How safe are ISAs?

Chippy99

I have an ISA with significant sums in it (£100k) and am about to put another £20k in before the deadline. I am wondering how safe such investments are, being well over the £85k compensation limit?

Of course investments can go up or down, I get that. But I had assumed that my money was held in the various funds within my ISA and therefore if the ISA company (HL in my case) went under, my holdings in the various funds would be unaffected. Is this the case?

droopsnoot

I believe you are correct. I think I read on the HL website that the stocks are held by a HL nominee company with you as the beneficial owner, which I believe means that in the event of the HL company going under, they're still "yours".


Has something occurred that makes you question it?

badger09

Chippy99 wrote: »

I have an ISA with significant sums in it (£100k) and am about to put another £20k in before the deadline. I am wondering how safe such investments are, being well over the £85k compensation limit?

Of course investments can go up or down, I get that. But I had assumed that my money was held in the various funds within my ISA and therefore if the ISA company (HL in my case) went under, my holdings in the various funds would be unaffected. Is this the case?

Your money is held separately by the fund managers, not by HL. FSCS protection (£85k from today) applies only in limited circumstances eg losses due to fraud.

Many of us have S&S ISAs and SIPPS well over the protection limit. Some have investments totalling many hundreds of thousands so the prospect of splitting into £85k chunks would be unmanageable. Fortunately, its not necessary

Chippy99

droopsnoot wrote: »

I believe you are correct. I think I read on the HL website that the stocks are held by a HL nominee company with you as the beneficial owner, which I believe means that in the event of the HL company going under, they're still "yours".


Has something occurred that makes you question it?

It was just reading this line on the HL website which was a bit concerning:

"Investment services are required by the regulator to hold capital, so they can cover administration costs if they stop trading. But if the administrator can’t recover fees from company assets, it’s legally allowed to do so from client assets instead."

dunstonh

Chippy99 wrote: »

It was just reading this line on the HL website which was a bit concerning:

"Investment services are required by the regulator to hold capital, so they can cover administration costs if they stop trading. But if the administrator can’t recover fees from company assets, it’s legally allowed to do so from client assets instead."

that is correct. It is another reason to stick to mainstream liquid assets. With those, you are not going to see the administrator take money from the funds. If you use illiquid assets that take years or even decades to liquidate then there is a high possibility of this.

So, this should only concern you if you are using illiquid assets. If you are using liquid assets then it shouldnt concern you.

When you buy your investment funds, do you check for the levels of private equity or undisclosed assets or "other"?

Chippy99

Thanks but I'm not sure I understand?

Unless I am misinterpreting, it would seem to suggest that if HL were to go under and if HL had insufficient capital, then an administrator could recover costs from client (e.g. me) investments.

Why is this not the case if my funds have high levels of liquidity?

MarkBargain

I read on the iWeb website (https://www.iweb-sharedealing.co.uk/about-iweb/financial-services-compensation-scheme.asp) that:

"Your stock and cash are safe as there are two layers of protection; segregation of assets and the Financial Services Compensation Scheme (FSCS). Customer assets are segregated from the firm’s assets and so would be available to be returned to you in the unlikely event that we were to cease trading. In the extremely unlikely event of this segregation failing then you would be able to claim under the FSCS up to a value of £50,000."

So I was thinking it may be a good idea to limit investment in one particular platform to £50k, just in case of any future problems. Do others do that?

masonic

MarkBargain wrote: »

So I was thinking it may be a good idea to limit investment in one particular platform to £50k, just in case of any future problems. Do others do that?

The limit went up to £85k this month, but it should not be cause for concern to exceed it if investing through a major mainstream provider (note iWeb is a trading name of Halifax Sharedealing, so a pretty significant player).

The only scenario in which you'd get compensation from a broker or platform would be if they failed to make your investments and instead stole your cash, or if they went bust without setting aside enough money to cover the cost of administration (all platforms are required to set aside such money). In such cases, your losses are vanishingly unlikely to exceed the compensation limit.

I'm happy to hold up to 3 times the compensation limit with one provider, as the worst case loss I could imagine is 30%.

MarkBargain

masonic wrote: »

The limit went up to £85k this month, but it should not be cause for concern to exceed it if investing through a major mainstream provider (note iWeb is a trading name of Halifax Sharedealing, so a pretty significant player).

The only scenario in which you'd get compensation from a broker or platform would be if they failed to make your investments and instead stole your cash, or if they went bust without setting aside enough money to cover the cost of administration (all platforms are required to set aside such money). In such cases, your losses are vanishingly unlikely to exceed the compensation limit.

I'm happy to hold up to 3 times the compensation limit with one provider, as the worst case loss I could imagine is 30%.

Thank you, it's good to know this has gone up to £85k.