The 2026 Consumer Duty fair value benchmark: cash interest margins and tiered custody fees
The transition to Year 2 board reporting under the Financial Conduct Authority Consumer Duty has exposed a sharp operational divide in how UK wealth management firms and SIPP operators defend retail revenue models. In our regulatory advisory work at Compliance Consultant, reviewing fair value frameworks across mid-sized investment firms, we find that boards can no longer rely on high-level narrative assertions to justify cash interest retention and tiered custody structures. The regulator now requires explicit, quantitative expense analysis showing the direct correlation between client-borne costs and platform manufacturing expenses. To satisfy current supervisory expectations under the cross-cutting rules and avoid formal interventions, wealth managers and platform operators must demonstrate that retained interest margins and account-tier thresholds directly reflect verifiable cost-to-serve metrics rather than unearned profit extraction.
The collapse of narrative justifications for retained cash interest
Quietly absorbing yield increases generated by the Bank of England base rate has ceased to be a viable treasury strategy for UK platform operators. In the supervisory review detailed in the regulator's Dear CEO Letter: The retention of interest earned on customers’ cash balances, a sample of 42 surveyed firms collectively generated £74.3 million in revenue in the single month of June 2023 entirely from retaining interest on customer cash balances.
The regulator revealed that 71% of surveyed platforms retained a portion of interest earned on client money, with retention levels ranging from 10% to 100% and averaging 50%. More critically, 61% of platforms retaining interest also levied an explicit platform administration fee on those identical cash holdings. The practice of "double dipping" directly challenges the cross-cutting rules requiring firms to act in good faith and avoid causing foreseeable harm.
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| FCA 42-FIRM CASH RETENTION BENCHMARK (JUNE 2023) |
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| Total revenue retained in single month | £74.3 million |
| Proportion of platforms retaining cash interest | 71% |
| Average interest proportion retained across sample | 50% (Range: 10% to 100%) |
| Proportion executing double dipping (fee + retention) | 61% |
| Firms supplying documented mitigation actions taken | 48% |
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When interest rates sat near zero, retaining marginal basis points to offset treasury operations went largely unquestioned by retail clients. With base rates remaining materially higher throughout 2024, 2025, and into 2026, those basis points transformed into substantial commercial revenues unsupported by any corresponding increase in service utility.
Regulators have moved beyond broad supervisory warnings. As outlined in The state of FCA fair value assessments: fee adjustments and service unbundling in 2026, financial services firms must show clear operational links between the cost of administering client balances and the net yield passed through to the consumer. Narrative claims stating that interest retention exists "to discourage excessive cash holdings" or "to cover general operating overheads" are routinely rejected in compliance benchmark audits.
Custody fee tiering requires documented cost-to-serve metrics
Arbitrary tiered custody fees based strictly on assets under management (AUM) are failing regulatory reviews. For years, the standard wealth management pricing model operated on tiered percentages that decreased marginally as client assets grew, such as 40 basis points on the first £250,000, 30 basis points up to £1 million, and 20 basis points thereafter. When examined through the lens of modern cost accounting, these tiers rarely reflect the actual expenses of maintaining platform infrastructure.
The operational reality of administering a custody account does not scale linearly with asset value. Clearing, settlement, nominee maintenance, corporate actions processing, and annual tax reporting demand almost identical compute cycles and operational labour whether a portfolio holds £50,000 or £500,000 in a standard index tracker.
To pass a robust compliance audit, investment firms and platform providers must substantiate their pricing tiers with documented cost-to-serve metrics.
- Direct infrastructure expenditure: Quantifiable costs per account for custody software, market data feeds, regulatory reporting engines, and depository counterparty overheads.
- Operational support allocation: Time-weighted tracking of client service interactions, trading desk manual interventions, and corporate action processing across portfolio sizes.
- Capital expenditure amortisation: Technology investments allocated proportionately across the active account base rather than loaded onto small portfolios.
- Value-added service overlays: Measurable utility delivered to larger holdings, including complex custody arrangements, bespoke tax wrappers, or multi-currency liquidity facilities.
Firms successfully defending their models against regulatory challenge compare the production costs incurred in manufacturing and maintaining platform features directly against the charges levied on the client. If an account with £1,000,000 pays £2,000 annually while an account with £100,000 pays £400 for identical execution and administration, the firm must prove that the larger account consumes five times the operational overhead or receives five times the quantifiable benefit. Without that empirical baseline, the tier structure breaches the price and value outcome under PRIN 2A.4.
Distribution chain friction between manufacturers and advisers
A significant source of compliance friction across the UK wealth management sector is the contractual boundary between platform manufacturers and financial advisory distributors. Platform providers have clarified the limits of their fair value responsibilities, creating operational hurdles for mid-sized advisory practices.
Major platform operators, such as Aberdeen across its Wrap, Elevate, and Fundzone solutions, publish transparent price and value assessments for the intermediary market. These manufacturers explicitly benchmark their solutions across rolling 12-month data periods using four distinct analytical inputs:
- Expense analysis comparing production and infrastructure costs directly against retail charges, incorporating platform capital expenditure and institutional financial strength.
- Competitor analysis benchmarking baseline platform fees, stockbroking transactions, switch charges, ad hoc items, and retained cash margins against the broader advised market.
- Customer feedback metrics derived from formal complaints root cause analysis, net asset outflow trends, and adviser research.
- Individual operational checks examining service uptime, execution speed, and automated transaction error rates.
These manufacturers confirm fair value only for the technological and administrative infrastructure they directly manufacture and control. They document that the advisory firm must independently determine whether the total cost of advice, combined with discretionary management charges and third-party fund fees, provides fair value to the ultimate retail customer.
This operational reality leaves mid-sized wealth managers exposed if they assume a platform provider's fair value sign-off covers the complete client proposition. Advisory firms must capture granular platform cost data, add their ongoing advice charges, and assess total cost of ownership against measurable client outcomes. Where platforms levy separate dealing fees, probate administration charges, or retained cash margins, the advisory distributor must account for these frictional costs when evidencing fair value to their own governing board.
The supervisory shift: from framework design to outcome monitoring
The supervisory approach of the FCA has transitioned decisively from examining policies to auditing operational results. Firms are no longer judged on the theoretical architecture of their compliance manuals. As highlighted by the regulator in Year 2 Consumer Duty Board Reports: progress and what comes next, governing bodies must evidence the empirical findings of their outcome monitoring and document the concrete remedies implemented where fair value was not delivered.
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| FAIR VALUE SCRUTINY: EVOLUTION TO YEAR 2 |
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| Regulatory Focus | Supervisory Expectation and Evidence Required |
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| Framework Architecture | Shifted from policy text to operational outcomes data. |
| Cash Interest Margins | Capped, transparently disclosed, and tied to cash expenses.|
| Fee Unbundling | Separation of platform custody, dealing, and cash charges. |
| Board Accountability | Documented remediation records and quantitative metrics. |
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This evolution is driving a systemic shift toward unbundled pricing models. Regulators have expressed persistent concern over aggregated percentage charges that bundle disparate commercial operations into a single basis-point fee. Bundling allows firms to hide cross-subsidies, using high cash retention margins or inflated custody percentages on stagnant accounts to subsidise active trading tools or low headline advice fees.
Firms are responding by decoupling charges. Platform administration, trade execution, foreign exchange spreads, custody safekeeping, and cash management are increasingly invoiced as standalone cost items. When fees are unbundled, both internal compliance officers and external supervisors can evaluate whether the price charged for each component reflects the underlying cost-to-serve.
Where an operational process relies on our established engage, execute, embed methodology—engaging to define regulatory requirements before technical systems are built, executing by adjusting operational processes in parallel with software development, and embedding by integrating compliance controls into daily workflows through iterative testing—firms maintain complete evidentiary audit trails for every revenue item.
Market predictions for the UK wealth sector
Based on our ongoing compliance reviews and monitoring of supervisory notices across the financial services sector, two major structural developments will reshape wealth management operations over the next 12 months:
- Regulatory enforcement against unsubstantiated cash margins: We expect the FCA to deploy formal supervisory tools, including Section 166 skilled person reviews and targeted capital add-ons, against platforms and wealth managers retaining cash interest without documented, itemised operational expense justifications. Standalone retention margins that generate material corporate profits while retail clients receive sub-market yields will face mandatory remediation orders.
- Intermediary migration driven by manufacturer compliance data: Financial advisory networks and mid-sized wealth practices will increasingly transfer assets away from legacy platform providers that fail to supply granular, exportable fair value data. As advisory boards face personal accountability under the Senior Managers and Certification Regime (SMCR), distributors will partner only with platform manufacturers that provide clear expense breakdowns and transparent cash interest reporting.
Structuring your fair value assessment for the governing board
To meet supervisory standards ahead of your next annual Consumer Duty reporting deadline, mid-sized wealth managers, SIPP operators, and investment platforms must systematically overhaul their price and value governance. Narrative summaries must be replaced with empirical data.
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| PRACTICAL FAIR VALUE IMPLEMENTATION BLUEPRINT |
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| Action Area | Operational Focus and Required Deliverable |
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| Cash Audit | Audit all treasury retentions; remove bundled cash charges. |
| Cost-to-Serve | Calculate per-account infrastructure and administration costs. |
| Competitor Matrix | Benchmark charges against peer groups offering matching security. |
| Board Pack | Compile quantitative board MI showing outcome remediation data. |
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Begin by conducting an exhaustive audit of your firm's cash retention practices. Identify every basis point retained on client deposits, the net return delivered to the customer, and whether an explicit platform or custody fee is levied concurrently on those same cash holdings. If double dipping exists, it must be terminated immediately. Calculate the direct operational overhead of managing cash balances—depository reconciliation, banking partner counterparty risk assessments, and daily liquidity monitoring—and ensure any retained margin is capped to cover those verified expenses.
Second, document the precise unit economics of your custody and platform tiers. Determine the marginal cost of onboarding, maintaining, and reporting on accounts across different asset bands. If your pricing structure charges larger portfolios substantially more in cash terms for identical operational output, construct a documented justification reflecting complex asset administration, bespoke governance, or enhanced liquidity management. If no differential cost exists, adjust your tier thresholds or apply absolute fee caps to prevent non-compliance under PRIN 2A.4.
Finally, benchmark your charges against comparable peers within the advised wealth market, adjusting for credit ratings, operational resilience, and service levels. Present your governing board with a quantitative assessment that links operational expenditure directly to retail charges, demonstrating that customer outcomes are tracked, evaluated, and protected across every distribution channel.
Strengthen your fair value governance with specialist support
Evidencing fair value under Year 2 Consumer Duty rules demands deep regulatory insight and proven, defensible frameworks. Compliance Consultant provides expert-led advisory retainers designed specifically for UK financial services firms, investment managers, and platform operators regulated by the FCA.
Our Gold Compliance Partner Retainer (£2,395/month + VAT on quarterly billing, or £2,155/month + VAT billed annually) delivers 16 hours of dedicated advisory support each month, direct mobile access to a senior consultant overseen by founder Lee Werrell with 25+ years of regulatory experience, a 4-hour response SLA, and bespoke board compliance reports drafted directly for your executive committee.
Gold retainer clients receive complete access to our full digital product library, including our standalone Fair Value Assessment Framework (retail value £299), our Conduct Rules Breach Investigation Toolkit (£349), and our Section 166 Preparation Toolkit (£349). For firms seeking targeted advisory assistance, our Silver Compliance Professional Retainer provides 8 monthly advisory hours and six essential compliance toolkits for £1,195/month + VAT.
To benchmark your fair value metrics and review your board reporting packs, book a discovery call with Compliance Consultant or call our advisory team on 0800 689 0190. Explore our structured service packages on our comprehensive compliance retainer services page to secure dedicated regulatory expertise tailored to your firm.