stocks and shares NISA query

Malti

Hi

The FSCS only guarantees savings up to £50,000.

I have a stocks and shares investment of about £80k. Would I be better off splitting these between 2 providers, and then starting again with a third provider when the total valuation hits £100,000 in 2-3 years? Am I just being paranoid or is this a good idea?

I'm currently looking at iweb and interactive investor as I am currently with Close Brothers and their rates are 0.23% meaning an annual charge of over £200.

I'd be interested in what other users here think.

gkerr4

its not quite the same thing - i don't think FSCS protects your stocks and shares investments - it simply protects you if the institution goes under - but in the case of S&S you own assets that the institution simply looks after on your behalf. You'd still own the stocks. And of course, if the stocks themselves go bust, well this is just one of the risks of investments.

jimjames

If all your money is in a single fund then it may be worth considering.

If it is in different funds then you already have a level of protection.

Think about what risk you are trying to mitigate.
If the price of the investments drops you're not covered.
If the platform goes bust you won't lose money.
If the fund manager goes bust you won't lose money.
If the manager commits fraud on a huge scale then you may be covered but the investment group may cover losses anyway.

In short the protection is of limited use and not many scenarios would need it unlike cash in the bank.

MrTotoro

This sounds a bit overcautious to me, and as others are saying the £50k coverage is only if the institution goes bust, it doesn't prevent you making a bad investment.

The best way to mitigate against this would be to select an established broker, or one that is backed by a major bank.

Also for the value hits £100k in 2-3 years, I assume this is from your contributions, you would have to make some good investment choices to achieve that from yield alone!!

James

colsten

MrTotoro wrote: »

The best way to mitigate against this would be to select an established broker, or one that is backed by a major bank.

Choosing a good broker/platform provider is a good move but it is not a guarantee against choosing bad investments. As to major banks - apart from Halifax, none them figures in the shortlist of the least costly brokers, and they certainly don't provide any more safety than most others.

bowlhead99

MrTotoro wrote: »

This sounds a bit overcautious to me, and as others are saying the £50k coverage is only if the institution goes bust, it doesn't prevent you making a bad investment.

True - no FSCS pays for bad decisions. Beyond the protection for uninvested cash - which presumably will not be significant because you're mostly fully invested - the protection is more for fraud or counterparty risk. Either at the underlying fund level (if you're using funds) or the broker/platform

The best way to mitigate against this would be to select an established broker, or one that is backed by a major bank.

As the broker is really only acting as a nominee and should (if following FCA rules) have ringfenced your assets separate to his own - he should not really need a huge balance sheet of his own.

We all know that the major banks get fined all the time by the PRA or FCA for rigging this or that or treating customers unfairly or having inadequate procedures for this or that or the other. So, a big bank brand name does not really get you safety. As colsten mentioned, what it does often get you, is expense...

However I would agree it's good to have a healthy dose of skepticism around new operators in the market if it is your life savings we're talking about. Such caution is natural - but it does also explain why some platforms can get away with charging platform fees of almost half a percent a year on £100-£200k while newer an more innovative brands charge half that or in some cases very much less. The charges are set at what the provider thinks the market will bear, for his brand - and some of the major names are happy to keep a "reassuringly expensive" price point!

Looking beyond the platform or broker - if you're holding funds rather than direct shares or bonds - the fund manager also presents a risk (of fraud or negligence/incompetence). While again the funds' assets should be ring fenced from the managers' own businesses, something could theoretically go wrong. If you have a £100k portfolio and it's diversified, you are unlikely to have over £50k in one individual fund that gets trashed by a fraudulent manager. Gets harder as you have more assets but if caution is your watchword you can still handle that with large portfolios, you just need to devote more time to it perhaps than others who were less concerned.

Also for the value hits £100k in 2-3 years, I assume this is from your contributions, you would have to make some good investment choices to achieve that from yield alone!!

If you're on 80k, that's only 7.7% p.a. compound return to get to 100k in three years, even with zero new contributions. Maybe ambitious from today, given stock markets have had a very good run for the last half decade, but it's hardly a million miles away from historic long term equity returns.

Certainly, if you were concerned about hitting £100k because something bad was going to happen at that point, you'd have to acknowledge the possibility that it wouldn't be outrageously unexpected to be there in 3 years - especially if you are putting new money in here or there.