Unit Trust S&S ISA - Risks

nxdmsandkaskdjaqd

I think I know the answer to the question, but just need to check.

When investing in Unit Trust S&S ISA, say in a platform such as Hargreaves Lansdown”, are there any other financial risk associated with the investment (apart from the obvious of stocks going down)?

ie the 50k FSA limit as with banks.

Regards

Robert

Lokolo

The £50k limit is for cash, so it would not be a factor in this.

However, I believe the investments are ringfenced (Dunston....?) so if HL went bust, it wouldn't matter.

dunstonh

You invest in the funds which in turn invest in the assets. You are not investing in the platform provider. Your money is held under a trust style arrangement and ringfenced. So, the platform provider cant do anything with that money. You do get £50k FSCS protection (under investment classification, not deposit) but in reality that is only really any good to cover bad advice or fraud. Provider risk with unit linked investments is almost non existent.

If the platform provider was to fail, then another platform would put in a bid for the clients/holdings as they are effectively an easy income stream. i.e. the platform gets around 0.2-0.3% of the funds under management and HL keep a further 0.25% typical on top of that which an IFA would normall get for providing advice. The administrators for the failed platform would effectively have a bidding war going on to see who picks up that for the best price. The biggest risk to account holders is that the ability to trade may be suspended or made difficult in the event of a failure. That could hold up access to funds if you wanted them.

turbobob

There are specific risks with different types of funds which you should be aware of. For example direct property funds (i.e. bricks and mortar) have risks because the asset is illiquid - a fund manager can't just get rid of a shopping centre at the touch of a button like they can with some FTSE shares! Therefore they might change the pricing basis, or suspend redemptions for a period if lots of investors are trying to pull their money out at the same time in difficult market conditions. Things like shares in emerging and frontier markets have additional risks over those in developed markets. Fund specific risks should be highlighted in the funds key features.