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Should I spread "risk of insolvency" across platforms?
Dr. Meldrew
Posted: 25 April 2018 09:30:21(UTC)
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Readers,

Client money is supposed to be kept ring-fenced from company money. So in the case of insolvency of a fund platform, it shouldn't be a problem for clients.

However in the case of notable fraud/insolvency cases (Robert Maxwell, anyone?) the funds did get plundered.

The FSCS covers £50k per person for investment. All investments, not "per investment on the platform".

So, if I have(significantly) more than £50k, should I spread the risk across more than one platform? iii, AJ Bell, H-L etc.

Appreciate any thoughts!

Dr. M

PS. If the ring-fence was breached then the auditor would have been negligent in not spotting it. And they'd still be solvent. So, would they bear a liability for my hypothetically lost £££?

P.P.S I've phoned the FCA and FSCS and neither had anything meaningful to say beyond that stated above, Chocolate teapots.

Mr Helpful
Posted: 25 April 2018 10:24:07(UTC)
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First Rule of Investing :-
DIVERSIFY, DIVERSIFY, DIVERSIFY.
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Dr. Meldrew on 25/04/2018(UTC), dlp6666 on 25/04/2018(UTC), Franco on 25/04/2018(UTC), mcminvest on 25/04/2018(UTC)
dyfed
Posted: 25 April 2018 10:53:05(UTC)
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Chance of it happening: slim
Impact if it does: high
Cost of spreading investment: work it out - for my Sipps it's c 0.33% p a, less if u have ISAs , plus once off transfer fees
But too much hassle, rather keep my head in the sand!
If I was starting from scratch maybe ....
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Tyrion Lannister on 25/04/2018(UTC), Franco on 25/04/2018(UTC)
Slink
Posted: 25 April 2018 11:28:52(UTC)
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I think that as long as you have selected one of the better known platform providers (e.g. AJ Bell) then you have very little to worry about and can focus on investment risk rather than the risk of platform insolvency.

Using the example of AJ Bell, they are authorised and regulated by the FCA (yes, I appreciate that the FCA aren't infallible) and as such they have to comply with the regulations regarding the holding of cash and non-cash assets. Investments that the provider is holding in custody will be held in client-specific custody accounts, as such the risk to you of losing these assets is minimal. Cash held will probably be pooled and held in a number of segregated bank accounts; the key objective for the provider will be to minimise the risk of any bank default and the inability to get the cash back.

In summary, I wouldn't worry about using a number of different providers to reduce risk. The benefits (cost and ease of management) from having everything under one roof significantly outweigh the likelihood of loss from insolvency.
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Sara G
Posted: 25 April 2018 11:49:42(UTC)
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This question is addressed in this month's Money Observer. The response from Interactive Investor is that since the banking crisis a Special Administrative Regime has been established to facilitate the swift return of funds in the unlikely event that an investment platform becomes insolvent. Rules were also introduced to ensure better protection for customer assets. They point out, however, that there would still be a period during which it would be difficult or impossible to trade, so more active investors / traders may want to diversify.

I have SIPPs with both ii and HL but just one ISA with HL. The HL SIPP is small and contains cheap passive funds + cash, so the additional costs are minimal, plus I can trade funds for free, which is useful for small top-ups.

The bigger risk might be a cyber attack on a platform, in which case it might also help to be diversified, and to stick to the more established platforms which are likely to have more robust systems.
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Tom Bards
Posted: 25 April 2018 11:52:30(UTC)
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Personally I think insolvency of platforms like HL or Vanguard is incredibly unlikely.
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william barnes on 25/04/2018(UTC), Peter59 on 25/04/2018(UTC)
Dr. Meldrew
Posted: 25 April 2018 12:03:23(UTC)
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@ Slink "FCA aren't infallible" - maybe, but that's not my point. My point is that the limit of the FSCS is only £50k per platform per member.

I agree with others that risk of insolvency is very low with these providers, but that events like Lehmans can re-occur. Hence "Diversify, Diversify, Diversify" seems like good advice.

This Slaughter and May piece is interesting, but I must confess I got somewhat lost in the legal jargon... https://www.slaughterand...roblems-that-remain.pdf

Nevertheless, it does say these points clearly:
Quote:
We mentioned above that the CASS 7 rules contain no provisions to address the possibility of non-compliance by an investment firm with the rules on segregation of client money.

In particular, if the rules contain no mechanism for tracing client money erroneously held in a firm’s general (unsegregated) accounts, or for calculating the client money entitlements of those clients whose money cannot be traced.
dyfed
Posted: 25 April 2018 12:47:49(UTC)
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Surely the facts and likelihood of meltdown are fairly clear? You just need to decide whether the extra hassle and cost to insure against this are worth it!
Keith Cobby
Posted: 25 April 2018 13:21:50(UTC)
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I think using more than one platform is sensible, perhaps separating SIPP from ISA. We use 2 platforms and 2 managers IT platforms.
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Dr. Meldrew on 25/04/2018(UTC)
King Lodos
Posted: 25 April 2018 13:37:28(UTC)
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Have you considered share certificates?

http://www.hl.co.uk/shares/share-dealing/certificated-share-dealing

A little unwieldy, but it avoids platforms fees; it's a direct legal contract between you and the companies you invest in; and it gives you voting rights and regular information .. It's the proper way to hold shares, and I'd feel better about it with other ppl's money

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Alan Selwood
Posted: 25 April 2018 14:38:42(UTC)
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But share certificates as a method of holding does not help if you are a SIPP or ISA investor, since you can't have those accounts while holding certificates in your hands!

You can use a personal CREST account to hold non-ISA, non-SIPP equities, but it's expensive and few brokers offer such accounts.

As for cyber attacks, bear in mind that these days the registrars hold their records electronically, and you will probably get issued not a share certificate but an electronic statement of what they have in their electronic records that are your holdings.

I have 3 platforms myself, and spread the assets fairly evenly among them.

Thinking back to the Greek 'haircut', it was the larger accounts that had their assets above legal guarantee thresholds that were plundered, so if a similar thing were to occur here, it is possible that only account values above £85,000 (or £50,000?) would be seized. Smaller accounts might then be exempt from seizure. This is another reason for holding some assets overseas (e.g. gold in Zurich or Singapore), where your friendly local government can't simply steal them when it feels the need.
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Sara G on 25/04/2018(UTC), Tim D on 25/04/2018(UTC), Dr. Meldrew on 25/04/2018(UTC)
King Lodos
Posted: 25 April 2018 15:47:26(UTC)
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But when managing money for others, you can't use ISAs and SIPPs .. And there may be options to hold shares in an overseas holding company – I'm meaning to find out about the practicalities of that.

I don't really like nominee accounts – I've contacted fund platforms, and it's taken 20 seconds for someone on the phone to start poking around in my account .. Plus you never get the full experience of share ownership – you should have voting rights, invitations to meetings, reports, physical proof of ownership .. I've always thought certificates make great gifts too.

https://static.seekingalpha.com/uploads/2013/12/4356011_13868104224118_rId22.jpg

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Tim D on 25/04/2018(UTC)
Tim D
Posted: 25 April 2018 16:36:09(UTC)
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Are "shareholder perks" still a thing? I remember you used to hear more about them years ago... I get the impression the FCA took a dim view of them though... maybe they were an incentive to invest in unsuitable things or something... for example Alliance Trust shareholders used to get discounted dealing fees on Alliance Trust Savings but they had to stop that around RDR time.

I just learned a new word: Scripophily
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Sara G on 25/04/2018(UTC)
King Lodos
Posted: 25 April 2018 16:43:36(UTC)
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1 user thanked King Lodos for this post.
Tim D on 25/04/2018(UTC)
Tyrion Lannister
Posted: 25 April 2018 18:09:42(UTC)
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King Lodos;61232 wrote:
Have you considered share certificates?

http://www.hl.co.uk/shares/share-dealing/certificated-share-dealing

A little unwieldy, but it avoids platforms fees; it's a direct legal contract between you and the companies you invest in; and it gives you voting rights and regular information .. It's the proper way to hold shares, and I'd feel better about it with other ppl's money



Yes, but not if you want to hold stocks in a SIPP or ISA.
JohnW
Posted: 25 April 2018 20:42:11(UTC)
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OK, all the above people know a lot more than me. But I'll just outline the problems as I see them.

When I started out I used just one platform. In my case ATS to hold my ISA. Over the years my portfolio grew and I started to worry about the "What if's" So I stopped contributing new money into that platform and opened another ISA account with The Share Centre.

OK, I feel relatively safe'ish that if anything happens to one then I wont lose everything.

But then comes the downside. The charges of the two platforms are pretty much the same, so effectively I'm paying double the charges than if I was only using one platform. But that's not all. Because I started with ATS first, and the money has been working there for much longer, that portfolio is worth over double the TSC portfolio, but I can do little about it. There are IT's in my TSC portfolio which I'd like to add to but I cant rebalance easily without selling shares on ATS and transferring the money to TSC. I have in fact done that a couple of times recently, but it's not as straight forward as it would be with only one account. The fact that I'm now retired means there is not much new money going onto TSC these days which means without transferring money from one account to the other there will always be an imbalance.

I must admit I have been considering transferring everything from one to the other and closing one account because of the sheer inconvenience of the present situation.

Just my thoughts on how it affects me.

John

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Dr. Meldrew on 25/04/2018(UTC), Dan Mall on 08/05/2018(UTC)
Stephen Lockie
Posted: 25 April 2018 21:39:55(UTC)
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My understanding is that the broker providing a nominee account has legal title to the investments but not beneficial ownership.
So that were one able to view the brokers detailed accounts, one would not see the investment as an asset, nor a corresponding liability to the client.
In the event of insolvency of the broker, the client’s investments could not be claimed by other creditors.
The risk relates to hacking/fraud, and prudence might dictate using a number of different brokers to spread the risk albeit at some cost/inconvenience.
My comments about investments not being available to other creditors in an insolvency do not relate to cash holdings. Here the investor is exposed to the credit risk of the broker and the FCS £50k limit is an important backstop.
This is my understanding at least
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Derek Jacobs on 25/04/2018(UTC), Guest on 25/04/2018(UTC)
Mr Helpful
Posted: 08 May 2018 09:49:41(UTC)
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Unsure whether the recent demise of the failed stockbroker Beaufort Securities, is a benchmark for the risks we may or may not face?

Noted in 'The Times' today, the administrators indicate that investors with more than £50,000 will be subject to a levy on the value of their assets held with Beaufort above £50,000 on a sliding scale, "meaning that portfolios worth more than £1m are unlikely to be charged more than 10% of their value".
The article is slightly unclear talking on the one hand about "corporate clients" and then on the other about "investors".
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Sara G
Posted: 08 May 2018 10:29:12(UTC)
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CW article on Beaufort:

http://citywire.co.uk/ne...dviser_latest_news_list

If the charge were to go ahead then I think it adds a significant risk that has not existed up to this point and makes a nonsense of the supposed 'ringfencing' of client assets.

Another reason to stick with the largest and most stable platforms in my view.
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JohnW on 08/05/2018(UTC), Mr Helpful on 08/05/2018(UTC), Jim S on 08/05/2018(UTC)
Mr Helpful
Posted: 08 May 2018 13:19:32(UTC)
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Sara G;61900 wrote:
Another reason to stick with the largest and most stable platforms in my view.

+1
Maybe just leading banks?
Pity TD have chosen to opt out and dumped us with II for one portfolio.

Can't get the CW link to work presently, but see on a Times update, that those with less than £100,000 could be charged as much as 40%!!!

10% most experienced investors could shrug off as similar to expected ongoing market fluctuations.
But 40% is on quite another more serious scale.
Expect this story to run.

P.S. Hopefully the CW link will work eventually.
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Jim S on 08/05/2018(UTC)
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