Security of investments and cash held by nominee companies

peter021072

Do people with significant fund/share assets, distribute them across a large range of share dealing companies in case the banks which hold clients cash in nominee accounts go insolvent?

I mainly use Interactive Investor for share/fund dealing, and the funds are in excess of the financial compensation scheme limit of 85k. The simple question is how secure are private clients assets in such nominee accounts, in a worst, or at least bad case financial scenario?

Does that mean if a client has assets of 255k, and if Interactive Investor distribute these across 3 banks, then one bank goes insolvent, all of the clients money might still be fully covered?  This also assumes they distribute it evenly.

what happens if you invest with another share dealing firm, would this increase the level of compensation if they still use the same banks?

does this mean that (ignoring fluctuations of course) assets are safer invested in equities and bonds rather than as cash, since presumably the money would be invested in these, not held in the banks.

Reaper

When you buy investments they will be ring fenced such that if the broker goes bust their creditors cannot get their hands on it. Inevitably another broker will then buy it off the administrator and you can continue trading once it has all gone through.  The only risk is a corrupt broker who says they bought investments as instructed but actually kept the money and absconded with it. In that case your money is protected by the FSCS up to the limits only.

EDIT: On reading it again I'm slightly puzzled what you are asking. You ask whether your investments are spread across banks. The banks don't come into it for investments, only cash. It would be a bad idea to keep huge sums in cash with your nominee account, not least because they typically pay no interest.

Albermarle

Are you  asking what happens , if you hold large amounts of cash within an investment platform , SIPP etc ?
If so then the platform will have the cash deposited with a bank or banks ( They do not all split it up exactly the same way)
If one of these banks went bust you are covered personally by the usual £85K FSCS compensation for banks ( in a way the platform is not directly involved) One point though if you happen to also have savings separately in this bank the total cover is still only £85K .

peter021072

Let me try again.

Some people, rightly or wrongly, do sell shares and revert to cash in times of crisis. These will be the same times banks come under pressure as in 2007/8. For what it's worth I profited by selling and buying back at a lower price at that time.

How brokers distribute monies within banks might become important during these periods.  If they distribute it across ten banks an individual could be covered for £850,000.  If they use only a few, and those are where you have other savings and investments (directly or through a nominee) the cover could be a tenth of that. 

Whether to sell during a crisis is really a different question than what I asked, although this issue could be a factor in deciding that.

AlanP_2

Do people with significant fund/share assets, distribute them across a large range of share dealing companies in case the banks which hold clients cash in nominee accounts go insolvent?

Not a problem I have, or am likely to have but given the limited number of mainstream banks I would have thought that after say 2 or 3 platforms (selected on banks used and not investments offered / price / quality of support etc. possibly) the banks would start duplicating anyway.

Reaper

peter021072 said:

If they distribute it across ten banks an individual could be covered for £850,000.  If they use only a few, and those are where you have other savings and investments (directly or through a nominee) the cover could be a tenth of that. 

There is no rule that says a broker must use a single bank or split it across multiple, so you will have to check with your broker what their policy is. 

For example Hargreaves Landsdown say they use a "panel of institutions" but I would not automatically assume that means they split your money between them. They may well allocate your money to a single bank from their panel. You would have to ask.

maxsteam

The £85k FSCS limit only applies to cash. If you hold 1000 BP shares and your broker goes bust, you will still own 1000 BP shares. It will take time and there will be an interruption in your ability to trade but you should still end up with your 1000 BP shares, plus any dividend. It may become necessary to put in a claim with an administrator so it's always sensible to keep a record of investments that is separate to the dealing platform.
It's worth mentioning that the FSCS only applies to the UK. Other countries have other schemes. "Offshore" investments will not be covered by the FSCS. IMHO it's more worthwhile spending the time choosing good brokers than worrying about what will happen if they go bust. I certainly would not consider signing up with another broker just for the sake of the FSCS limit.

maxsteam

... if you want to read first-hand accounts of what happens when an investment firm goes into administration, there is currently a thread near the top of this board for SVS Securities. Around the end of November SVS went into administration and some investors have posted that their shares were transferred about two months later.

Eco_Miser

maxsteam said:

... if you want to read first-hand accounts of what happens when an investment firm goes into administration, there is currently a thread near the top of this board for SVS Securities. Around the end of November SVS went into administration and some investors have posted that their shares were transferred about two months later.

Have you actually read that thread?

SVS stopped trading in August 2019 and the first trickle of reports that shares were with a broker where they could be traded came in November 2020.  That's 16 month later. This was after the bulk transfer to an incompetent platform then further individual transfers to competent platform.

Some people are still waiting.

Linton

Eco_Miser said:

maxsteam said:

... if you want to read first-hand accounts of what happens when an investment firm goes into administration, there is currently a thread near the top of this board for SVS Securities. Around the end of November SVS went into administration and some investors have posted that their shares were transferred about two months later.

Have you actually read that thread?

SVS stopped trading in August 2019 and the first trickle of reports that shares were with a broker where they could be traded came in November 2020.  That's 16 month later. This was after the bulk transfer to an incompetent platform then further individual transfers to competent platform.

Some people are still waiting.

Yes but I never saw SVS as a mainstream platform and I understand it was frequently used for non-mainstream investments. So whether it is a good example of what may happen for most investors could be open to doubt.

Eco_Miser

Linton said:

Eco_Miser said:

maxsteam said:

... if you want to read first-hand accounts of what happens when an investment firm goes into administration, there is currently a thread near the top of this board for SVS Securities. Around the end of November SVS went into administration and some investors have posted that their shares were transferred about two months later.

Have you actually read that thread?

SVS stopped trading in August 2019 and the first trickle of reports that shares were with a broker where they could be traded came in November 2020.  That's 16 month later. This was after the bulk transfer to an incompetent platform then further individual transfers to competent platform.

Some people are still waiting.

Yes but I never saw SVS as a mainstream platform and I understand it was frequently used for non-mainstream investments. So whether it is a good example of what may happen for most investors could be open to doubt.

True. I was just refuting the claim that the shares were transferred after just two months.