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FSCS Compensation

Index tracking funds and ETFs
mayonline
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FSCS Compensation

#418721

Postby mayonline » June 10th, 2021, 9:24 pm

Hi,

I have some index fund invested with Interactive Invester (ii) which are worth more than the £85k protection offered by the FSCS. I called ii earlier about this who said something along the lines of there are about 20 different companies they use that 'hold' the money and so my money is perfectly safe with them, even if they did go bankrupt.

They suggested I read their PDF (which I cannot link to from here as apparently, I am 'not approved') which I did, but in all honesty, I don't understand. I'm confused. It didn't help.

Something tells me I am being over cautious and that it'll be fine. Something else is telling me to move some of my investment elsewhere and to keep <£85 k with ii.

I'd appreciate some advice please from you guru's please.....appreciated

paulnumbers
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Re: FSCS Compensation

#418722

Postby paulnumbers » June 10th, 2021, 9:29 pm

It's worth looking into what happened with a previous broker that went bust, and funds were missing

https://www.fosterdenovo.com/my-resourc ... -happened/

Essentially if you were below the FSCS limit, you got it all back. If you were above, and funds were missing, then you got what funds they did have, and then your loss was made good upto the FSCS limit. Which means if they happen to lose, say, 50% of your funds, you're actually fine holding £170k. There was also a charge you had to pay for the administration, £10k IIRC, covered though if you're below the FSCS compensation limit.

I don't think it's bad idea to look for a broker that has no fee's to just hold assets, to split your funds into though.

Alaric
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Re: FSCS Compensation

#418724

Postby Alaric » June 10th, 2021, 9:58 pm

mayonline wrote:Something tells me I am being over cautious and that it'll be fine. Something else is telling me to move some of my investment elsewhere and to keep <£85 k with ii.


In the context of holding shares, funds etc. with a broker, the FSCS limit applies to the loss. The general premise is that the assets themselves are in the names of a custodian, so the broker is unable to filch them. Where there can be a problem is when the broker's back office gets so chaotic that the records of what clients think they hold and what the custodian actually has do not match up in the slightest. Considerable delays may ensue in sorting it all out and if the broker is being liquidated, the liquidator appears to have the power to take first dibs. The FSCS scheme did however kick in when this was tried.

If you hold £ 85,000 or more as cash on deposit with a broker, then compensation limits are a possible problem. Most brokers will split client cash over multiple banks reducing the exposure to any individual ban. I'm not aware of a bank failure that involved third party cash deposited by a broker, so how the FSCS scheme would apply is perhaps untested in this respect.

monabri
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Re: FSCS Compensation

#418734

Postby monabri » June 10th, 2021, 10:27 pm

I've been through the process with SVS Securities....all recorded here on The Lemon Fool. The biggest issue is that I didn't have access to the funds for a year ( no buying selling and dividends building up untouchable) and the shares were then transferred to ITI Crapital :cry: ( also documented here on TLF).

viewtopic.php?p=241348#p241348

viewtopic.php?p=329153#p329153

Then there is the case of Beaufort Securities. Overall, I came to the conclusion that one might start to have concerns if one held above £850k or even more (£1m).

As others have mentioned above, it is not £85k which is covered but any losses up to £85k. With a well regulated company such as ii, I'd be more relaxed than if you were with a smaller broker.

mc2fool
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Re: FSCS Compensation

#418736

Postby mc2fool » June 10th, 2021, 10:46 pm

Alaric wrote:If you hold £ 85,000 or more as cash on deposit with a broker, then compensation limits are a possible problem. Most brokers will split client cash over multiple banks reducing the exposure to any individual ban. I'm not aware of a bank failure that involved third party cash deposited by a broker, so how the FSCS scheme would apply is perhaps untested in this respect.

I believe that the FCA rules that brokers split client monies across at least 5 separate banks, although I'm not clear on how much that's mandatory vs a guideline.

The twist though is that the usual per institution rules apply, including whatever sums you otherwise have in the bank.

So, if you have, say, £100K cash in IWeb and they split it up as £20K in each of HSBC, Lloyds, NatWest, Santander and Barclays, and you happen to already have £80K in NatWest and they go bust, then £15K of the cash you had in IWeb won't be covered by the FSCS.

And the difficulty for us punters is that the brokers won't tell you which banks your money has been split across (almost certainly 'cos they change on a regular basis)...

mayonline
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Re: FSCS Compensation

#418741

Postby mayonline » June 10th, 2021, 11:01 pm

Thank you all for your responses and links. This makes more sense now. Obliged

Itsallaguess
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Re: FSCS Compensation

#418756

Postby Itsallaguess » June 11th, 2021, 6:03 am

monabri wrote:
The biggest issue is that I didn't have access to the funds for a year


Which should be an important consideration, I think, even for those who might conclude that FSCS compensation isn't an issue for large portfolios sitting with any single broker...

It's never made much sense to me why we wouldn't want to split things across a number of brokers, given that it's likely to reduce both risks at once, with very little effort...

Cheers,

Itsallaguess

GeoffF100
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Re: FSCS Compensation

#418762

Postby GeoffF100 » June 11th, 2021, 8:16 am

Itsallaguess wrote:
monabri wrote:The biggest issue is that I didn't have access to the funds for a year


Which should be an important consideration, I think, even for those who might conclude that FSCS compensation isn't an issue for large portfolios sitting with any single broker...

It's never made much sense to me why we wouldn't want to split things across a number of brokers, given that it's likely to reduce both risks at once, with very little effort...

If you are a long term passive investor and have plenty of income and cash reserves, how much does it matter if you do not have access to your investments for a year? The worst consequence could be an inability to fill your CGT allowance. You may not consider that to be too serious if the risk of it happening is very low.

Splitting funds across "a number of" brokers does involve effort. I found splitting my ISA into two accounts particularly troublesome, because I could not transfer money between them. If you have only one equity account, your broker/platform does all the record keeping for you. If you have several, you have to keep consolidated records. The nightmare scenario is that you have to pay someone £££ per hour to do it for you.

It is very important to consider the reliability of the brokers/platforms that you are using, rather than just the number of them. I would rather have one reliable broker than five dodgy ones.

Itsallaguess
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Re: FSCS Compensation

#418770

Postby Itsallaguess » June 11th, 2021, 9:15 am

GeoffF100 wrote:
I found splitting my ISA into two accounts particularly troublesome, because I could not transfer money between them.

If you have only one equity account, your broker/platform does all the record keeping for you. If you have several, you have to keep consolidated records.

The nightmare scenario is that you have to pay someone £££ per hour to do it for you.


I took the view very early on that I wanted to split my tax-sheltered holdings over more than one broker, and have planned and executed that scenario over many years, and I've not experienced any of the issues that you've raised, so I think this is one of those 'I wouldn't necessarily start from there..' scenarios that might not affect people who might have more opportunity for some forward-planning to help avoid some of those troubles.

I don't have any issues with regards to record-keeping, but obviously such a situation is likely to depend on the tax-status of any brokerage accounts...

For anyone continuing to build an investment portfolio, I see very little downside is splitting things across a minimum of two well-established brokers, and lots of potential advantages...

Cheers,

Itsallaguess

xxd09
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Re: FSCS Compensation

#418771

Postby xxd09 » June 11th, 2021, 9:17 am

Looking back over the years I have currently evolved to 1 broker for SIPPS and ISAS - 1 bank for 2 years expenses cash fund-another bank for current account and credit card
Rather concentrated and risky?
Now 75 years old so ability and desire to “wheel and deal” mostly gone
This setup is easy to manage and keep track of
Nothing beats keeping an eye on your finances yourself and you have to make this feasible and possible
I managed to spot Equitable Life’s incipient demise and exit intact with the help of financial posters on Motley Fool-Lemon Fools predecessor as a for instance
Balancing Risk and Safety is a key investment trope
Personal responsibility for these choices is becoming more and more the way ahead
xxd09

77ss
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Re: FSCS Compensation

#418791

Postby 77ss » June 11th, 2021, 10:17 am

GeoffF100 wrote:....
Splitting funds across "a number of" brokers does involve effort. I found splitting my ISA into two accounts particularly troublesome, because I could not transfer money between them. If you have only one equity account, your broker/platform does all the record keeping for you. If you have several, you have to keep consolidated records. The nightmare scenario is that you have to pay someone £££ per hour to do it for you.

It is very important to consider the reliability of the brokers/platforms that you are using, rather than just the number of them. I would rather have one reliable broker than five dodgy ones.


I use two brokers. They both do all the record keeping for me; I find the occasional consolidation required to be a pretty trivial excercise.

As the years have passed, I have moved to one dealing account (with iWeb), one SIPP (iWeb again) and two ISA accounts (iWeb and Equiniti).

I used to have a dealing account with Equiniti as well, but when they introduced their new half-baked interface - and gave me an extremely unhelpful response to my criticism - I said 'no more more money for them' - hence my iWeb ISA and my gradual elimination (now complete) of the dealing account with Equiniti. The impending move to ii makes little difference to me - although if the interface is better (difficult to see how it could be worse) that will be a significant improvement.

I would be a little uncomfortable with having all my investments with one broker. Having two is a little more work, but worth it to me for the extra peace of mind.

GeoffF100
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Re: FSCS Compensation

#418798

Postby GeoffF100 » June 11th, 2021, 11:08 am

Back in the days when I had two ISAs, the issue was that I would have (say) £5K in each account and want to make a £10K purchase. I could buy two lots of £5K, but that cost more and fragmented my portfolio. If it were two dealing accounts, I could have just transferred £5K to whatever was my favoured account.

Nowadays, my equity holdings are split between iWeb and Vanguard (with whom I have a free account). Both platforms should be safe. I could save some money by transferring most of my iWeb holdings to Vanguard. That would also be more convenient. I can, for example, switch funds with Vanguard. I do not have to sell them and then buy another with the proceeds. Vanguard could go bust, be subject to massive fraud, or lose track of who owns what, but the risk is small compared with the other risks facing a (fortunately still healthy) 71 year old. The underlying funds are all Vanguard anyway.


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