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Platform risk

Cus
Posts: 711 Forumite

I'm considering moving to DiY from my current wealth manager. It's a low 7 figures amount.
I've been reading on the fscs website about investment protection, and it's confusing. They have a tool to tell you if you are covered but I don't understand it.
It seems that the answer is always 'it depends', and £85,000 is mentioned.
I would likely use a multi asset fund of funds like Lifestrategy 60 or the HSBC one.
From a platform risk perspective, is it safer to put say £500k in Lifestrategy on a non Vanguard platform and £500k in the HSBC fund on a non HSBC platform, rather than £1mn in one of them? Does it matter that those funds each invest in multiple types of funds, like ETF's ? Is it £85k protection per each underlying vanguard fund (they have 15?) or overall? (They have there own funds they use..)
What if the HSBC invests in 15 underlying funds also but these are not HSBC funds (e.g. Scottish mortgage), does that make it better?
Is the platform and fund owner risk so negligible I should ignore it?
I've been reading on the fscs website about investment protection, and it's confusing. They have a tool to tell you if you are covered but I don't understand it.
It seems that the answer is always 'it depends', and £85,000 is mentioned.
I would likely use a multi asset fund of funds like Lifestrategy 60 or the HSBC one.
From a platform risk perspective, is it safer to put say £500k in Lifestrategy on a non Vanguard platform and £500k in the HSBC fund on a non HSBC platform, rather than £1mn in one of them? Does it matter that those funds each invest in multiple types of funds, like ETF's ? Is it £85k protection per each underlying vanguard fund (they have 15?) or overall? (They have there own funds they use..)
What if the HSBC invests in 15 underlying funds also but these are not HSBC funds (e.g. Scottish mortgage), does that make it better?
Is the platform and fund owner risk so negligible I should ignore it?
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Comments
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Cus said:ter?
Is the platform and fund owner risk so negligible I should ignore it?
The FSCS protection for investments is really protection against fraud so unless you seriously believe that someone at Platform-X can get away with a fraud large enough to sink the company then why would it ever need to pay out?
The underlying funds are separate to the platform so unless it is fraudulent then your money should not be at risk.
Having multiple platforms to secure against "aggro" is worthwhile e.g. protracted IT issues stopping you from accessing money.
Similarly at the fund level, using mainstream funds from reputable companies then fraud is what the FSCS are covering, they certainly aren't covering trading losses. Again, I don't see that as a credible risk for the likes of Vanguard or HSBC as you mentioned.
For platforms / funds - minor frauds no doubt could and do happen as they always have and always will where people and money come in to contact with each other but the likes of Vanguard / HSBC etc. will just make things "right" to avoid the bad publicity.
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Cus said:...
Is the platform and fund owner risk so negligible I should ignore it?2 -
Protection rules exist. But both the 100% for occupational trusts / insured funds and the SIPP 85k uninsured funds variant are legally a bit of a confidence exercise.
The powers that be want us to believe in them and have faith in the system.
Laywers (who drafted the terms) will nonetheless make out like bandits once a large sum of liability is looking for a home and delay any crisis resolution in litigation for years. The "untested by fire" solution existing is not a bad thing. But it is as well to recognise there is a house of cards aspect.Are the risks on mainstream platforms with mainstream fund managers and vanilla fund types/tax wrappers significant. Not especially. I would feel quite different about a Vanguard fund vs a small provider and different about physical and synthetic approaches as (some of) the risks to capital loss you are running are quite different.
Most consumers (me included) don't understand every nuance of tax wrappers, jurisdictions, custody, withholding tax, FX treatment, and all the little tricks the professionals use to juice apparent reported returns in reporting periods (to attract money by looking rather than being better). I went on a research journey to try to satisfy myself that I understood enough but retreated ultimately in the face of complexity, ambiguity and obfuscation.
What *you* bother to do about this is up to you.
My answer was to hedge platform and fund manager across two platforms.
And to build out the full asset allocation across them. Using a low range (lack of choice) occupational for part - which was cheap but insured funds (100% protection). And the rest to a SIPP from my shortlist of mainstream providers (with cashback offer running) to get access to more range of funds but accepting uninsured type and (85k) protection (beyond the protection offered by share custody arrangements).
My visible total costs are in the 0.15% range for platform and fund management (this is charges and ignores provider cashback) and obviously doesn't include any of the extra incidental cost categories that don't show up in regulated fund reporting of charges but only show up in embedded in unit price.
Hedging is not a big deal in terms of impact. But it's not "nothing" either.
And it is not especially difficult.
My situation:
Half insured funds to 100% FSCS protection (as discussed above). The rest to £85k SIPP, uninsured.
Use of physical funds and custody arrangements make total loss of these assets very unlikely rather than blocked access for a period (year or so would be feasible) which is more plausible.
I generally avoid synthetic funds as I don't want a counterparty doing something unrelated a la 2007/8 GFC to just disappear and then cause a capital loss on what could have been a "real holding" instead of a promised cashflow between investment banks which has not materialised and now the US government is unconcerned about rescuing overseas investors. This bank is rescued. That bank is made an example of. Which was on the other end of the trade.
Platform IT is hedged to 50% impact of a single incident across two providers which don't currently at least use the same software stacksFund manager organisation hedged for fraud by using several. Not a hard filter but I follow it where cost effective when filling a whole in the asset allocation.
Tax wrapper also hedged to reflect my incomplete understanding of risks related to trading behaviour, legislative and tax impact to 50% I use funds and ETFs
You bother or you don't.1 -
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