UK advisers leave cash reserves earning weak returns

Half of UK financial advisory firms earned 2% or less on their business cash reserves in the past year, according to research from Flagstone, pointing to weak returns on cash held within many advice businesses.

Flagstone's quarterly poll of UK IFA and wealth management firms found that 56% earned 2% or less on their cash reserves over the past 12 months, while only 6% earned more than 4%. The findings suggest many firms keep their reserve funds in low-yield accounts despite advising clients on cash management.

One of the clearest reasons is where firms hold their money. The survey found that 45% keep most or all of their cash reserves in a business current account, while 41% use only instant access business savings accounts.

That matters because both account types often pay limited interest. Flagstone cited market analysis showing that only six of 49 listed business current accounts offer interest, while many charge fees. Just 3% of 101 instant access business savings accounts offered rates of 4% or more, compared with 20% of 172 fixed-term business savings accounts.

The results add to a broader picture of small businesses struggling to devote time and staff to treasury management. More than 11,000 UK SMEs use Flagstone's platform to manage cash reserves, many introduced through advisers and accountants, and the research examined whether those same intermediaries were applying similar practices to their own firms.

John Martin, Chief Product Officer at Flagstone, said the data pointed to operational constraints inside advisory businesses.

"This data strongly suggests that these firms haven't, in the main, the time or resources to take advantage of the wealth of high interest options available to them as SMEs. That's where low-friction solutions come into their own. A high base rate and stubborn inflation mean that the proliferation of high interest business savings options that would make an IFA firm's cash work harder remains high," he said.

Cash habits

The poll also explored how firms think about deposit protection. Some 37% said they observe FSCS rules for their firm's cash reserves, but that does not necessarily mean the rest are exposing large sums to unnecessary risk.

More than half of firms, or 51%, said they hold £120,000 or less in cash reserves, meaning they may not need to spread balances across multiple institutions to stay within protection thresholds. The survey found that 9% had more than £120,000 in cash and did not observe FSCS protection rules.

Within that group, at least half, representing 5% of all firms surveyed, said managing separate bank accounts was too time-consuming. That points again to an administrative burden rather than a simple lack of awareness.

Only 4% of firms said they did not know how much interest their reserves had earned, suggesting most have a basic grasp of their cash returns even if many are not taking steps to improve them.

Platform uptake

The survey found that 19% of IFA firms manage reserves using a mix of instant access, notice and fixed-term business savings accounts. A similar share, 21%, said they use a cash deposit platform such as Flagstone.

At the same time, 73% said a cash deposit platform would help them access better rates without too much effort. Nearly a third, or 31%, said using a platform would help them "practise what they preach".

That phrase captures an awkward tension in parts of the advisory sector. Firms that recommend clients review cash holdings and spread deposits more effectively may not be applying the same discipline to their own balance sheets.

Mark Windsor, Director of Premier Financial Services, described that mismatch in his own business.

"I had a sudden realisation that my own practice's cash was sitting in the bank earning next to nothing, while I was advising clients to do exactly the opposite with theirs. Moving to a cash deposit platform meant much better interest, stronger FSCS protection, and everything in one place rather than juggling accounts. It's easy to use, easy to check on the app, and now it's exactly the kind of solution I recommend to clients who hold higher levels of cash themselves," he said.

For Flagstone, the findings underline a potential opening among advisory firms that already understand the value of active cash management but may not have embedded it in their own operations. The issue also sits alongside wider pressures on SMEs, including business rates, employment costs and late payments.

Martin said those conditions should sharpen attention on idle cash.

"High proportions of IFAs see the value of better cash management and even recognise the benefits of cash deposit platforms to help them achieve better returns amid higher risk protection. That means that now greater work needs to happen to convert that ability to see the benefits into real action to take advantage of them. IFA firms aren't immune to the pressures facing SMEs throughout the UK: high business rates and employment costs, and late payments are universally challenging. Just as they advise their clients to make shrewd financial decisions, we'll be fascinated to see how more IFAs can be tempted to explore fast, flexible and efficient ways to safely turn their dormant cash reserves into secure and active income generation vehicles."