Nutmeg has been urged to be explicit about the 0.15% interest clients will earn on its latest cash offering, which lets savers dump a lump sum into their stocks and shares Isa so that it can be automatically drip fed into portfolios.
The robo adviser announced today investors will be able to add to a 100% cash option with an interest rate 0.35% below the Bank of England rate. Once the 0.25% management fee is taken into account, the current interest rate amounts to 0.15%.
It is intended to let investors take advantage of the 2018/19 Isa allowance before the tax year deadline on 5 April 2019.
Nutmeg head of financial advice Lisa Caplan (pictured) said too many people are sitting in cash and the latest offering provides a starting point for savers to get invested.
Caplan said: “Our new feature allows customers to start with a 100% cash option, and then slowly drip-feed money into an investment that meets their risk tolerance giving them a chance to benefit from pound cost averaging and the potential higher returns of investing in the stock market.”
Not a long-term home for cash
Lang Cat consulting director Mike Barrett thought the offering could be attractive to novice investors but noted a 0.15% rate of return is low. “I would hope that Nutmeg are very explicit about the low rate of return that this cash service is offering, and are highlighting that it probably shouldn’t be used as a long term home.”
The press release announcing the cash offering did not state the interest rate or platform fees associated with cash holdings. However, the Nutmeg website details the interest rate, currently 0.40% based on the Bank of England rate, and the 0.25% management fee. As well as being available via Isas, the 100% cash option is also available to general investment accounts.
However, the press release did state that the offering was not a cash Isa and was not intended to be used for long-term savings.
A Nutmeg spokesperson told Portfolio Adviser investors signing up for the 100% cash pot are told the relevant information at sign-up.
Willis Owen head of personal investing Adrian Lowcock said while cash accounts are useful, many investors just leave the money in cash and don’t get round to investing meaning they would have been better off in a long-term savings option with higher rates.
Automatic functionality
Most adviser platforms can drip-feed cash automatically but few direct platforms have this capability, said Fundscape editorial director Gavin Fielding. Fidelity and Hargreaves Lansdown both have options whereby investors can have cash accounts connected to their stocks and shares. Isas require the user to login and manually invest money into their portfolio.
According to a blog post on the Nutmeg website, investors can choose a monthly amount to be transferred from their cash pot to their portfolio. The money is then transferred on the first day of each month and invested as part of the robo-adviser’s twice weekly investment cycle.
Fielding said: “This is I think a bit of a USP. There may be other direct platforms that have automated drip feed, but I cannot think of one straight away and when you start looking they require intervention of some sort.”
Brexit could compound flows
Cash accounts are useful for investors who leave Isa planning to the last minute and flows into these type of products could be exasperated by political uncertainty, said Lowcock.
“With Brexit weighing on British investors we could see a spike this year of investors leaving it later and possibly going into cash to wait and see,” Lowcock added.
The Financial Conduct Authority’s platform market study final report, which is expected to come out within the next couple of weeks, is likely to highlight the treatment of cash being held on platform, Barrett said.
