In Light of SVS, Should I Spread Investments Around Different Brokers / Platforms?

scoot65

Hi, I'm fairly new to investing (approx 18 months).

The current situation with SVS Securities has got me thinking about my own investments.


I have a S+S ISA with iWeb in which I have the majority with HSBC GS (Bal) Acc and a smaller amount with VLS 60 Acc.

I also have a share dealing account with iWeb in which I have the with HSBC GS (Bal) Inc.

In total I'm well over the £85k limit of FSCS protection should anything go badly wrong.

I'm an infrequent trader, in fact only annually, when I put some money into the into the S+S ISA.

With regard to FSCS protection, rather than investing further with iWeb, should I be looking at other brokers / platforms?

Thanks....

masonic

It's still early days re: SVS, but I'm not going to change my behaviour based on what we know so far. The bulk of my investments are with one provider (a little under 3 x FSCS limit) and I plan not to increase this any further. I have another S&S ISA with iWeb that I have been using recently and will continue to use. I don't imagine I'll ever want to introduce a third platform.

By adding more platforms to the mix you are decreasing the likely impact of a failure, while increasing the likelihood you'll experience one.

With small providers, such as SVS, I'd always be wary of breaching the compensation limit, whereas with major banks like Halifax (who run iWeb), both the chances of failure, and the chances of failure that leads to a meaningful loss that isn't capped below the FSCS limit are very much reduced, so adding another, weaker, platform to the mix might do the opposite of what you intend.

SonOf

If you go off the mainstream and with a small relatively niche player, then you are increasing the risks of something like this happening.

If this concerns you then go with a larger mainstream provider.

Alexland

We keep our main investments in the larger and financially stable platforms and fund managers. Although we try and maintain a good spread across accounts I have no material concern going over the FSCS limit with HSD/iWeb, HL, L&G, Aviva, Fidelity, Blackrock, Vanguard or HSBC and we have done with a few of them.

I certainly wouldn't want to go over the FSCS limit with new players (Freetrade, etc) and the SVS situation has probably caused me to avoid reputable but unprofitable companies like Nutmeg and Interactive Investor. Jarvis X-O might be profitable but I wonder if the media or government would care if they failed?

Alex

lozzy1965

Am I correct that the £85K limit should only need to apply to any non-invested cash? Any securities held are effectively in your name, albeit through a nominee provider? So as long as the provider is acting correctly (lawfully?) the investments should be safely in ones name. If the provider is not acting correctly, then the £85K limit may then kick in as some kind of protection. One hopes that a provider such as iWeb, backed by the Halifax, is acting as one would expect.
Do correct me if I am talking rubbish - I'm sure you will

masonic

lozzy1965 wrote: »

Am I correct that the £85K limit should only need to apply to any non-invested cash?

No, it applies to all services performed by an Authorised firm that are covered by the FSCS.

Any securities held are effectively in your name, albeit through a nominee provider?

That's what is supposed to happen.

So as long as the provider is acting correctly (lawfully?) the investments should be safely in ones name.

That's not a reasonable assumption. The provider can be acting completely lawfully, yet investors' assets can be used to pay the administrators' fees when they fail.

If the provider is not acting correctly, then the £85K limit may then kick in as some kind of protection. One hopes that a provider such as iWeb, backed by the Halifax, is acting as one would expect.
Do correct me if I am talking rubbish - I'm sure you will

One hopes that such a provider would not fail in the first place.

Alexland

masonic wrote: »

No, it applies to all services performed by an Authorised firm that are covered by the FSCS.

Did we ever determine if running away with the money was considered a regulated activity?

lozzy1965

masonic wrote: »

That's not a reasonable assumption. The provider can be acting completely lawfully, yet investors' assets can be used to pay the administrators' fees when they fail.

Not sure this statement is true. A quick google found this from the Telegraph from 2015:

"If you hold your investments with a fund shop or broker you are likely to use a nominee account. This ensures that your money is ring-fenced from the broker's own business.

Even if the broker were to collapse, creditors could not access this money.

You say your holdings are all well-known funds. If your broker went bust, you would still be the rightful owner of the units or shares in those underlying funds. Provided the broker had maintained its records properly, you would still be identified as the investor.

But what would happen if one of the fund companies went bust? A similar type of protection applies here, too. The fund firms should ringfence client money so even if they fail, their investors' cash and shares are still securely linked back to their names.

So what exactly does the £50,000 protection apply to?

The Financial Services Compensation Scheme (FSCS) covers investments up to £50,000 per person per institution. It is most likely to be paid where a regulated investment firm goes bust owing investors money as a result of having given bad advice or committing fraud.

Where investors lodge cash in their broker accounts the situation is slightly different.

With cash, the FSCS offers protection of £85,000. For brokers who use a third party, such as a bank, as the deposit taker, this limit applies."

lozzy1965

And as that article was from 2015, here are the latest limits from the FSCS website:

Here is the full list of products to which the new limits apply:

Investment provision is now £85,000 per person per firm, up from £50,000.
Investment intermediation is now £85,000 per person per firm, up from £50,000.
Home finance intermediation is now £85,000 per person per firm, up from £50,000.
Life and pensions intermediation is now £85,000 per person per firm, up from £50,000.
Debt management is now £85,000 per person per firm, up from £50,000.
Long-term care insurance is now 100% of the claim per person per firm, up from £50,000.
Customers of firms that are declared to have failed (in default) before 1 April 2019 will be covered up to the previous £50,000 limits. The new limits apply to claims against firms that fail on or after 1 April 2019.

Thrugelmir

Alexland wrote: »

Jarvis X-O might be profitable but I wonder if the media or government would care if they failed?

On the basis of a direct comparison. Jarvis Investment Managers have a different business model to SVS. Since inception they've grown organically, i.e. reinvested profit rather than borrow.

SVS were due to repay £2.5m for their ORB Bond at the end of June 2019. Whereas their profit for the preceding year to June 2018 amount to only some £288k. Suggesting that they may have been in potential cashflow difficulties for some time. The money spent failing to deliver growth in top line revenues.

For the record the retail arm of Jarvis x-o incurs no marketing spend. As Jarvis's policy is to grow this organically. Secondly x-o has some 4 times the number of retail customers compared to SVS 's 28,000.

Beneath the surface companies are very different. Always worth digging and researching. No guarantees of course as to the future. Though I would expect Jarvis to become a takeover target itself at some point in time.

Malthusian

If you use a small obscure broker then presumably their fees are very competitive (otherwise I'm not sure why most people would use a small broker). If you use a small broker with low fees then the risk of them going bust has to be factored into your plans one way or another.

There were warning signs with both Beaufort and SVS before they collapsed.

With Beaufort there was the FCA restricting their permissions in January 2017, which was followed by the revelation that Beaufort had been investing discretionary clients into toxic unregulated and AIM-listed junk.

This gave plenty of time for clients to get off Beaufort before it went bust in March 2018 unless they were very relaxed about their dodgy broker going bust.

As for SVS, I am intrigued by this minibond some people were invested in. Did SVS promote loan notes in itself to its clients? If so that's highly irregular, and another warning sign.

This is not to say that there will always be warning signs. Financial companies will try to avoid revealing that they are in financial difficulty to the maximum extent possible, because if they reveal that they're in difficulty it becomes a self-fulfilling prophecy as all their clients flee the platform.