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Top up cash or face automatic disinvestment

Threesixty has warned advisers who are paid fees through platform cash accounts to ensure they keep their clients’ accounts topped up or they will risk triggering automatic disinvestment of the clients’ assets and potential capital gains tax charges.

Threesixty partner Phil Young says it is important to ensure that clients hold at least 2 per cent of their investment in the cash account to cover adviser fees if these are 0.75 per cent or more and also to cover the platform’s charges.

He says: “If the cash funds run low, then in order to meet charges payable due to you or the platform, an auto-disinvestment process will usually kick in. This is unlikely to suit your clients’ needs and can result in punitive transaction charges and CGT liabilities. You can set up income payments to go into the cash accounts to mitigate this over time but the early investment years may not address this adequately.”

Young says the 2 per cent should not be treated as a cash asset class for the purposes of asset allocation because it is performing an admin function rather than investment function.

Threesixty is working with a number of platforms to add the model portfolios it has developed with Old Broad Street Research and Margetts, which are likely to include a 2 per cent cash account default option.

But Thomas and Thomas managing director Darren Lloyd Thomas says: “There is too much of a trend of IFAs shoving money into cash with an investment that is supposed to be for the long term. It makes far more sense to charge the client separately and let the client deal with the cash and you deal with the investment.”

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