Have any SIPP/ISA Platforms Gone Bust - if so what happened

Qyburn

Hi,

I was wondering about safety of funds and investments help in some the various platforms.  As I understand it these are protected only up to the £85K limit, but I'm not sure whether that applies to the account on the platform, or to underlying assets or what.  £85K is high for an ISA but not for a pension which would typically be much higher. I must admit to not being clear why the limit on a "SIPP" should be lower than on a "Pension".

So what do people think are the risks here? Which of the various platforms can be trusted to still be around for the next forty years or more?

Have platforms gone bust in the past, I think I saw this mentioned, and if so the what was the impact on investors?

Cheers, Q

ColdIron

There are 2 levels of FSCS protection with investments

1. If the platform folds
2. If the underlying fund provider folds (Open ended funds only, not shares, ITs or ETFs)

The platform has no access to your investments (unlike deposits in a bank) so in all likelihood someone would buy their client book though it could take a while before you can access them again

The chance of a mainstream platform packing up is very low (HL, II, AJB etc) and your investments are ring fenced so you are really looking at gross fraud

NB no one will underwrite any market losses

Qyburn

Thanks.  So for the sake of argument let's say I have a SIPP on one of these platforms with Vanguard and HSBC OEIC funds as my investments. Let's see if I understand correctly what you're saying in each case ..

(1) Platform folds - I still own those OEIC funds, but may be some administration hassle before I have access to them or to their value?

(2) Vanguard folds - potentially I lose all but the first £85K?

Linton

This has been covered many times in the past....

When you put money into a bank account, the bank owns "your" money, all you own is a promise by the bank to pay it back.  If the bank goes bust it can (or may have to) use "your" money to pay its debts.  Hence the FSCS guarantee to ensure that any rumours about a bank's safety dont lead to a run on the bank leading to it actually going bust.

The situation with normal investments on a mainstream platform is different.  You continue to own the investments, the platform cant sell them and use the money to pay its debts.  In the event of a platform going bust it is likely that some other company would buy the business since the customer base is a very valuable asset.  Under such circumstances you would not lose anything but the risk is that there could be a delay whilst things like the IT or internal procedures are sorted out.

So the risk is very different to that with a bank account and it is difficult to see exactly what circumstances could lead to FSCS involvement.  The only thing I remember people have previously come up with on this forum is massive internal fraud where it turned out that the investments you thought were yours never existed.  However for a large regulated mainstream platform this is inconceivable and would probably take more effort (eg to keep all records consistent) and be less profitable in the long term than running a proper business.

No mainstream platform has gone bust though several have been taken over by other companies with minimal hassle, possibly because they were too small to be commercially viable.

SVS which did go bust, about which there is a lengthy thread on this forum, was not a mainstream platform and I believe specialised in difficult to sell investments which would not be recommended for the average investor. As I understand it, but have not been following the situation in detail, after it went bust it took some time for the liquidators to find someone to take on the customers.  Then the investments took some time and some cost to be sold to return the cash to the investors.  Others can give you more accurate details but I do not believe it is relevent to your concerns. 

To answer your other questions, I would not be surprised if there were fewer platforms in the future and that very few platforms will remain under current management for the next 40 years.  For some years we have seen several smaller ones taken over.  Recently abrdn, a major financial services company, took over a larger platform (Interactive Investors).  However the objective in all cases would be to acquire the customer base so they would have a very strong vested interest in not upsetting customers.

On the size of SIPPs, many people on this forum hold >£85K in both SIPPs and/or S&S ISAs, myself included, with no qualms.  Pension funds are different I believe for historical reasons being fully covered before FSCS existed.  SIPPs generally use normal funds which are covered under the £85K limit.

Linton

Qyburn said:

Thanks.  So for the sake of argument let's say I have a SIPP on one of these platforms with Vanguard and HSBC OEIC funds as my investments. Let's see if I understand correctly what you're saying in each case ..

(1) Platform folds - I still own those OEIC funds, but may be some administration hassle before I have access to them or to their value?

(2) Vanguard folds - potentially I lose all but the first £85K?

1) Yes
2) No - like the platforms, Vanguard do not own the money you invest with them.  They merely have the right to manage it with their own money being held separately.  Again if the Vanguard company went bust other companies would be keen to take on their business.  As with the platforms we have seen large fund management companies take over smaller ones with minimal hassle.

ChesterDog

Qyburn said:  £85K is high for an ISA but not for a pension which would typically be much higher.

Cheers, Q

My/our ISAs are very similar in value to our sipps. £20k input for many years, plus all those years of growth...

ColdIron

Qyburn said:

(2) Vanguard folds - potentially I lose all but the first £85K?

As Linton explains the investments are ringfenced but to expand on the case of gross fraud

If the investment house was trousering your money instead of buying the underlying shares (difficult to conceive with a mainstream player and the scale of collusion required to pull it off) and the fund in question was worth, say, £100 million with 10,000 investors then 10,000 instances of the 85k protection come into play. £850 million would be protected

Albermarle

Vanguard folds - potentially I lose all but the first £85K?

To complete the usual answers, to this regularly asked question.

If Vanguard folded, then it would have to be because of a global economic meltdown, the likes of which had never been seen before. Most likely a global nuclear war, in which case the £85K FCSC cover would not be the first thing on your mind!

Mr_Benn

So , sorry, to ask  maybe the same question in another way.

I have say £50,000 in a SIIP with Hargreaves Lansdowne.

I also have £50,000 in a SIIP with Interactive Investor.

If I transfer all my H&L 50k into ii ,  making £100k in ii, is only the first £85k protected if ii goes bankrupt ?   (Im guess not , else if 'yes', then the logic is to keep the amounts spilt between 2 companies under 85k)

Albermarle

Mr_Benn said:

So , sorry, to ask  maybe the same question in another way.

I have say £50,000 in a SIIP with Hargreaves Lansdowne.

I also have £50,000 in a SIIP with Interactive Investor.

If I transfer all my H&L 50k into ii ,  making £100k in ii, is only the first £85k protected if ii goes bankrupt ?   (Im guess not , else if 'yes', then the logic is to keep the amounts spilt between 2 companies under 85k)

If you read carefully through the thread, the answers are there. Basically your £100K in II is in investments that are ring fenced from the investment platform, so you would still have your 100K of investments.

eskbanker

Mr_Benn said:

So , sorry, to ask  maybe the same question in another way.

You may have rephrased the question but the answers given above (especially that from @Linton ) continue to apply....