How safe is my ISA

jamei305

It might help look at the ownership structure behind the platform. iWeb for example is ultimately owned by Lloyds Banking Group. Interactive Investor is owned by AMP, which in turn is 60% owned by other banks such as HSBC and JP Morgan. You'd think if these platforms struggled these banks would facilitate at least an orderly closure.

The two largest shareholders in Hargreaves Lansdown on the other hand are Peter Hargreaves and Stephen Lansdown. I guess you have to trust them.

dunstonh

Interactive Investor is owned by AMP

AMP have a dismal record in the Northern Hemisphere. They exited the UK after destroying a number of UK insurance companies (Pearl, NPI, London Life amongst others). It was believed that Pearl actually went insolvent for a period during the early 2000s (from a regulatory point of view) despite being one of the richest insurance companies prior to AMP buying them. It was the main reason they closed for new business. AMP asset stripped the UK companies and wasted the money and ended selling what little was left to a run down company (a company that has no plan to reopen the insurer but just run it down until the end).

I wouldnt want to be with a company owned by AMP.

bowlhead99

jamei305 wrote: »

III is owned by AMP, which in turn is 60% owned by other banks such as HSBC and JP Morgan. You'd think if these platforms struggled these banks would facilitate at least an orderly closure.

I don't think that's the case: it is now majority owned by private equity funds run by the investment manager JC Flowers, after JCF's funds bankrolled the takeover of the legacy TD Waterhouse UK platform / brokerage.

Some of the limited partners in the JCF fund structures will be large institutional financial groups but they as limited partners in the investment fund with no control over its operations (it being discretionarily managed by JCF) are not going to get personally involved in 'facilitating an orderly closure' of a portfolio business that the fund has acquired. They will just want to recover value if there is any value remaining.

The two largest shareholders in Hargreaves Lansdown on the other hand are Peter Hargreaves and Stephen Lansdown. I guess you have to trust them.

Not really. You make it sound like Interactive Investor is safe because it's owned by big banks and HL is risky because it's run by two blokes you have to trust. They own less than half the company, which is a public listed company on the stock exchange since they floated it years ago, and are not planning on taking it private again. HL can tap the public markets for funds if they want to raise capital to make big changes (such as improving profitability or reacting to competitive threats).

Audaxer

bowlhead99 wrote: »

An example where you would 'lose' them would be in the case of fraud as alluded to by you/others up the thread - for example, failedplatform ltd had never actually bought those investments for you, and instead just pocketed your subscription monies and written you up a fake contract note saying they subscribed you to a fund but they didn't really... then successorplatform won't be able to give you access to them because the investments don't exist. In that case you had already 'lost' your money but didn't realise it until the old platform went under. As the old platform was no longer around to pay you compensation for their fraudulent behaviour, FSCS would cover your first £50k.

Is there any chance of that happening in a platform like Halifax Share Dealing, AJ Bell or HL?

I like Halifax SD because they have a very cheap platform charge and they are part of the Halifax Banking Group. However their website and customer service don't seem as good as AJ Bell or HL, but hopefully their security is as good.

dunstonh

Is there any chance of that happening in a platform like Halifax Share Dealing, AJ Bell or HL?

It would need an advanced fraud to be going on with virtually the whole staff complicit in it. The increased consumer reporting and regulatory reporting with MiFID II already tightens up what is pretty good monitoring.

The FCA do have a watchlist of companies that they consider too big to fail. Those companies have enhanced compliance requirements & monitoring over the smaller ones.

I like Halifax SD because they have a very cheap platform charge and they are part of the Halifax Banking Group. However their website and customer service don't seem as good as AJ Bell or HL, but hopefully their security is as good.

Its a fluke product. How often is it that any bank gets something right that makes it a good product. However, it was built under Halifax. Not Lloyds. Lloyds have a dismal record on financial products. They are killing Scottish Widows slowly through lack of funding. This is after they killed their own branded range and Clerical Medical (which used to be better than SW). So, I would have reservations about the long term future of it. However, enjoy it whilst its good and make sure there is never any blockers to moving away.

bowlhead99

Audaxer wrote: »

Is there any chance of that happening in a platform like Halifax Share Dealing, AJ Bell or HL?

I like Halifax SD because they have a very cheap platform charge and they are part of the Halifax Banking Group. However their website and customer service don't seem as good as AJ Bell or HL, but hopefully their security is as good.

There is a chance of fraud happening at any platform. One would generally expect the chance to be low. The bigger the platform, the bigger the fraud would have to be, for it to be likely to impact you personally.

For example a fraud is perpetrated on ten accounts. If there are ten thousand accounts or ten million accounts, your chance of being one of the account is 1000x lower in the latter case.

For example the CFO colludes with senior management and the IT department to snaffle half a billion of customer funds and run off to a country without an extradition treaty, it may well prove to be the downfall of the business but if those funds are only one percent of a platform's £50bn assets under administration there is more of a chance of survival than if the funds were 50% of a small platform's £1bn assets being supported.

If the platform only lost 1% of your assets, you could probably afford the loss and if not, be covered by FSCS. However if the platform lost 100% of your assets and 0% of the next 99 customers, you may find yourself out of pocket by a lot more than the FSCS limit. But you won't even be using recourse to the FSCS if the issue is not big enough for the company to go out of business. If you lose your £100k due to their fraud or administrative error and complain about it, the company can just pay you out of its own assets, and FSCS doesn't come into it. FSCS only comes into it if the company is no longer around to pay you out.

So, even if there is a fraud or admin bungle, it depends entirely on how the fraud is perpetrated, whether you'll lose out.

One might think that the 'bargain basement' providers that only make on average £50 a year per customer might have relatively fewer pounds to spend on layers of security, segregation of duty, levels of audit and financial control etc, than the ones that make £200 a year per customer and can afford such 'luxuries'. However, the ones bringing in the extra money might not be spending any more money on fraud prevention - simply be making more profit, or spending the money on things like a call centre where the phone is answered in the UK within three rings and everyone in the call centre is cross trained on most problems, instead of email-only support to a helpdesk in Indonesia.

So, no guarantees. Counterparty risk is part of investing. But using big-name providers who have vast resources *may* be a help if you are putting many eggs in one basket.

Glen_Clark

The frauds I have heard of are where the company was trading on the side, lost money, and dipped into clients funds to hide their losses. Hoping to gamble and win it back again like Maxwell dipping into the pension fund. Once they go into the red they have an incentive to keep gambling because they 'might as well be hung for a sheep as a lamb'. Like Nick Leeson if they are £100 million down they might as well keep gambling because going down owing £100million is as bad for them as going down owing £200 million. So worth risking asnother £100 million to try and win it back.
But if the company is not trading - just a platform and financial services to others, they can't suddenly go hugely into the red, so there isn't that risk.

Audaxer

bowlhead99 wrote: »

So, no guarantees. Counterparty risk is part of investing. But using big-name providers who have vast resources *may* be a help if you are putting many eggs in one basket.

Thank again bowlhead. Although the risk is very small, I am surprised that some investors with very large portfolios are happy to have it all invested through the one platform.

ColdIron

Audaxer wrote: »

I am surprised that some investors with very large portfolios are happy to have it all invested through the one platform.

What is the alternative, managing maybe 10 or more platforms? It's a balance between risk and practicality. There comes a point when the cost of mitigating against small risks becomes disproportionately high in terms of both expense and administration

Linton

Audaxer wrote: »

Thank again bowlhead. Although the risk is very small, I am surprised that some investors with very large portfolios are happy to have it all invested through the one platform.

If you have his and hers ISAs and his and hers SIPPs then using different platforms, at least for some of these, doesnt make any difference to the management effort as yo cant easily transfer money between them anyway. But I see no point in splitting a single portfolio over multiple platforms. The risk of a fraud so large and so widespread within a mainstream regulated platform that it both affects you and bring down the company seems so small that any extra effort to mitigate the risk just isnt justified. Normal day to day living involves far greater risks which one is prepared to accept with no qualms whatsoever.