What if a broker goes broke?

[starter]

So in a SIPP there is £85,000 maximum FCTS relief.

If you have (say) £100,000 all invested in shares what would be the situation if those shares were held as nominees (and the nominees hadn't gone walkabout).

Would you get £85,000 back or £100,000 back?

If a broker goes belly up what is the chance that the nominee will go belly up. Are there things that I can see from the outside that will make a difference?

Also if I split my SIPP into two vehicles will this mean that I can retire early with pot one and keep pot two as a SIPP for another few years? How would that affect the 25% tax free from pot two?

Assuming FCTS = FSCS ...

The nominee account should ideally be completely independent from the broker...another company. Your broker pays them to manage the pooled shares and transfer funds to them to do so....the honest broker will keep the honest 3rd party honest by checking the CREST system. I don't see any scope for dodgy deals there. However... the broker has to pay for the service of this 3rd party...so I believe some of the broker (eg SVS) decided to cut costs and manage the pooled accounts for themselves, saving money.

Once the shares are in a pooled account, and held in CREST, the chances of error are negligible. I don't think there is a way for you to check that your shares are there because they are pooled (if you could identify your shares then you'd be able to identify other owners - a data protection issue).

"Would you get £85,000 back or £100,000 back?" - you'd get the assets (shares & cash & dividends) transferred to another broker. You wouldn't get a cheque for £100k. Indeed, the value might be £100k on the day the broker goes belly up but it will be different amount by the time you get your hands on it.


With your £100k SIPP account, I reckon the biggest risk might be that you personally are investing in higher risk companies (for example, new start ups, companies with high yields that are high yield for the wrong reasons, companies that run into bad luck or are subject to outside interference, corporate actions - you cannot participate). If you broker fails, your account is frozen - you are stood on the sidelines and you cannot sell if suddenly one or two of your higher risk companies start to look iffy! If one of your companies goes belly up whilst your account is frozen...tough! There is no compensation claim even if you wanted to get out and cut your losses early on, you can't...the account is frozen.

Can I check whether the nominee account is held by another company?

[absolutezero]

So in a SIPP there is £85,000 maximum FCTS relief.

If you have (say) £100,000 all invested in shares what would be the situation if those shares were held as nominees (and the nominees hadn't gone walkabout).

Would you get £85,000 back or £100,000 back?

If a broker goes belly up what is the chance that the nominee will go belly up. Are there things that I can see from the outside that will make a difference?

Also if I split my SIPP into two vehicles will this mean that I can retire early with pot one and keep pot two as a SIPP for another few years? How would that affect the 25% tax free from pot two?

Assuming FCTS = FSCS ...

The nominee account should ideally be completely independent from the broker...another company. Your broker pays them to manage the pooled shares and transfer funds to them to do so....the honest broker will keep the honest 3rd party honest by checking the CREST system. I don't see any scope for dodgy deals there. However... the broker has to pay for the service of this 3rd party...so I believe some of the broker (eg SVS) decided to cut costs and manage the pooled accounts for themselves, saving money.

Once the shares are in a pooled account, and held in CREST, the chances of error are negligible. I don't think there is a way for you to check that your shares are there because they are pooled (if you could identify your shares then you'd be able to identify other owners - a data protection issue).

"Would you get £85,000 back or £100,000 back?" - you'd get the assets (shares & cash & dividends) transferred to another broker. You wouldn't get a cheque for £100k. Indeed, the value might be £100k on the day the broker goes belly up but it will be different amount by the time you get your hands on it.


With your £100k SIPP account, I reckon the biggest risk might be that you personally are investing in higher risk companies (for example, new start ups, companies with high yields that are high yield for the wrong reasons, companies that run into bad luck or are subject to outside interference, corporate actions - you cannot participate). If you broker fails, your account is frozen - you are stood on the sidelines and you cannot sell if suddenly one or two of your higher risk companies start to look iffy! If one of your companies goes belly up whilst your account is frozen...tough! There is no compensation claim even if you wanted to get out and cut your losses early on, you can't...the account is frozen.

Can I check whether the nominee account is held by another company?

Yes. Companies House will have 'dormant accounts' for it.
Somewhere in your broker's T&Cs will be a bit that says the name of the nominee. Failing that, a transfer form for a share certificate has the name on it.
For iWeb (which is Halifax Share Dealing Ltd, which is Lloyds Banking Group) the nominee is HSDL Nominees Ltd. https://find-and-update.company-information.service.gov.uk/company/02249630
The accounts are very uninteresting.

[Charlottesquare]

I note the multiple broker comments up thread.

My suggestion, if that is a path being pursued, is that you only hold any particular unsheltered shareholdings/instruments in one account, so if say 3 broker accounts being used do not hold Shell in all three , hold it just in one, as if you sell any Shell the pooling calculation, lifting transactions from multiple account,s will be a real pain and the broker account from which you sold the shares will likely ,post sale, not reflect the c/fwd tax cost correctly. (In fact often they do not anyway but at least the "cost" shown is usually reasonably close (e.g.HL sometimes fluff corporate actions)so if thinking about selling something to say use annual allowance you can usually roughly calculate how many before doing detailed calc with pools.)

[hokkaidobear]

Topic that is very relevant today.

Essentially: Three events need to happen for your investments to be at risk (i) Asset segregation, for example in case of fraud, must fail (ii) Broker Capital be inadequate and (iii) Investor Compensation Scheme must be insufficient.

In the Uk, we have £85k and some of the largest brokers in Europe. IBKR also has a rating agency rating (BBB+/A-)

[GeoffF100]

Topic that is very relevant today.

What has happened today?

[scrumpyjack]

I used to keep my largest holdings in certificated form to avoid broker risk. But there are risks with that (certificate getting lost in the post etc) and it makes dealing more difficult, so in the end I gave that up and just put everything with HL. I think the risks are negligible with a very large broker.

[1nvest]

Indeed, but having shares held by a nominee doesn't in itself guarantee security. One example would be Pacific Continental Securities where, after having gone bust, the administrators just couldn't reconcile what (little) was held by the nominee with either the company's records or those of the clients, and clients got just the FSCS payout and not much more. See viewtopic.php?p=336614#p336614 if you want to follow up on it.

There is no doubt that PCS was a dodgy bucket shop and the lesson, not just from them and as noted by others with painful but less disastrous experiences, is to stick with the big guys. Not that, as I note in the linked-to post above, they won't have cockups, possibly major ones, but there's much more chance of the big guys sorting them out and not turning into a disaster. Always fingers crossed.

Re more than one broker being more admin, well, slightly, but personally I think that's small beer to pay for not having all your eggs in one basket. I currently use two, IWeb and II, and have had it on my to-do list to add a third since II took over ATS, which used to be my third.

Another example would be iDealing, recommended recently on these boards, where the nominee is a separate legal person but owned and controlled by the same persons as the brokerage, at least when I last looked...

GS

And the FSCS may very well not pay out in the event of fraud, when much of assets might also have 'disappeared'.

Better IMO not to consider whether it is a risk or not, but instead action according to if such a single concentration risk factor did come to pass. Much can happen over a 30+ year individual investment horizon.

Seems to me that presently too many brokers and nominees are under the same umbrella.