Practical management of different pots

[BitterLemon]

So i've been doing some thinking recently on how best to manage different investment pots and how investment holdings should span or be duplicated across the pots.
By Pots i mean accounts/tax wrappers/brokers etc.

So for example you might have a couple of SIPPs, each with £80K worth of holdings. This might allow keeping each one under £85K threshold ( i know this isn't necessarily a relevant limit for investments as I believe there is only some partial coverage of the FSCS protection). In any case by spreading your investments across 2 providers you are reducing broker related risk.

Now i am aware that some say you shouldn't hold more than say 6-8 different investments as you can't really keep a close eye on many more. So you could materialise that approach as 3-4 holdings per platform or you could have 6-8 holdings of smaller size per platform and duplicate the holdings. Both result in the same amount invested in each asset but if your platform charges fixed fees for trading the latter approach would end up costing more. It is easier to manage the former though a little harder to see the % breakdown of each asset against your whole using the tools the platform provides.
On balance that makes me think that spreading your holdings across different platforms of the same type is probably a good idea.

But what about when you start to think of different account types /tax wrappers?
Should those be spread or duplicated?

eg which of the following should be considered interchangeable: SIPP1 , SIPP 2, ISA 1, ISA 2, Non Isa trading account, Lifetime ISA

I imagine it comes down to grouping by time horizons and any specific risk related considerations e.g. you might be happy to take bigger risks on an ISA if it is just there for extra beer money but might be more cautious about a pension that you will need for the basics in retirement.

Interested to know what others think of my musings above and what approaches you have taken?

[Joe45]

Mrs 45 and I each have a SIPP, an ISA and a trading account. Hers are with ii, mine are with iWeb. Our total investments are way too much to worry about the FSCS.

We are passive investors so the number of funds is limited, being all global trackers, in bonds, equities and REITs.

We do what we can to minimise holdings, and only trade once a year to utilise CGT and ISA allowances, and to rebalance to our chosen allocation (2:1 equities:bonds/cash).

Trading and costs kept to an absolute minimum.

[tjh290633]

What you do depends on what your objectives are. ISAs give you freedom from income and capital gains taxes, but you will have paid income tax on what you invest, in all probability.

SIPPs allow you to reduce the tax liability on your current earned income. If you are in the highest rate of income tax, or in that range where your personal allowance is withdrawn, there is a big advantage in subscribing to them. When the time comes to start to draw income, you have the opportunity to shelter the 25% tax exempt part in ISAs, should you wish. Otherwise you pay your appropriate rate of tax on the income which you draw, be that derived from income arising in the SIPP or capital gains made in it.

When it comes to Inheritance tax, your ISAs can be transferred to your spouse, so deferring any liability, or the funds left undrawn in your SIPP can be passed to other family members.

It's not simple and the various types of shelter are not providing the same protection. Investing outside a shelter means that you may have to deal with the various taxes. Dividing your investments between a number of providers to stay under the FSCS compensation limits is not a sensible move, in my view. Better to stick with one provider where there is little chance, if any, of loss through fraud or mishandling.

Time to read up on what they all involve, I fear.

TJH

[BitterLemon]

Thanks TJH.

You make a very valid point that tax treatment is an important distinction between the different types of platform.

How much that affects which holdings you place in which account I'm not so sure.
The main thing it affects is how much you hold in each tax wrapper.
I concede that the allocation is somewhat implicated by your time line and your buying/selling intentions.

However in some scenarios there isn't necessarily that much difference between certain tax wrappers.

Take sipps Vs lifetime isa (when using for long term savings not buying a first house).

You may pay into a sipp to reduce income tax when paid. You may pay into a Lisa to get a basic rate uplift on your earned income.
Whatever your reasons may be for why you end up with whatever amounts in each the 2 end up being comparable (inheritance tax treatment and exact access age aside). So there is still a question of whether you should spread investments across the 2 or duplicate.

[SalvorHardin]

As an example which might help, here is how I deal with my portfolio. I retired 17 years ago and don't have any income except for dividends. The only pension I have is a small state pension due in ten years time. Since I don't want to go back to work, I protect myself by diversifying.

Currently I have 36 shareholdings, split roughly 65%/35% by value between operating companies and investment trusts (companies are 9 British, 7 American, 3 Canadian, 1 Italian, 1 Bermudan and 15 Investment Trusts). Managing this lot takes a fair bit of time, but having worked in finance for many years and since it is a hobby, the combination of experience and interest in the subject doesn't make this a chore. Being extremely well organised is essential IMHO if you run a portfolio with a lot of different shareholdings, especially foreign companies.

I use three different online brokers plus an old school offline broker. My ISAs are kept with four different brokers/managers. In addition I hold several investment trusts via savings schemes. Finally I have certificates for roughly one-third of the portfolio (most of the investment trusts and half a dozen operating companies).

I don't have multiple accounts because of the FSCS limits. Fortunately my portfolio is large enough that I'd have to have more than a dozen additional providers if I was to keep each account below the FSCS compensation limit. Rather it's because of various risks such as fraud, problems if a broker collapses (time needed before you get full control over your assets, possible inability to withdraw cash, etc.), and bad audit trail where it's hard to establish who owns what because of poor record keeping. The quality of records is a bit of a bugbear for me; in a previous career I dealt with several pension compensation cases involving the Maxwell pension schemes where the audit trail to establish what some scheme members actually owned was terrible.

Platform/manager cost isn't an issue for me. All bar one charges a fixed fee (these are trivial relative to the size of the portfolio) and the one that charges a percentage is one of my smaller accounts. As I rule I avoid any platform provider that wants a percentage for what is computerised administrative and custodian work.

Why do I hold investment trusts rather than ETFs? It's a myth that ETFs are always cheaper, once platform fees get involved they can be more expensive than say Foreign & Colonial which charges around 0.3% p.a. IT investors can get more assets (and thus income) for their money by buying investment trusts at a discount to NAV. Also I have an admittedly slightly irrational concern that some ETFs expose investors to additional risk because of their tendency to use derivatives; I've made enough to live on so my major concerns nowadays are keeping hold of it and preserving its real value.

Hope this is of use.

[Lootman]

Why do I hold investment trusts rather than ETFs? It's a myth that ETFs are always cheaper, once platform fees get involved they can be more expensive than say Foreign & Colonial which charges around 0.3% p.a.

I have not encountered platform fees for ETFs any more than for ITs. Both effectively trade and are held as ordinary shares, with the brokers I am familiar with.

It is only open-ended funds where I have seen platform fees. And even then not on all brokers. For instance Interactive Investors does not charge a platform fee on the one open-ended fund I hold. It does charge commission on buying and selling them, however. And there is a fairly trivial platform fee of 10 quid a month across both my accounts, reduced to 2 quid a month if I do a trade each month on either of the accounts.

[SalvorHardin]

I have not encountered platform fees for ETFs any more than for ITs. Both effectively trade and are held as ordinary shares, with the brokers I am familiar with.

It is only open-ended funds where I have seen platform fees. And even then not on all brokers. For instance Interactive Investors does not charge a platform fee on the one open-ended fund I hold. It does charge commission on buying and selling them, however. And there is a fairly trivial platform fee of 10 quid a month across both my accounts, reduced to 2 quid a month if I do a trade each month on either of the accounts.

I mentioned ETF platform fees at a company AGM a couple of years ago, I talked with some private investors who said that rather than use F&C I should use their ETFs as they were cheaper (it's surprising what topics crop up whilst waiting for the AGM to start!).

It turned out that they were paying percentage platform fees which made them much more expensive. And they couldn't get certificates for their ETFs. But as I said, my argument against my owning ETFs is a bit irrational

I can't remember which brokers they were using.

[monabri]

I would definitely recommend spreading assets out over several brokers - if a company does run into problems it can take a LONG while to get back control of your assets

(viewtopic.php?p=241348#p241348 and viewtopic.php?p=329153#p329153)

(I'll save you the bother of reading the posts linked above - 15+ months and my SVS accounts are still not where I would like them to be - they were out of my reach fully for 12 months and now I'm trying to prise them out of ITI Capital's hands...and failing!).


I worry less about the FSCS compensation scheme cover for up to £85k of losses than having the account frozen completely for 12 months, as happened with SVS Securities. If you had all your eggs in 1 basket then there would be no income from that basket at all.

In the case of other failed brokers (eg Beaufort Securities) the concern over compensation probably became "painful" if one were to have well over £850k in a single account. In the case of SVS Securities, I believe the figure would be similar (possibly more).

[xeny]

I imagine it comes down to grouping by time horizons and any specific risk related considerations e.g. you might be happy to take bigger risks on an ISA if it is just there for extra beer money but might be more cautious about a pension that you will need for the basics in retirement.

Right now I'm accumulating, and I don't run multiple brokers. Yes there's risk, but I very much like the convenience of having all the money in the ISA say in one place. I moved to this after encountering "cash with one broker but what I want to purchase is with a different broker" problems. I'll move to at least two separate brokers when I stop having a regular income from employment.

It comes down to perspectives on volatility vs risk, but assets I perceive as volatile rather than risky tend to end up in my pension simply because that has the longest investment horizon. Assets I view as risky go in the ISA of the GIA depending on how likely I think they are to go pop vs CGT liability.

I dislike generating a large capital loss in either the pension or the ISA because you can't even console yourself with the thought you're at least getting a CGT offset you can use later.

[scrumpyjack]

I would definitely recommend spreading assets out over several brokers - if a company does run into problems it can take a LONG while to get back control of your assets

(viewtopic.php?p=241348#p241348 and viewtopic.php?p=329153#p329153)

(I'll save you the bother of reading the posts linked above - 15+ months and my SVS accounts are still not where I would like them to be - they were out of my reach fully for 12 months and now I'm trying to prise them out of ITI Capital's hands...and failing!).


I worry less about the FSCS compensation scheme cover for up to £85k of losses than having the account frozen completely for 12 months, as happened with SVS Securities. If you had all your eggs in 1 basket then there would be no income from that basket at all.

In the case of other failed brokers (eg Beaufort Securities) the concern over compensation probably became "painful" if one were to have well over £850k in a single account. In the case of SVS Securities, I believe the figure would be similar (possibly more).

I would never ever use a small firm of brokers and for investors with substantial assets splitting assets to have no more than £85k with one firm is completely impractical. The large firms will generally have very well developed systems with very large numbers of staff and substantial assets. The risk of losing your money in a firm like that is miniscule IMO. Every time there have been these problems with a broker it has been one of these small firms.

[Lootman]

I would never ever use a small firm of brokers and for investors with substantial assets splitting assets to have no more than £85k with one firm is completely impractical. The large firms will generally have very well developed systems with very large numbers of staff and substantial assets. The risk of losing your money in a firm like that is miniscule IMO. Every time there have been these problems with a broker it has been one of these small firms.

Exactly. The largest firm of brokers ever to go bust (rather than be bailed out one way or the other) was Lehman Brothers, and even then to my knowledge no individual investor lost any money (although US investor protections are more serious than the UK's paltry £85,000).

In my view there is more risk to having many accounts than selectively picking a handful of solid ones. And it would make tax reporting and administration a nightmare.

[langley59]

I would never ever use a small firm of brokers and for investors with substantial assets splitting assets to have no more than £85k with one firm is completely impractical. The large firms will generally have very well developed systems with very large numbers of staff and substantial assets. The risk of losing your money in a firm like that is miniscule IMO. Every time there have been these problems with a broker it has been one of these small firms.

Exactly. The largest firm of brokers ever to go bust (rather than be bailed out one way or the other) was Lehman Brothers, and even then to my knowledge no individual investor lost any money (although US investor protections are more serious than the UK's paltry £85,000).

In my view there is more risk to having many accounts than selectively picking a handful of solid ones. And it would make tax reporting and administration a nightmare.

Agreed, however Lehman Brothers wasn't a firm of brokers, it was an investment bank and its downfall was caused by things like its flawed funding model, questionable risk management and concerns with its valuation of illiquid assets. These issues should not be an issue with a pure brokererage firm.

[Lootman]

I would never ever use a small firm of brokers and for investors with substantial assets splitting assets to have no more than £85k with one firm is completely impractical. The large firms will generally have very well developed systems with very large numbers of staff and substantial assets. The risk of losing your money in a firm like that is miniscule IMO. Every time there have been these problems with a broker it has been one of these small firms.

Exactly. The largest firm of brokers ever to go bust (rather than be bailed out one way or the other) was Lehman Brothers, and even then to my knowledge no individual investor lost any money (although US investor protections are more serious than the UK's paltry £85,000).

In my view there is more risk to having many accounts than selectively picking a handful of solid ones. And it would make tax reporting and administration a nightmare.

Agreed, however Lehman Brothers wasn't a firm of brokers, it was an investment bank and its downfall was caused by things like its flawed funding model, questionable risk management and concerns with its valuation of illiquid assets. These issues should not be an issue with a pure brokererage firm.

Although Lehman was not a huge retail brokerage in the way that Merrill Lynch and others were, it did have about 110,000 retail clients and according to reports I read at the time, they were all made whole.

[BitterLemon]

Thanks for all your inputs. Interesting to hear about other peoples approaches though evident how our situations are all different.

Just trying to steer the conversation back a little, park the FSCS/broker risk considerations and maybe focus a bit more on the hypothetical.

If we say that you have 2 SIPPs for example and wish to have holdings in funds A,B,C,D,E,F & G how are you going to structure these holdings across these 2 SIPPs and why?
i)
SIPP #1 A,B,C,D
SIPP #2 E,F,G,H

ii)
SIPP #1 A,B,C,D,E,F,G,H
SIPP #2 A,B,C,D,E,F,G,H
(where each SIPP has half of each holding)

[swill453]

If we say that you have 2 SIPPs for example and wish to have holdings in funds A,B,C,D,E,F & G how are you going to structure these holdings across these 2 SIPPs and why?
i)
SIPP #1 A,B,C,D
SIPP #2 E,F,G,H

ii)
SIPP #1 A,B,C,D,E,F,G,H
SIPP #2 A,B,C,D,E,F,G,H
(where each SIPP has half of each holding)

I'd go for i), to minimise dealing costs and administration (only have to keep track of 8 dividends rather than 16).

Both are pretty trivial reasons (a few tens of pounds, and a few minutes' work). But they're reasons...

Scott.

[JohnB]

Me: 1 SIPP with broker A, 1 ISA with broker B, unsheltered investments with each. SIPP has VUKE, VMID, CSP1, ISA has FIAAGG FIAAGH, MYKAAR, CSP1. Broker A also has unsheltered VUKE, broker B has unsheltered VMID, FIAAHM, VUSA.

2 Brokers in case one has a temporary lockout, Tracker ETFs for World, UK, Europe, Japan, Developing World. INC units in ISA, ACC in SIPP and unsheltered. To defuse CGT in the unsheltered investments I switch between different trackers tracking the same index.

A dozen holdings is as many as I want to manage. And its still a muddle for historical reasons as I started to understand it all, and will take 4-5 more years to untangle as I only sell once a year, and buy once a quarter

[tjh290633]

If we say that you have 2 SIPPs for example and wish to have holdings in funds A,B,C,D,E,F & G how are you going to structure these holdings across these 2 SIPPs and why?
i)
SIPP #1 A,B,C,D
SIPP #2 E,F,G,H

ii)
SIPP #1 A,B,C,D,E,F,G,H
SIPP #2 A,B,C,D,E,F,G,H
(where each SIPP has half of each holding)

I would go for i) if I had to have two sets of portfolio. I did that when ISAs were established and you could no longer subscribe to PEPs. I could see no point in duplication, so I maintained the two separate portfolios until the time came and they could be amalgamated, at which point I did so with alacrity and breathed a sigh of relief.

Money was never in the right place, dividends accumulated much more slowly, and it was a total pain in the posterior.

People have mentioned Beaufort Securities above. City Equities failed and their clients became those of Beaufort Securities, which in turn failed. Avoid small brokers like the plague. Learn the lessons. Provided that you are with a substantial and well-managed SIPP provider, keep it all in one place. If you have doubts or worries about your SIPP provider, then move to one that you trust.

TJH

[BitterLemon]

Thanks all. Seems the general consensus is that they should be spread amongst comparable wrappers so will go with that.

It just brings home the fuzzy level of clarity I have around the objectives of each investment pot which I should really work on making clear.

[monabri]

Avoid the small uns like TJH suggested...I learned that the hard way.

[PrefInvestor]

Seems the general consensus is that they should be spread amongst comparable wrappers so will go with that.

FWIW I agree with many of the comments made in the above thread. I would make the following points from a purely personal perspective:-

1. If you have a large portfolio then trying to keep within FSCS limits is totally impractical and I wouldn’t (and don’t) even try. But while accumulating it might make sense.
2. I think that having a second broker IS probably worthwhile just in case you have some problem with one (I haven’t done this myself though but I should). This is especially true if you are totally reliant on your investments to produce your income to live off.
3. If you have a partner or spouse I’d suggest keeping about half of everything in their name to improve your FSCS coverage and maximise your tax wrapper contribution potential.
4. I would stick to the big brokers (even if they are more expensive) to avoid having any broker problems.
5. I wish I had a SIPP for the IHT benefits but being retired already that route isnt viable for me now as I cant build up a big enough pot in one to be useful.
6. Getting fully ISAd (or SIPPs) up and out of trading accounts by taking maximum advantage of the contribution limits IS definitely worth doing IMV to eliminate CGT, income and dividend taxation and the hassle of the associated administration.
7. Personally I find management of even a small number of pots tedious as I forever find that I have money spread across more than one that I would like to spend in one transaction.

ATB

Pref