Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@. Skimlinks & other affiliated links are turned on

Search
  • FIRST POST
    • northbob
    • By northbob 11th Oct 16, 4:05 PM
    • 53Posts
    • 7Thanks
    northbob
    Splitting the risks
    • #1
    • 11th Oct 16, 4:05 PM
    Splitting the risks 11th Oct 16 at 4:05 PM
    I posted another question recently in which I mentioned that I prefer to split my investments between more than one platform, for the same reason as you may split cash between unrelated banks (the per institution compensation limits). The FSCS compensation is only £50,000 so would not help much, but by not having all investments with a single platform at least not everything would be lost.

    I had replies back from knowledgeable members saying that funds on trading platforms are not at risk due to the structures in place and the way client investments are held.

    However I came across this in the T&Cs for a trading platform and the necessity for a clause seems to acknowledge that there is a theoretical risk:

    Our Nominee will act as custodian in accordance with the FCA’s client asset rules.
    Investments will be pooled with investments held for other investors and your investments may not be identified by separate share certificates.
    If our Nominee defaults and for example is not holding enough investments to satisfy its obligations to all its investors the investments will be shared out among them approximately in proportion to their holdings.


    Can it really never happen?
Page 1
    • EdGasket
    • By EdGasket 11th Oct 16, 4:24 PM
    • 3,030 Posts
    • 1,234 Thanks
    EdGasket
    • #2
    • 11th Oct 16, 4:24 PM
    • #2
    • 11th Oct 16, 4:24 PM
    Anything is possible I suppose, just unlikely. It's like saying might the Gov't default on its gilts (some other gov'ts have); might the banks be forced to 'tax' customers accounts as they did in Cyprus. I agree it's a good idea to spread money around. Also keep your own copies of contract notes so you can prove what you own if the worst happens.

    Unfortunately due to costs, it is not so appropriate for Sipps where having all your pension in one place keeps things simple and cheaper. e.g. you wouldn't want to be paying three or more lots of fees for each UFPLS payment from different SIpps.
    • Linton
    • By Linton 11th Oct 16, 5:29 PM
    • 6,957 Posts
    • 6,550 Thanks
    Linton
    • #3
    • 11th Oct 16, 5:29 PM
    • #3
    • 11th Oct 16, 5:29 PM
    I posted another question recently in which I mentioned that I prefer to split my investments between more than one platform, for the same reason as you may split cash between unrelated banks (the per institution compensation limits). The FSCS compensation is only £50,000 so would not help much, but by not having all investments with a single platform at least not everything would be lost.

    I had replies back from knowledgeable members saying that funds on trading platforms are not at risk due to the structures in place and the way client investments are held.

    However I came across this in the T&Cs for a trading platform and the necessity for a clause seems to acknowledge that there is a theoretical risk:

    Our Nominee will act as custodian in accordance with the FCA’s client asset rules.
    Investments will be pooled with investments held for other investors and your investments may not be identified by separate share certificates.
    If our Nominee defaults and for example is not holding enough investments to satisfy its obligations to all its investors the investments will be shared out among them approximately in proportion to their holdings.


    Can it really never happen?
    Originally posted by northbob
    "Really Never" is a very strong criterion. To be pedantic one could say anything that doesnt disobey the laws of physics could happen (and even if it did disobey those laws there could be some doubt). The more useful question is under what circumstances could it happen and are those circumstances worryingly likely compared to all the other risks we face in life. Has a regulated nominee ever been shown to hold insufficient shares? The only circumstances that I can see where it could happen is fraud or gross negligence involving a large number of different people including operational staff, auditors and regulators.

    This is rather different to bank deposit compensation schemes where in the past banks have gone bust and depositors have lost money without any fraud or gross negligence - the rules under which banks operate explicitly allow this to happen.
    • EdGasket
    • By EdGasket 11th Oct 16, 9:32 PM
    • 3,030 Posts
    • 1,234 Thanks
    EdGasket
    • #4
    • 11th Oct 16, 9:32 PM
    • #4
    • 11th Oct 16, 9:32 PM
    The only circumstances that I can see where it could happen is fraud or gross negligence involving a large number of different people including operational staff, auditors and regulators.
    Originally posted by Linton
    You mean like Polly Peck, Enron, Naibu Global, CamKids, China ChainTek and a host of other companies. Not Nominees I grant you but nevertheless fraud involving staff and where auditors, nomads, and regulators were utterly useless. Seemingly quite possible then.
    Last edited by EdGasket; 11-10-2016 at 9:41 PM.
    • grey gym sock
    • By grey gym sock 12th Oct 16, 1:49 AM
    • 3,836 Posts
    • 3,238 Thanks
    grey gym sock
    • #5
    • 12th Oct 16, 1:49 AM
    • #5
    • 12th Oct 16, 1:49 AM
    for a real example of a nominee share account failing, try pacific continental securities: see http://www.smith.williamson.co.uk/news/2304-advice-to-former-clients-of-pacific-continental-securities-uk-limited-pcs-uk-on-how-to-claim-compensation

    i think there is a case for both
    1) sticking to nominee accounts run by companies who are either financially very strong or "too big to fail"; and
    2) if you are over £50k in investments, using several different providers (but not for keeping under £50k per provider, if that would mean using a silly number of providers) - e.g. start by putting ISA and pension with different providers.
    • northbob
    • By northbob 13th Oct 16, 7:10 AM
    • 53 Posts
    • 7 Thanks
    northbob
    • #6
    • 13th Oct 16, 7:10 AM
    • #6
    • 13th Oct 16, 7:10 AM
    Thanks for all the comments.

    "Really Never" is a very strong criterion. To be pedantic one could say anything that doesnt disobey the laws of physics could happen (and even if it did disobey those laws there could be some doubt). The more useful question is under what circumstances could it happen and are those circumstances worryingly likely compared to all the other risks we face in life. Has a regulated nominee ever been shown to hold insufficient shares? The only circumstances that I can see where it could happen is fraud or gross negligence involving a large number of different people including operational staff, auditors and regulators.

    This is rather different to bank deposit compensation schemes where in the past banks have gone bust and depositors have lost money without any fraud or gross negligence - the rules under which banks operate explicitly allow this to happen.
    Originally posted by Linton
    This a a sensible question. But equally sensible, I feel, is the question: if it happened, do the potential consequences justify the cost and effort of reducing the impact? However remote the possibility, all investments on one platform allows for a theoretical total loss of everything over £50,000.

    for a real example of a nominee share account failing, try pacific continental securities: see http://www.smith.williamson.co.uk/news/2304-advice-to-former-clients-of-pacific-continental-securities-uk-limited-pcs-uk-on-how-to-claim-compensation

    i think there is a case for both
    1) sticking to nominee accounts run by companies who are either financially very strong or "too big to fail"; and
    2) if you are over £50k in investments, using several different providers (but not for keeping under £50k per provider, if that would mean using a silly number of providers) - e.g. start by putting ISA and pension with different providers.
    Originally posted by grey gym sock
    I agree, depending on the amounts involved I think it may be worth the relatively small additional cost to split some of the investments types between platforms finding the best value for each.
    • bowlhead99
    • By bowlhead99 13th Oct 16, 7:32 AM
    • 5,146 Posts
    • 9,076 Thanks
    bowlhead99
    • #7
    • 13th Oct 16, 7:32 AM
    • #7
    • 13th Oct 16, 7:32 AM
    I agree, depending on the amounts involved I think it may be worth the relatively small additional cost to split some of the investments types between platforms finding the best value for each.
    Originally posted by northbob
    As you suggest, different platforms are better value for different asset types. For example one platform might be great for ITs and ETFs and individually held shares and bonds, and another great for UTs and Oeic funds.

    The problem is that if your real estate investment trusts in one pot go up and the bond funds in the other pot go down, and you need to rebalance them to preserve your preferred asset mix, you can't rebalance without doing a transfer between platforms; this is a pain, and impossible or impractical when dealing with tax wrappers (presuming most people do their investments in an ISA or SIPP). You also lose the efficiency of having everything in one place for ease of administration, and the potential overall lower charges from being a 'big customer' in a place that has fee caps.

    So, if you are going to split things up it does make sense to think through the practical implications, weighted against the likelihood of, for example, someone at Hargreaves Lansdown embezzling a billion quid of client funds meaning that they go bust with everyone losing a fiftieth of their assets once the liquidators have sorted out the mess.
    • Linton
    • By Linton 13th Oct 16, 8:51 AM
    • 6,957 Posts
    • 6,550 Thanks
    Linton
    • #8
    • 13th Oct 16, 8:51 AM
    • #8
    • 13th Oct 16, 8:51 AM
    You mean like Polly Peck, Enron, Naibu Global, CamKids, China ChainTek and a host of other companies. Not Nominees I grant you but nevertheless fraud involving staff and where auditors, nomads, and regulators were utterly useless. Seemingly quite possible then.
    Originally posted by EdGasket
    I dont think the companies you mention were "regulated" financial companies. Nominee companies arent, generally, real independent companies but rather financially and legally separate non-trading entities within major financial companies. They are unable to build up liabilities. For example the nominee company for H-L is Hargreaves Lansdown Nominees Limited. However I guess you may believe you need to protect yourself against the risk that companies like H-L or Fidelity are actually smoke and mirrors fronts for organised crime and that the customer assets they claim to administer may not really exist. In that case you would be sensible to divide your wealth amongst as many intermediaries as possible. Personally I am more afraid of invasion from the planet Zog, or a Trump victory.
    Last edited by Linton; 13-10-2016 at 8:55 AM.
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

239Posts Today

2,213Users online

Martin's Twitter