Okay to split large investment between two multi asset funds?

bowlhead99

DennisTenus wrote: »

Really? Iweb told me it's still only 50k of protection under the provider not the fund manager

You get £50k per fund manager in the case of manager failure and £50k per broker/ platform provider in case of service provider failure. Examples:

1) If the provider (e.g. IWeb) goes bust, that will probably give you a major administrative hassle and some sleepless nights for a while... but if all they were doing was providing you with the service of registering and administering your ownership of an investment in Fund A and Fund B and Fund C and Equity D and Bond E, you may never actually need to rely on the protection that you have against a provider going bust. Because if he does go bust, you are still registered as the owner of Funds A,B,C and Equity D and Bond E. Some other platform provider will come along and take over the remnants of the dead provider's business and you have nothing to claim on the FSCS protection which covers that provider, as you still have your assets. You just have a temporary practical problem in accessing them while your intermediary is titsup.

Whereas, instead:
2) perhaps you engaged the platform provider (e.g. IWeb) to put £100k each into Funds A,B,C and Equity D and Bond E. But actually due to fraud or incompetence by a rogue employee, Fund C never got bought and someone trousered that £100k. Clearly the platform provider owes you £100k. But what if that had happened to hundreds of customers and the provider goes bust before he can pay you the £100k compensation you need? You will have to call the FSCS and claim against the defunct provider that owed you £100k. And you'll find the protection only covers your first £50k of loss there, so you're caught short.

Now instead imagine:
3) again you have had your ISA/SIPP provider put £100k each into Funds A,B,C and Equity D and Bond E. What if the fund manager of both Fund A and B is Blackrock and due to some dodgy dealing and malpractice, both those funds make massive losses and investors only get back 60p in the pound so you only recover £120k from the two funds - losing £40k on each - which is attributable entirely due to the manager issue not just due to poor market sentiment. The financial ombudsman gets involved and recommends that Blackrock compensate you by writing you a cheque for £80k, and Blackrock agree that they will. But then they go bust before it's paid over.

So you have a claim against that FCA regulated investment manager in relation to the compensation due on the two regulated investment products A and B. Unfortunately FSCS only covers first £50k from that manager, not £80k, so you lose out. You still have FSCS £50k protection available for the manager of Fund C which might be Vanguard or HSBC; and £50k protection available against a failure of your platform provider IWeb - but nothing you can claim because IWeb and Vanguard and HSBC are all fine. The irrecoverable losses just come from the Blackrock bits.

Finally, instead of the above happpening:
4) again you have had your ISA/SIPP provider put £100k each into Funds A,B,C and Equity D and Bond E.

The CEO and Finance director of the company issuing share D turn out to be crooks. Meanwhile the company which issued bond E is headed by a board of directors composed of idiots.

Company D collapses and its banks and bondholders take over the control and ownership of the company and you lose your £100k invested. Literally nothing left over for equity holders. Bond E still exists but the company issuing it can't afford to pay any of the promised interest and the bond isn't redeemable until 2038 and nobody in the market wants to buy this bond off you for more than £5k right now, even though you spent £100k to buy it six months earlier.

Total losses of D and E are £195k. But regular equities and bonds are unregulated products and not covered by the sort of £50k FSCS coverage that was available on each of the managers of funds A,B,C . The £50k per manager coverage which was available on A, B, C doesn't kick in because there's nothing wrong with any of them. And the £50k FSCS coverage available on an IWeb failure doesn't kick in because IWeb are alive and well and haven't wronged you. So, the £195k investment loss, which was just a standard risk of the investment market, has no coverage at all.

Does that help?

Audaxer

bowlhead99 wrote: »

1) If the provider (e.g. IWeb) goes bust, that will probably give you a major administrative hassle and some sleepless nights for a while... but if all they were doing was providing you with the service of registering and administering your ownership of an investment in Fund A and Fund B and Fund C and Equity D and Bond E, you may never actually need to rely on the protection that you have against a provider going bust. Because if he does go bust, you are still registered as the owner of Funds A,B,C and Equity D and Bond E.

Sorry if this is a silly question, but as registered owner does this mean that your funds actually held in the platform's ring-fenced nominee company, or would the fund houses, i.e. Vanguard, Blackrock or whoever, have details of you as registered owner of x number of units of particular funds?

DennisTenus

bowlhead99 wrote: »

Does that help?

Yes thanks, so in a nutshell it just depends on the scenario?

So with IWeb and HL am I registered as the owner of Funds A,B,C and Equity D and Bond E that have bought through them?

Audaxer wrote: »

Sorry if this is a silly question, but as registered owner does this mean that your funds actually held in the platform's ring-fenced nominee company, or would the fund houses, i.e. Vanguard, Blackrock or whoever, have details of you as registered owner of x number of units of particular funds?

I'd like to know that too, hopefully someone will answer it not a silly question at all

DennisTenus

So to be 100% safe, if I have 100K in my cash ISA I should actually do something like this...

Open a S&S ISA and transfer 40K to IWeb (leaving 10K for growth)
Open a S&S ISA and transfer 40K to II (leaving 10K for growth)
Open a S&S ISA and transfer 20K to HL (leaving 30K for growth and this years contributions)

For example??

As my cash ISA is all from previous years I can do partial transfers if I'm understanding correctly.

Thanks

DennisTenus

DennisTenus wrote: »

So to be 100% safe, if I have 100K in my cash ISA I should actually do something like this...

Open a S&S ISA and transfer 40K to IWeb (leaving 10K for growth)
Open a S&S ISA and transfer 40K to II (leaving 10K for growth)
Open a S&S ISA and transfer 20K to HL (leaving 30K for growth and this years contributions)

For example??

As my cash ISA is all from previous years I can do partial transfers if I'm understanding correctly.

Thanks

Any thoughts on this or am i worrying unnecessarily?

DennisTenus

ColdIron wrote: »

You're worrying unnecessarily in my view. What would you do if you had to deploy a £400K SIPP?

Exactly what I was thinking.

I don't understand why the protection is so low!

ColdIron

You're worrying unnecessarily in my view. What would you do if you had to deploy a £400K SIPP? You'd end up having to use expensive platforms you wouldn't otherwise go near (apols for the ordering )

Audaxer

ColdIron wrote: »

You're worrying unnecessarily in my view. What would you do if you had to deploy a £400K SIPP? You'd end up having to use expensive platforms you wouldn't otherwise go near (apols for the ordering )

ColdIron, would you and others have no qualms about putting £400k in a SIPP or ISA in one of the well-known online platforms? I don't have as much to invest but I do have concerns about putting much more than £50k in one platform, especially as its all done online. I would like to be convinced that its perfectly safe to do so.

ColdIron

I've recently put my SIPP into drawdown and I have no qualms, I have other pots with much more than the protection limit and haven't worried about them either. There comes a point when the cost of mitigating against small risks becomes disproportionately high in terms of both expense and administration. I doubt I can convince you and you must be comfortable with what you do with your money so while it is practical it may be the right thing for you to do now

bowlhead99

Audaxer wrote: »

ColdIron, would you and others have no qualms about putting £400k in a SIPP or ISA in one of the well-known online platforms? I don't have as much to invest but I do have concerns about putting much more than £50k in one platform, especially as its all done online. I would like to be convinced that its perfectly safe to do so.

I wouldn't have qualms over £400k with one SIPP provider. Maybe if I had £800k to a million I might split it in two. If I have a million of pension assets I don't want to administer it over twenty different customer service departments and logins, nor incur disproportionately large operating costs and platform fees over and above what should be achievable with the level of economies of scale that should be possible with a large pot.

I wouldn't get too worried about "it's all online". I'm sure there are some people who think computers and the internet are all witchcraft and if you use a PC to conduct any kind of purchase or business transaction you might as well be strolling the Wild West with your life savings held out in front of you waiting for some ruffian to relieve you of them...

In reality, all financial businesses whether operating online or offline have systems risks and spend loads of money to mitigate them. But interacting with them online through encrypted data is safer than writing a letter containing your instructions and signing off a paper cheque which displays your bank account details with your usual signature and sticking it in an envelope, hoping it will get all the way to its destination without being lost or pillaged, and that your personal confidential account info sent back to you in paper form won't get intercepted and read by someone who then steals your identity.