FSCS, Investments and Platform Nominee Accounts

RetiredInThailand

Why bother with nominee accounts when you could be using a broker who offers sponsored Crest membership in your own name?

grizzly1911

I have always viewed nominee accounts as similar to client funds held by solicitors. They are ring fenced for the client away from the trading entity in the "clients name".

As long as fraud isn't being perpetrated then the money/ investment are still associated with you. In the event of the firm collapsing the assets would still be associated with you might be a delay in the logistics of repatriation.

If fraud is perpetrated then a claim against the FSCS would be needed. It may also be required were a firm to fold for financial reasons to help with the logistical costs of repatriation.

As has been said for funds held on platform are registered with the individual fund managers again at arms length to the platform.

So if you have 200K distributed over different holdings the likelihood of loss is no greater than the underlying investment or your selection of the managers investment competence.

TCA

RetiredInThailand wrote: »

Why bother with nominee accounts when you could be using a broker who offers sponsored Crest membership in your own name?

Can you give me an example then please. I've been using the Best Invest platform for over a year mainly because I started buying frequently into multiple Vanguard index funds with relatively small amounts and this was the cheapest option for that purpose. The game plan has changed a bit now.

grizzly1911 wrote: »

I have always viewed nominee accounts as similar to client funds held by solicitors. They are ring fenced for the client away from the trading entity in the "clients name". As long as fraud isn't being perpetrated then the money/ investment are still associated with you. In the event of the firm collapsing the assets would still be associated with you might be a delay in the logistics of repatriation.

Thanks, that's a good analogy. Regarding your last point, my concern was raised given the paragraph below, which talked about the event of shortfall in the accounts of the nominee company or a sub-custodian, which I can only assume refers to fraud if we're saying that such an entity is not allowed to trade? The fact that it says my assets would not be separately identifiable and I may not get back my full entitlement is raising a few questions in my mind.

Is this even the case with my shares or are they just talking about cash here?

"All client assets will be held in omnibus accounts by SEI Global Nominee Ltd. This means that SEI Global Nominee Ltd will pool your assets with the assets of other clients and therefore your individual entitlements may not be identifiable by separate certificates or physical documents of title. In the event of a shortfall in the accounts following a default of SEI Global Nominee Ltd or a sub-custodian, you may not receive your full entitlement and may share any losses pro-rata with other clients."

Linton

RetiredInThailand wrote: »

Why bother with nominee accounts when you could be using a broker who offers sponsored Crest membership in your own name?

What risks of using a nominee account would be avoided by using a Crest account? Surely the risk of fraud by the broker is the same and it is this risk that seems to be identified as the most real.

The problem with crest accounts is that only a few brokers use them. One's concern over the risks must be pretty high if this is considered more important than all the other reasons for choosing one broker over another.

grizzly1911

TCA wrote: »

Thanks, that's a good analogy. Regarding your last point, my concern was raised given the paragraph below, which talked about the event of shortfall in the accounts of the nominee company or a sub-custodian, which I can only assume refers to fraud if we're saying that such an entity is not allowed to trade? The fact that it says my assets would not be separately identifiable and I may not get back my full entitlement is raising a few questions in my mind.

Is this even the case with my shares or are they just talking about cash here?

"All client assets will be held in omnibus accounts by SEI Global Nominee Ltd. This means that SEI Global Nominee Ltd will pool your assets with the assets of other clients and therefore your individual entitlements may not be identifiable by separate certificates or physical documents of title. In the event of a shortfall in the accounts following a default of SEI Global Nominee Ltd or a sub-custodian, you may not receive your full entitlement and may share any losses pro-rata with other clients."

I view this as part of the logistic difficulties of attributing the assets in the event of a failure by the registrar. They wouldn't be able to say your assets had been compromised rather than mine so we would both be hit pro rata.

I am not a lawyer but my interpretation would be that any shortfall you suffered would then be claimable under your broker/platform FSCS cover up to the relevant limits.

mulronie

The £50k FSCS amount is about cash on deposit with the broker, not the assets the broker holds on your behalf in a nominee account.

I can't see that anyone in their right mind would have >£50k just idling in cash with a stockbroker. That's not a winning investment strategy...

grizzly1911

mulronie wrote: »

The £50k FSCS amount is about cash on deposit with the broker, not the assets the broker holds on your behalf in a nominee account.

I can't see that anyone in their right mind would have >£50k just idling in cash with a stockbroker. That's not a winning investment strategy...

It covers more than just cash according to their literature.


"Investments FSCS provides protection if an authorised firm is unable to pay claims against it. For example: •if you suffer losses arising from bad investment advice, negligent investment management or misrepresentation; •when an authorised investment firm goes out of business and cannot return your investments or money owed to you. Investments covered include stocks and shares, unit trusts, futures and options, personal pension plans and other long-term policies such as endowments"

jimjames

mulronie wrote: »

The £50k FSCS amount is about cash on deposit with the broker, not the assets the broker holds on your behalf in a nominee account.

I can't see that anyone in their right mind would have >£50k just idling in cash with a stockbroker. That's not a winning investment strategy...

Very true.

But it would also cover if you are transferring between investments and have cash in your account as a result. Admittedly probably a very rare event but you never know when something untoward may affect the one transaction you are making.

RetiredInThailand

Linton wrote: »

What risks of using a nominee account would be avoided by using a Crest account? Surely the risk of fraud by the broker is the same and it is this risk that seems to be identified as the most real.

I think the main point is that with a Crest membership the shares belong to me outright. With nominees they belong to someone else who holds them on my behalf. Given the choice and with all other things being equal I just prefer the first solution as it is simpler.

Yes, my broker could defraud me anyway but it seems unlikely as it is a subsidiary of a big high street bank.

RetiredInThailand

TCA wrote: »

Can you give me an example then please. I've been using the Best Invest platform for over a year mainly because I started buying frequently into multiple Vanguard index funds with relatively small amounts and this was the cheapest option for that purpose.

Are these ETFs or regular funds? They have very different fee structures. If I was often buying small amounts I would probably go for regular funds as there is no purchase/sale fee for these with my broker (though they do charge 0.3% annually), and then when I had a fair amount invested in them I would sell them and buy similar ETFs instead.

Another thing that is convenient for me is that my trading account is directly linked to my bank account by direct debit/credit, so I never have to think about transferring money from one to the other and all dividends go to my bank account automatically. But this may not be important to you.