In a statement to the ASX yesterday, HUB24 called a trading halt to respond to an article from The Australian Financial Review that the cash rate cut called by the RBA on Tuesday would negatively affect clients holding accounts through both the HUB24 and Netwealth platforms.
Platform administration fees
In particular, the article cited an analysis from Macquarie’s Matt Johnson that, following the RBA rate cut, HUB24 would be able to negotiate a 175 basis points interest rate on the pool of cash it has from account holders, taking 125 basis points as revenue.
Mr Johnson said that a Hub Super account holder would receive a 0.5 per cent interest rate on the cash but would have to pay an administration fee of 56 basis points, leaving a ‘net effective return’ on cash of minus 6 basis points.
In response, HUB24 said the platform administration fee relates to the platform services provided to customers and are independent of the rates of return or performance of individual assets and investment options available on the platform.
“The HUB24 cash ‘transaction’ account offers a competitive interest rate when compared to peers and when compared to similar bank products, which do not provide the same level of capability provided by the platform,” HUB24 said.
“All clients of HUB24 are receiving a positive interest rate on their cash account, post [Tuesday’s] RBA rate change. The comparison to a savings account from a major Australian bank is flawed, it refers to a five-month introductory rate of 2.20 per cent which subsequently reverts to 0.30 per cent.”
Cash accounts
HUB24 said its cash account is a working transaction account that facilitates the comprehensive capabilities that support a range services to client of the platform.
Further, it said the platform provides additional cash investment options including term deposits, cash ETFs and cash management funds for advisers and clients seeking cash risk/return exposure, and that the cash transaction account is not the sole cash investment option available.
“In addition, the platform offers a sophisticated range of automated investment capabilities that enable advisers and clients to appropriately manage their investment portfolio to achieve their desired outcomes, whilst ensuring the amount of funds retained in this cash transaction account remains at their chosen minimum level,” HUB24 said.
Netwealth is yet to respond to the AFR report.
It is the adviser’s responsibility to use the platform features to advise their clients to:
– leave the minimum amount in cash in the platform, just enough to pay the platform fees and any other agreed costs.
– arrange an automated drawdown &/or investment facility to move funds into & out of cash as needed.
– place excess required liquidity in a linked cash account outside the platform.
I am staggered investors back in off back of defensive marketing spin by hub24. You’d think an earnings update would be the minimum standard. More to play out on this one. I am sure the regulators will be taking a far more detailed look at this, and this is where the next chapter will play out.
So if a portfolio is 100% cash and the portfolio admin fee is 0.56% then the Macquarie analyst is right.
These businesses are simply not sustainable for both shareholders and clients that have their life savings being managed by them. they are marketers at best with no credit history or suitable rating to manage client life savings. I shudder the think what would happen to clients in a GFC like environment. their is a smell similar to storm financial about HUB24 and Netwealth.
I won’t be buying netwealth or hub 24 shares until this interest rate race to the bottom is over. If 90-day term deposit rates fall below 1.2%pa then they won’t be able to pay a positive cash rate to members without further dipping into their own profit margins on tehir cash pools – which are effectively held in 90-day term deposits. Their margin of 1.2% pa depends upon that. It’s all kosher, but problematic and the easy days of making 1.2%pa on a pool of between $1 billion and $2 billion are over unless/until rates start to rise. Both will now be feeling the pain that savers have over the past few years and have no doubt – all those with FUM will be putting their 2 bob’s worth in about the stupidity of “easy money”. Home mortgages are NOT the only game in town!
Finally some light being shone on Cash accounts and how some platforms use it to prop up revenue. Surprised the Royal Commission didn’t look hard at this.