FSCS Investment protection

salsify

First post, so please be nice.

I’ve read the MSE article on FSCS protection for investments. It’s answered a few questions, but others remain. I’m still not quite sure what exactly is being covered. I know that you are not covered for your investments doing badly – that’s just how things can go. But are you only protected if you have received financial advice from your provider? What about any protection against the broker going bust, or the provider of the investment vehicle going bust, or something else entirely?

Let’s try some hypotheticals:
You have £300k in a Fidelity investment wrapper, made of 100k in an HSBC UK tracker, 100k in an L&G UK Tracker, and 100k in a Fidelity cash account, awaiting investment. You make your own investment decisions, and do not receive any financial advice from Fidelity or elsewhere.

Scenario 1: Fidelity goes bust. Does FSCS protection cover you for £85k of the 100k that you have in your Fidelity cash account? What about the investments in the HSBC & L&G UK Trackers? As the fund providers are still sound, presumably the investments are still OK, but just need another means to administer them?

Scenario 2: HSBC goes bust. The UK economy might otherwise still be doing OK, but what of your HSBC UK Tracker? Does FSCS compensation apply here, and if so, in what way?

Scenario 3: If FSCS protection applies to scenario 2, what happens if both HSBC and L&G simultaneously went bust? Would FSCS protection apply the full £85k to each separate investment, or would the £85k limit be split over all your investments?

Apologies for the longish post, and for if these seem like dumb questions, but I’d be grateful for any clarification.

Salsify

Reaper

You are protected from the company going bust because they have to ringfence all your investments such that you will get them not the creditors if they go under. It is the FCA's job to make sure this happens.

On top of that if the company is fraudulent, saying they will invest the money as you instructed but actually the MD pockets it and emigrates to the Caribbean then the FSCS will cover you for that, up to the limits.

You don't need to have received any financial advice for either of these protections to kick in.

P.S. HSBC going bust in your example doesn't matter. The fund will still exist and the contents will still have the same value.
P.P.S Yes if you are holding a large amount of cash in your investment account that is treated differently to the investments. I think the cover is £85k, but I'm sure somebody will correct me if not.

Albermarle

Yes if you are holding a large amount of cash in your investment account that is treated differently to the investments. I think the cover is £85k,

The cash should be held in the investment platforms associated bank account , which as normal as its own £85k cover separate from the investment platform .

Audaxer

It would concern me if I had much more than £85k of investments all in the one platform, even although investments should be ring-fenced if the platform goes bust. Even if the investments were ring-fenced there could be a delay in getting access to them if the platform went bust. I have been informed on here that it is very unlikely that any of the big mainstream platforms would go bust, but I don't like to have all my eggs in the one basket. The same slight risk applies to having much over £85k in the same fund house.

The main risk of loss would be if there was a major inhouse fraud in a platform or fund house, but I have been advised that even with such an event there is a very small risk that investors would lose all or part of their investments.

Albermarle

It would concern me if I had much more than £85k of investments all in the one platform

There are plenty of people, on this forum and outside, where this is just not practical, due to the size of the pots they have .
Managing multiple pensions, especially in drawdown , is not good.

System

Audaxer wrote: »

It would concern me if I had much more than £85k of investments all in the one platform, even although investments should be ring-fenced if the platform goes bust. Even if the investments were ring-fenced there could be a delay in getting access to them if the platform went bust. I have been informed on here that it is very unlikely that any of the big mainstream platforms would go bust, but I don't like to have all my eggs in the one basket. The same slight risk applies to having much over £85k in the same fund house.

The main risk of loss would be if there was a major inhouse fraud in a platform or fund house, but I have been advised that even with such an event there is a very small risk that investors would lose all or part of their investments.

Think about it! The lifetime allowance (LTA) for pensions is £1,055,000 so when you reach the LTA you would need 13 different platforms for your pension, and it is quite possible to have hundreds of thousands in a S&S ISA so that is several more platforms. Some of us are serious investors, we are not just investing our pocket money! FSCS protection is a red herring.

_pete_

I've spread my investments over two platforms. Each is worth well in excess of £85k but at least I'll have access to money if one of the platforms experiences some kind of fraud/IT meltdown/whatever that takes a while to sort out.

Albermarle

If you are really worried about pension platforms/funds collapsing then the best thing to do would be to avoid SIPPS, and put your money into a PP with insured funds . Then you have 100% unlimited protection .

coyrls

Audaxer wrote: »

It would concern me if I had much more than £85k of investments all in the one platform, even although investments should be ring-fenced if the platform goes bust. Even if the investments were ring-fenced there could be a delay in getting access to them if the platform went bust. I have been informed on here that it is very unlikely that any of the big mainstream platforms would go bust, but I don't like to have all my eggs in the one basket. The same slight risk applies to having much over £85k in the same fund house.

The main risk of loss would be if there was a major inhouse fraud in a platform or fund house, but I have been advised that even with such an event there is a very small risk that investors would lose all or part of their investments.

As others have mentioned, your suggestions just don't scale. I don't understand how you cope with investment risk if you are this paranoid about platform and fund house risks.

masonic

If an investment platform goes bust, with the assets under management ring-fenced, then there could be a delay of a few weeks to a few months in getting access to them. But investment accounts are not suitable for such a short holding period and people living off their investments would normally have a few months living expenses saved in a cash emergency fund. The FSCS would not get involved in such a situation for investments, nor would it if a fund house went bust while keeping assets under management ring-fenced.

Some people worry about the possibility of an investment platform or fund house they use going bust, but spreading your money around multiple such providers (such as would be needed to keep a large investment portfolio under the £85k per institution threshold) will necessarily increase the probability you will experience such an event, which is also compounded by the fact you are forced to seek out providers who are less and less financially sound as you run out of those who are financially stronger.

On the matter of fraud and the cost of an insolvency, it has been discussed several times in other threads that you can be several times over the FSCS limit and still vanishingly unlikely to suffer a loss that would exceed that limit, meaning you could still be very confident you'd be compensated in full.

Audaxer

Economic wrote: »

Think about it! The lifetime allowance (LTA) for pensions is £1,055,000 so when you reach the LTA you would need 13 different platforms for your pension, and it is quite possible to have hundreds of thousands in a S&S ISA so that is several more platforms. Some of us are serious investors, we are not just investing our pocket money! FSCS protection is a red herring.

Obviously, its not practical to have investments spilt between 13 different platforms. I said that it would concern me if I had much more than £85k invested through the one platform. There are some people on here that are happy to have all their investments on the one platform, which is fine, and there are plenty of others on here that have significant sums split between 2 or 3 platforms. For example, a couple with £600k in investments could have £300k each split between 3 platforms, which I think is perfectly manageable - to me that would indicate they are serious investors and not investing just pocket money!!