Product risk - 200k

MarcoM

Hypothetical question. If one invests 200k in a products such as those offered by Vanguard / Invesco, what is the risk of someone running away with your money / syphoning it elsewhere.
I am aware of the risk that your moiney could be devalued big time in a stock market crash but I am curious to know how risky these investments are to inside fraud, are they better or worse than any bank account?

thanks

Linton

MarcoM wrote: »

Hypothetical question. If one invests 200k in a products such as those offered by Vanguard / Invesco, what is the risk of someone running away with your money / syphoning it elsewhere.
I am aware of the risk that your moiney could be devalued big time in a stock market crash but I am curious to know how risky these investments are to inside fraud, are they better or worse than any bank account?

thanks

Virtually Nil. These are serious major companies with £billions under management. As far as I know it has never happened. If it did happen, it would be by a rogue employee and the company would be responsible for losses.

Perhaps the same as you losing the money in a deposit account with a major bank because of internal fraud.

opinions4u

I'm not aware of any company publishing data on how crooked their staff are.

So you won't get an answer.

A victim of such fraud will get reimbursed though.

grey_gym_sock

while the company would be liable for reimburse you for fraud committed by its employees, there could be a problem is the company itself went bankrupt (e.g. due to employee fraud). the FSCS should then step in to cover losses the company can't, but with a limit of 50k.

i'd agree it's a pretty remote risk. i would be inclined to use several different investment companies/platforms if you have significantly more than 50k invested. but not necessarily to limit yourself to 50k maximum per company.

innovate

Isn't that just £50K on cash held in an investment account? I.e. not £50K of anything that that's invested in funds, shares, gilts etc?

grey_gym_sock

no, there is up to £85K FSCS compensation for deposits, and up to £50K for investments. (obviously, that does not mean when an investment loses money, but when a company is liable for losses.)

http://www.fscs.org.uk/what-we-cover/eligibility-rules/compensation-limits/

innovate

grey_gym_sock wrote: »

no, there is up to £85K FSCS compensation for deposits, and up to £50K for investments. (obviously, that does not mean when an investment loses money, but when a company is liable for losses.)

http://www.fscs.org.uk/what-we-cover/eligibility-rules/compensation-limits/

I was thinking of discount brokers - surely they can only be liable for cash you hold with them?

If they were liable for my funds, how would the compensation value for my funds be determined?

innovate

Ah, ok, found the Q&A for investment compensation. It's very different to what I thought it is, but the fog's lifting! The key appears to be that you must have received advice. Interesting then what happens when the discount broker with whom you have invested in funds on the advice of an IFA goes bust - - presumably you have no claim then? Just the same as when you invested without having got advice.

For an investment claim to be eligible to receive compensation from us, it must meet all of the following criteria:

(a) the advice you received to buy the investment must have been given on or after 28 August 1988; and

(b) the firm that advised you must have been authorised by the appropriate regulator to do so at that time; and

(c) you must have lost money as a result of the advice you were given; and

(d) the firm (or its principals) no longer has sufficient assets to meet claims for compensation.

http://www.fscs.org.uk/what-we-cover/questions-and-answers/qas-about-investments/

jimjames

Thats only for poor advice though.

The likelihood of any rogue employee selling all the shares held in a fund with no checks seems pretty small and would be covered by the company or their insurer so no investor loses out.

pqrdef

Isn't £50K an absurdly low limit?

There are a lot of fingers in these pies - banks, trustees, nominees, administrators etc. And some groups have a lot of fingers in a lot of pies. It's difficult to keep track of just how much any one group might owe you.

princeofpounds

The way the question is phrased it is almost impossible to answer. Reputable, large fund management firms runs products in a whole variety of structures, and they can differ significantly.

But, if you are thinking of plain vanilla regulated mutual funds, the risks are very low.

The assets are normally held by an independent custodian bank, so the asset management company is not normally even holding your money directly.

Semi-independent valuations are normally conducted every day by that custodian and/or fund accountant. Where prices are in the market it's a very transparent process. Sometimes assets might not be trading, so there can be a little uncertainty over the valuation which the fund manager has some discretion over, but it would be immediately obvious if something were 'missing'.

Then there are periodic independent audits.

Where there have been fradulent-like problems in the past with regulated pooled investment funds it has usually been much more to do with what they are invested in than the assets themselves.

Historically the risk has been higher when you invest in accounts that aren't segregated from your agent (eg stockbrokers sometimes eg MF Global, not that was really a retail firm) or have untransparent valuation methods and lower oversight (hedge funds like Madoff).