients to hold cash in default bank accounts so that they are not forced to liquidate assets from the client’s portfolio to pay fees and other costs.
"While we recognise the need for these default bank accounts, recent market volatility and the underperformance of other, more recognised, asset classes means that in many cases, significant sums are languishing in accounts paying negligible returns.
“Many IFAs may be doing their clients a disservice as they could be earning considerably higher rates of return on their client’s cash.”
The bank carried out the research to mark the launch of a new product, the Investec Income Account, which pays 1.5% gross AER and allows automated quarterly withdrawals that can be automatically paid to providers’ to meet wrapper fees.
