Diversifying large amounts across platforms

tg99

Anyone got any particular views on whether it is worth diversifying your holdings (e.g. SIPP/ISAs/shares & funds etc) across a number of different platforms if they total well in excess of the FSCS £50k limit?

My understanding is that platforms generally will hold your investments in a nominee account that creditors should not be able to access if the platform went bust and thus even if you have above £50k with a platform that goes bust then you won't lose anything. However, in the case of fraud / misappropriation of funds - e.g. where the platform has used your money for other purposes and not actually used it to buy the various investments in a nominee account - then anything you held over £50k you would lose.

(Above assumes not holding any of your account as cash as appreciate this is treated differently.)

kidmugsy

My instinct is to diversify across platforms. People who currently bank with RBS may reasonably feel the same. It's not just fraud and theft you have to fear, it's IT (and other) incompetence.

masonic

I'm more concerned about the incompetence / IT failure types of risks than I am about the fraud / insolvency risks.

However, in the case of fraud / misappropriation of funds - e.g. where the platform has used your money for other purposes and not actually used it to buy the various investments in a nominee account - then anything you held over £50k you would lose.

In most situations, the liability would be spread among many investors on the platform, each of whom would have £50k of cover. So the value of investments missing could be very large and still fall within the £50k per person limit.

tg99

I'm not that worried about short-term IT failures but then again some kind of cyber warfare attack on a particular platform might not be particularly pleasant. And also seen the issues at Plus500 recently.

Masonic - if I'm reading your last comment correctly, you're saying that say 4 investors have £10k and 1 has £100k then in the event of fraud none of these 5 would lose anything as the excess £50k held by the 1 investor would be allocated to the unused protection amounts of the other 4? For info where did you pick up that info from as never seen it myself - is it stated in a particular platform's T&C's, FSCS website etc?

Overall I'm thinking a degree of diversification would be sensible but say for a person holding £500k it's probably not worth holding this across 10 separate platforms given the monitoring hassle, increased costs and relatively remote chance of fraud.

jimjames

I don't think that is what masonic is saying.

I thought they meant that £10million lost across 100,000 customers is still only £100 each.

masonic

tg99 wrote: »

Masonic - if I'm reading your last comment correctly, you're saying that say 4 investors have £10k and 1 has £100k then in the event of fraud none of these 5 would lose anything as the excess £50k held by the 1 investor would be allocated to the unused protection amounts of the other 4? For info where did you pick up that info from as never seen it myself - is it stated in a particular platform's T&C's, FSCS website etc?

As jimjames has clarified, I am just saying the loss is spread amongst the affected parties, presumably in proportion to their investment. The nominee account is collective, so you have a collective set of investments on the platform and a separate register of who owns what. So, taking your example, if 50% of the money invested (in this case £70k if there were no other investors in the fund) was embezzled by an employee, everyone would get a full refund, but if any more than that was taken, the person with £100k would start to lose out. If you are invested in a popular fund, there could be tens of millions invested in that fund by the platform and thousands of investors, so a lot could be taken before individual investors started to reach their limits.

gizmorat

tg99 wrote: »

Anyone got any particular views on whether it is worth diversifying your holdings (e.g. SIPP/ISAs/shares & funds etc) across a number of different platforms if they total well in excess of the FSCS £50k limit?

Yes clearly it's worth it, free insurance against an unlikely but catastrophic risk. What's not to like ?

Shmo

I'm curious how people with million pound portfolios would manage this risk. I can't see having 20+ accounts across different providers being a practical option. Transferring long term holdings into certificated shares is possible but costs time and money and loses the benefits of a nominee account. Apparently some providers offer accounts with personal CREST membership though I don't know if this is absolute protection again real fraud.

redux

Shmo wrote: »

I'm curious how people with million pound portfolios would manage this risk. I can't see having 20+ accounts across different providers being a practical option.

But they wouldn't all fail at once.

If someone spread evenly across 4, they should still be ok up to £800k or across 6 883k.

It wouldn't feel nice, but they ought to survive better than someone with 100k in just one.

masonic

redux wrote: »

If someone spread evenly across 4, they should still be ok up to £800k or across 6 883k.

Just out of interest, how have you calculated your "up to" £800k spread across 4 platforms and £883k spread across 6 platforms?

tg99

gizmorat wrote: »

Yes clearly it's worth it, free insurance against an unlikely but catastrophic risk. What's not to like ?

It's not actually free insurance though because as I diversify over more platforms then the aggregate costs (in terms of platform fees) of holding my investments goes up as it would mean holding less with my accounts where I am already paying a flat annual fee.