Danger of SIPP & S&S ISA both with Vanguard LStrategy?

jimjames

Seems like you've thought it through well so good luck with your investments!

Perelandra

There's an additional risk if Vanguard were found to be doing dodgy stuff, and your investments exceeded £50k across both platforms- so diversification between fund managers can have value in itself as well...

... but then Vanguard are probably going to be a pretty safe bet. You would think!

jamesd

As Perlandra wrote you do have the cap on FSCS protection to consider. The investments will be protected anyway to a substantial extend by rules that mandate trust-type relationships rather than mingling the money with vanguard's own money. However, companies, including major name companies, have sometimes failed to do that properly and you would also potentially be exposed to fraud risk from Vanguard employees or their banks or related investment houses.

To give you some idea of what can happen, the NEST pension scheme had one of its bank payment instructions modified to pay into a different account and it took many months before anyone noticed, leading to a £1.4 million fraud loss. The total value of all pension money it had at the time was only £6 million and they managed to lose almost a quarter of that value, though it wasn't the pension money lost, it was their own that they will presumably be recovering from charges to pension holders.

Another case, that vanguard would probably not be affected by, is the investment houses that used the Bernard Madoff firm as an investment. Since that was a pyramid scheme the investors who used those outer investments suffered a financial loss without necessarily even knowing they were invested with his firm.

DoctorW

Jamesd/Perelandra - this is why I came to MSE, haha.

Had not even considered it would be subject to those same risks as bank accounts (pretty bad oversight on my part really) with the 85k limit. Will be a fair few years before I have to worry about going past that in the fund but definitely something to keep in mind.

I know Vanguard itself is a pretty respected name but as you said, I'm sure people trusted Madoff/Enron etc etc. implicitly at the time too eh!

jamesd

Also worth noting that the investment limit is only £50,000. Though if the money is in a deposit account, as used by some pension schemes or ISAs sometimes, it'd be the £85,000 including any money of your own at whatever place they use. Normal cash awaiting investment would be more likely to be covered by the £50,000 limit as "client money". But either way it has to be in segregated funds in a trust arrangement so it's not mixed with company money so there's a lot of protection.

DoctorW

OK assuming that someone puts the full protected amount of £50k into a fund on day 1 and it grows over the next 10 years - I'm assuming only £50k is protected, irrespective of how large it grows?

I'm just trying to think ahead now, if someone is putting the full £15k ISA allowance into a fund and planning on leaving it there to grow into a sum (hopefully) a fair bit over the protected limit over 20 years, are they better off starting off with multiple, segregated funds from the beginning?...assuming that's a very inefficient way as you'd be paying multiple costs for different, smaller funds from day 1. What would be the best way of working it, wait until you hit the £50k limit and then splitting it into 2....then when it hits 2x the limit into 3 etc? working out the lowest platform costs as you go along, whether it be flat fee or %age?

...It's been a long day and my heard hurts, haha

bowlhead99

DoctorW wrote:

I'm just trying to think ahead now, if someone is putting the full £15k ISA allowance into a fund and planning on leaving it there to grow into a sum (hopefully) a fair bit over the protected limit over 20 years, are they better off starting off with multiple, segregated funds from the beginning?...assuming that's a very inefficient way as you'd be paying multiple costs for different, smaller funds from day 1.

Often platform fees and management fees are priced as a percentage of the fund's value. So actually it costs you no more to invest £1k x 10 funds than £10k x 1 fund, if there are no transaction fees for buys or sells. This would depend on the fee structure of the provider you used. But if you were well under the compensation limits I wouldn't try to use multiple different funds because they will all perform differently. Just buy the fund you want.

Although in many cases it's entirely suitable to have a portfolio of different funds making up your overall investment, there is no point deciding on VLS as your optimum fund to buy and then restricting that to an arbitrary couple of thousand and then picking your "next favourite" fund for the next couple of thousand. That would be like letting the tail wag the dog.

Glen_Clark

DoctorW wrote: »

...It's been a long day and my heard hurts, haha

I know what you mean. The more you find out, the more there is to worry about. Nothing is 100% safe. But you still have to trust the system.
Madoff seems to have operated almost as a one man band with a nod and a wink, suggesting clients were getting something exclusive with the benefit of insider trading so needed to keep their mouths shut - a classic con mans trick. Wheras the groups you mention are much more open, involving far more people and regulated plc's. So at least it would be far harder to hide any fraud.