Safety of your broker and platform, and the FSCS compensation limits that apply

ztkr

Hello all

I'm currently considering moving my investments away from HL to another provider, and am considering the risks involved in having a significant amount of money held via 1 broker.

As I understand it, if the broker went bust, my investments would be protected from its creditors as they would be held by a nominee company and, after some adminstrative hassle, I would expect to regain control of my investments.

However, if, say, the broker was fraudulent and my investments were lost, am I right in thinking that the protection would extend only as far as the FSCS limit of £50,000?

Secondly, should I apply the same thinking to the platform that the broker is using, and the fund manager if I'm invested in funds?

That being the case, would I be right to conclude that for safety it is wise not to invest more than £50,000 with either:
a) a broker
b) a platform (paying careful attention to which brokers use which platform, if more than one broker is being used to satsify the first condition);
c) a fund manager?

Any thoughts gratefully welcome.

atypical

Two good articles covering this here:
http://monevator.com/investor-compensation-scheme/
http://monevator.com/nominee-accounts/

Linton

I think that as long as you take reasonable precautions you would need to be pretty paranoid to worry too much about fraud by a large regulated broker, fund manager or platform. It would be much easier to operate a kosher service than to accurately mimic all the interactions that happen with buys, sells, corporate actions, dividends etc. And too many people would know what was going on.

A more likely scenario is computer failure leading to a perhaps extended platform downtime. It may make sense to use 2 platforms so you will always have access to some money.

For historic reasons I have much more than £50K with two different ISA platforms running different sorts of portfolios and for the his & hers SIPPs I use another two different platforms. I think it would be a mistake to split other than at natural boundaries as you couldnt easily move money between the different platforms.

ztkr

Atypical - thank you, that's brilliant.

Linton - very good point. I'm not being overly paranoid, but it's certainly worth considering, even if ultimately I conclude that the risk is outweighed by the convenience of having less accounts.

I know that the chance of collapse of a broker/platform/fund manager is an outside one, but none of us were concerned about our bank deposits or the FSCS scheme, until the financial crisis happened. Atypical's link (http://monevator.com/nominee-accounts)highlights the case of MF Global, where the company dipped into customer's funds prior to bankruptcy. Anything can happen!