Hello Everyone,
It's always great to hear back from our members, and I hope you don't mind if I share their insights from time to time.
I thought that you might find this response to yesterday's portfolio update interesting.
"In response to your latest update I wanted to pick up on your reference to the money markets.
I had looked into this myself recently to try and get a handle on what the risks v benefits are. I decided to use Hargreaves Lansdown as an example platform using recently quoted rates from their website.
I used £100k as an example of cash held in both accounts to see what the results were if simply left in the account.
It assumes, of course, that the rates stay constant for a year (highly unlikely but for the sake of the exercise etc).
These are cash deposits.
I rang HL a few years ago about this and they said cash is allocated to various banks chosen by an internal Cash Committee that meets fairly regularly.
The chosen banks and % amounts vary but are all well known UK banks. Crucially they are deposits so are FSCS protected - hopefully with a sufficient number of licences between them for larger sums >£85k. HL don’t make charges against holding cash.
Using Money Market Funds means the funds are classified as an investment so are no longer a deposit and not FSCS protected against bank failure. Using L&G Cash Fund as an example, HL quote a yield of 4.3% though I suspect that will now be higher as yields are still rising. From this their 0.45% annual charge would be deducted giving 3.85%. I believe the fund also charges 0.15% giving us a total 3.7%
The difference is about 0.6% (v a SIPP) and 1.85%, double (v an ISA) - although it could be a bit more with up to date yields.
This difference of 0.6% and 1.85% can be thought of as representing the cost of FSCS protection. For a SIPP that’s probably worth it but for an ISA (double the return) it’s not so good so I can see the attraction of money market funds in that case.
Re your comments regarding risk and likely outcomes for platform, fund manager and asset failure:
6 years ago I started invested in a company that made peer to peer loans; mostly property but also against other assets. It was FCA approved to offer IF (Innovative Finance) ISAs.
All went pretty well until suddenly (and it’s always out of the blue with these things) it went into administration. I didn’t overly worry because I had been assured by the site that client cash and assets were ring fenced and in the event of insolvency could not be used by the administrator. That was my understanding.
Well, it went under 3 years ago and is still an on going mess.
At one point the IP (Insolvency Practitioner) sought court direction on accessing client cash and loans! Long story short ….there’s supposed to be an FCA approved escape plan, properly funded & administered etc etc. In reality when companies go under the money has long gone. There isn’t any, so Administrators go looking anywhere they can to get paid otherwise they don’t do the work. They usually put the company into liquidation and carry out a fire sale of assets left. If they can offer a better outcome for those assets to be disposed of then they want paying. In my case that has meant hefty charges to those lenders affected and several court cases settling trust status issues, client cash, criminal behaviour and a heap of other claims.
Believe me it’s all best avoided...and then you slowly find out what really happened in the backrooms and discover it’s not very pleasant.
My advice ...
Keep the walls of your castle thick!
Use the bigger platforms.
Use the larger funds.
Use large banks.
... and keep your fingers crossed!"
I thought that you might find this response to yesterday's portfolio update interesting.
"In response to your latest update I wanted to pick up on your reference to the money markets.
I had looked into this myself recently to try and get a handle on what the risks v benefits are. I decided to use Hargreaves Lansdown as an example platform using recently quoted rates from their website.
I used £100k as an example of cash held in both accounts to see what the results were if simply left in the account.
It assumes, of course, that the rates stay constant for a year (highly unlikely but for the sake of the exercise etc).
| Results: | SIPP | ISA |
| Tiered<£10k | 2.75% | 1.50% |
| Next £40k | 3.00% | 1.75% |
| Next £50k | 3.20% | 2.00% |
| £100k per annum | £3075 (3.08%) | £1850 (1.85%) |
These are cash deposits.
I rang HL a few years ago about this and they said cash is allocated to various banks chosen by an internal Cash Committee that meets fairly regularly.
The chosen banks and % amounts vary but are all well known UK banks. Crucially they are deposits so are FSCS protected - hopefully with a sufficient number of licences between them for larger sums >£85k. HL don’t make charges against holding cash.
Using Money Market Funds means the funds are classified as an investment so are no longer a deposit and not FSCS protected against bank failure. Using L&G Cash Fund as an example, HL quote a yield of 4.3% though I suspect that will now be higher as yields are still rising. From this their 0.45% annual charge would be deducted giving 3.85%. I believe the fund also charges 0.15% giving us a total 3.7%
The difference is about 0.6% (v a SIPP) and 1.85%, double (v an ISA) - although it could be a bit more with up to date yields.
This difference of 0.6% and 1.85% can be thought of as representing the cost of FSCS protection. For a SIPP that’s probably worth it but for an ISA (double the return) it’s not so good so I can see the attraction of money market funds in that case.
Re your comments regarding risk and likely outcomes for platform, fund manager and asset failure:
6 years ago I started invested in a company that made peer to peer loans; mostly property but also against other assets. It was FCA approved to offer IF (Innovative Finance) ISAs.
All went pretty well until suddenly (and it’s always out of the blue with these things) it went into administration. I didn’t overly worry because I had been assured by the site that client cash and assets were ring fenced and in the event of insolvency could not be used by the administrator. That was my understanding.
Well, it went under 3 years ago and is still an on going mess.
At one point the IP (Insolvency Practitioner) sought court direction on accessing client cash and loans! Long story short ….there’s supposed to be an FCA approved escape plan, properly funded & administered etc etc. In reality when companies go under the money has long gone. There isn’t any, so Administrators go looking anywhere they can to get paid otherwise they don’t do the work. They usually put the company into liquidation and carry out a fire sale of assets left. If they can offer a better outcome for those assets to be disposed of then they want paying. In my case that has meant hefty charges to those lenders affected and several court cases settling trust status issues, client cash, criminal behaviour and a heap of other claims.
Believe me it’s all best avoided...and then you slowly find out what really happened in the backrooms and discover it’s not very pleasant.
My advice ...
Keep the walls of your castle thick!
Use the bigger platforms.
Use the larger funds.
Use large banks.
... and keep your fingers crossed!"
Kind regards and best wishes,
Richard Webb
Managing Director
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