Should I hold more than £50,000 in investments with one firm?

tomleafs

My Stocks and Shares ISA account is currently getting close to the £50,000 threshold that is covered by the UK Financial Services Compensation Scheme. The scheme covers £50,000 per person per firm for investments.

I'm currently thinking about whether I should set up a new ISA with a different company in April so that new money will also be covered by the scheme in the event of a disaster.

Does anyone have any insight into whether it is worth splitting up investments between different companies or is the risk of losing stocks minimal?

Thanks very much!

dunstonh

Depends on how you invest your ISAs.

Do you invest direct with fund house? or on a platform?, or using directly held assets? or structured products? etc

FSCS protection varies with different assets and how you hold them. It is not as valuable a protection with many investment products (such as unit linked funds on a platform) but it can be with other products

tomleafs

The Stocks and Shares ISA currently nearing the limit is held with Halifax (iWeb) and is composed of individual stocks (PLCs).

Linton

With a bank account the £85000 protects you against losing your money if the bank goes bust. With shares/funds you are not at risk if the platform company goes bust as the investments are held completely separately from the platform's money. With funds, similarly, the funds assets are not owned by the fund manager. So it is difficult to see where the £50K compensation would come in.

I and many other people are perfectly happy to hold a lot more money than £50K on individual platforms.

tomleafs

Thanks both for the replies. I hoped that would be the case Linton as I'd prefer to manage everything from one account. Good luck with your investments -

TCA

I asked a similar question a few months back as it was something that bothered me as well. Especially seeing as the reason I was caught out in 2008 was precisely because I did split everything up (to the wrong places). With all the recent pricing changes for platforms I was tempted to use two of them but now leaning towards everything with IWeb. If I can ever get my account open. Here's the earlier thread:

https://forums.moneysavingexpert.com/discussion/4833031

Glen_Clark

The risk is that your fund platform could theoretically be another Bernard Madoff who simply trousers your money and spends it on high living, instead of actually buying the shares. But the way he operated was very different to popular fund platforms - everything very secretive, done with a nod and a wink, perhaps a suggestion clients were benefiting from insider trading which encouraged them to keep quiet.
But you have to trust the system or you would keep everything under the mattress - a much more risky idea. I have well over £50k in X-O. Nevertheless, I wouldn't be comfortable with everything in one basket however good a basket it is, because if the platform did get into difficulties (not necessarily fraud or bankruptcy) it might take a while to get your money out when you needed it. Look at those who had all their money in Nat West when the computer crashed.

Ifts

Write up about this over on the Monevator blog:

http://monevator.com/investor-compensation-scheme/

TCA

Ifts wrote: »

Write up about this over on the Monevator blog:

http://monevator.com/investor-compensation-scheme/

Thanks for the link.

"Your £50,000 UK compensation limit doesn’t interfere with the £85,000 you can claim for lost cash deposits. If a bank fails while holding your cash on behalf of your broker, then you can claim £85,000 back while still claiming £50,000 elsewhere for missing investments.

However, if your broker money was stashed with a single institution, say Lloyds, and you also had a personal account with those self-same black horsie people then you could only claim up to £85,000 for the two losses combined. That’s because the limits apply per person, per institution, per claim category (i.e. cash is one category and investments another)."

I have cash with Birmingham Midshires and am in the process of opening a S&S ISA with iWeb. Both owned by Lloyd's. I presumed I'd be covered up to £85k for cash savings (per institution, i.e. Lloyd's) and also £50k for investments. Reading the way the above is phrased I'm not so sure now. Can anyone enlighten me?

Edited to say Birmingham Midshires is covered by the Bank of Scotland authorisation and iWeb is covered by the Halifax Share Dealing Limited authorisation. These look completely separate.

Freecall

I would have thought that the bigger risk with holding everything in one place would be the likelihood of IT failure.

This could be a huge inconvenience at the very least and lead to some serious add-on problems if it lasted for any length of time.

The problems at RBS only lasted a view hours but that is a giant company, some of the smaller operators might not recover so quickly.

grizzly1911

The investment risk is yours with your holdings either in your name that of nominees (separate to the broker).

The FSCS compensation would only cover issues with your broker when/ should they fail. For issues such as fraud, misrepresentation, maladministration, consequential loss arising from the same.

I have more than the limit with my platform.