FSCS Protection on Investments

lindabea

You often read advise on MSE not to keep more than 85K in banks, but would the same apply to the limit kept in investments using platforms such as H&L, CS, IWEB etc. Is it such a high risk if you invest more than 85K (I think the protection limit is increasing from 50K to 85K in April 19) I believe that the money invested is kept by the underlying banks and not the platform, so what scenario would need to happen for an investor to lose the money above the protection limit?

Linton

Platforms and fund managers are covered up to £50K. But it is rather difficult to identify circumstances where the protection may apply.


If you deposit into a bank, the bank owns the money and can use it to pay its debts. So if the bank went bust you could, without FSCS protection, lose the lot. Platforms and fund managers are different, they do not own your deposits which are ring fenced and cannot not be used to pay any debts. Therefore a platform or fund manager going bust is not in general a risk to your wealth although there could be some delay in sorting everything out. In practice some other company would probably take over the failed platform/fund manager's business and the service would carry on.


This has been dicussed many times in previous threaeds. The only sistuation where FSCS protecrtion has been identified as relevent is serious fraud or negligence of a level that bankrupts the company. However if you only deal with mainstream regulated platforms and investments the chance of this happening is probably very small - in my view it is at the same level as being struck by lightning or knocked over in a traffic accident. One doesnt take foolish risks but it doesnt affect your normal life.

lindabea

Thank you Linton for your reply. I asked the question because next month I'll be adding more funds in my S&S ISA and this will push me above the 50K, although as I stated earlier, I think the FSCS limit is increasing to 85K. From your reply, I take it that the risk is minimal and perhaps not as critical as exceeding the limit in a bank account.

Malthusian

Correct. The money in your S&S ISA is ringfenced, unlike money in your deposit account. And unless your provider is running an elaborate and simultaneously very stupid fraud, the money won't be with your provider, it will be invested in whatever companies / investments you have chosen, again unlike a deposit account.

dunstonh

With a bank, you are giving your money to the bank. So, it is totally tied up in the health of the bank.

With investments, you are not giving the platform the money. They are acting as adminstrator. Your money buys units in a fund and that fund has underlying assets (the shares, bonds or property for example). your money is ringfenced and the fund house or the platform cannot borrow against it or use it against liabilities.

If you were to go off the mainstream into niche areas then FSCS protection may be more important to you.

Albermarle

If you were to go off the mainstream into niche areas then FSCS protection may be more important to you.

Although if you go completely off the mainstream ( like P2P lending for example ) then there is no FSCS protection anyway .

webjaved

I wouldn't recommend P2P lending at all. You always want some sort of protection on your money.

Albermarle

As a small part of a wider financial portfolio , unprotected investments have their place for some people , although best to avoid buying car parking spaces etc
Although P2P is not protected , it is subject to scrutiny and these fintech type disrupter products are not going to go away anytime soon.

AnotherJoe

I think theres more protection in having say two platforms for admin reasons than actual loss.
Loss would be very unlikely.
What wouldnt be unlikely is many months of your funds being tied up whilst the administrators sort out the mess of a failed platform.

Alexland

While I generally support Linton's view I still prefer to have our ISAs, LISAs and Pensions spread across multiple platforms and fund managers. In the case of pensions we have 2 each for a bit more protection. We are still over the limit on some accounts.

However there are clearly cost benefits to holding large amounts on fixed fee platforms (eg II and HSD/iWeb) and capped low-fee platforms (eg Fidelity, HL and AJ Bell if you hold exchange tradable assets). It's annoying that AJ Bell administer the HSD/iWeb SIPP.

You need to consider the risk against the potential benefit of having too many eggs in too few baskets.

Alex