Triodos Investments Query (FSCS)

[Deleted User]

Hi all, a slightly niche query but I would like to tap into the knowledge often on show in this forum! 

When investing in Triodos funds via a small SIPP transferred in from an old jobs scheme and some spare savings via a GIA. At the time I assumed the "No FSCS protection" disclaimer was the same as any investment in that the protection of your capital is not protected, whilst residual cash would be.

I have noticed some people emphasise the lack of FSCS protection due to the SICAV funds being Luxembourg denominated and outside of both protection schemes (UK & Dutch), but I think some are overestimating the protections FSCS provides to investments in the first place? (as they are not cash deposits)

BUT from what I have read there does seem to be a distinction where FSCS protection can apply to investments of UK based funds, not for the value but for some instances like fraud, creditors dipping into assets, FOS judgements that cannot be paid for - am I right in thinking that it is this protection I miss out on by investing with Triodos? It would then be a case of considering this risk against their history in the market, AUM of over 5 billion et cetera? On the PRIIPS (x4) Triodos clearly state their Impact Investment Funds are UCITS compliant (would assist with any wind down) and that assets are held separately as per legal requirements so the proceeds could be returned in the event of a wind down. It just states that the value is not guaranteed, which I understand applies generally. Am I right in then saying that I do not have FSCS as if the laws set by another regulator are not followed, the UK scheme is not willing to be on the hook (but the rules are still there all the same)?

I would greatly appreciate my logic being put to the test or any knowledge on this matter. It isn’t massive money involved, but it’s always good to be fully clued up on the risks you are taking and whether they are worthwhile. If my logic is right, I will probably persist.

Please note: I am not looking to discuss the general risks/costs/ethics of the investment (which are easier to fathom!), merely the investor protection.

masonic

For a fund to have FSCS protection (should the fund house go into administration), the fund in question must be UK domiciled. The Tridos funds are offshore funds domiciled in Luxembourg, which is why FSCS protection would not apply to them. To be clear, the funds can invest anywhere in the world, but they must be managed in the UK.

There may still be FSCS protection if your SIPP provider goes into administration, providing that the provider is authorised in the UK. You'd also have FOS / Pension Ombudsman protection for relevant complaints against the SIPP provider.

The situation for cash is that it would be covered in the same way if the SIPP provider goes bust, and additionally, you'd have cover if the bank providing the client money account went bust.

The best way to think about this is that protection under the FSCS is created when a UK authorised firm carries out a relevant regulated service which creates an obligation to you that they are unable to meet (such as the return, sale or transfer of your assets at their current market value).

[Deleted User]

masonic said:

For a fund to have FSCS protection (should the fund house go into administration), the fund in question must be UK domiciled. The Tridos funds are offshore funds domiciled in Luxembourg, which is why FSCS protection would not apply to them. To be clear, the funds can invest anywhere in the world, but they must be managed in the UK.

There may still be FSCS protection if your SIPP provider goes into administration, providing that the provider is authorised in the UK. You'd also have FOS / Pension Ombudsman protection for relevant complaints against the SIPP provider.

The situation for cash is that it would be covered in the same way if the SIPP provider goes bust, and additionally, you'd have cover if the bank providing the client money account went bust.

The best way to think about this is that protection under the FSCS is created when a UK authorised firm carries out a relevant regulated service which creates an obligation to you that they are unable to meet (such as the return, sale or transfer of your assets at their current market value).

Thank you. Yes the SIPP provider is AJ Bell but as I hold Triodos funds I assume I am still open to the risk on their side? But I would be covered for cash and assets if something happened to AJ Bell which had nothing to do with Triodos.

I know with my Triodos GIA the cash is fine as it’s Triodos UK Ltd banking deposit but the investment as you say is not UK domiciled (and it wouldn’t matter that it has UK Bonds in it etc as you say) it is just distributed by Triodos UK

I think broadly my logic is going hand in hand with yours, would you be able to just ratify this statement?

Funds generally do not have their capital value protected by the FSCS, but ones based in the UK (Vanguard Lifestrategy for instance) do advertise FSCS protection on the investment (not the cash!) which I think based on my reading applies to things like: fraud (they never put your money into the assets advertised), maladministration (creditors have had to dip into clients assets to repay costs). So in the vanishingly unlikely event this happened to Vanguard or AJ Bell you would be covered.

I think Triodos will follow similar rules for segregation (it’s stated on the PRIIPS that the fund is UCITS compliant and also that by law all the assets are held with a depository separate to their own assets) the logic being a wind down of the fund would result in a pay out with no value of guarantee. *BUT THE KEY CAVEAT* is as these are not *UK* rules the UK scheme wouldn't kick in to cover you if malpractice did happen.

That said Triodos have 5.7 billion EUR under management so there would have to be a lot of assets missing and high costs for this to be an issue - but if it did impact assets/holdings EU citizens would be protected but UK ones wouldn’t. I think I have it right?

masonic

[Deleted User] said:

masonic said:

For a fund to have FSCS protection (should the fund house go into administration), the fund in question must be UK domiciled. The Tridos funds are offshore funds domiciled in Luxembourg, which is why FSCS protection would not apply to them. To be clear, the funds can invest anywhere in the world, but they must be managed in the UK.

There may still be FSCS protection if your SIPP provider goes into administration, providing that the provider is authorised in the UK. You'd also have FOS / Pension Ombudsman protection for relevant complaints against the SIPP provider.

The situation for cash is that it would be covered in the same way if the SIPP provider goes bust, and additionally, you'd have cover if the bank providing the client money account went bust.

The best way to think about this is that protection under the FSCS is created when a UK authorised firm carries out a relevant regulated service which creates an obligation to you that they are unable to meet (such as the return, sale or transfer of your assets at their current market value).

Thank you. Yes the SIPP provider is AJ Bell but as I hold Triodos funds I assume I am still open to the risk on their side? But I would be covered for cash and assets if something happened to AJ Bell which had nothing to do with Triodos.

I know with my Triodos GIA the cash is fine as it’s Triodos UK Ltd banking deposit but the investment as you say is not UK domiciled (and it wouldn’t matter that it has UK Bonds in it etc as you say) it is just distributed by Triodos UK

I think broadly my logic is going hand in hand with yours, would you be able to just ratify this statement?

You are in a similar situation to someone holding Vanguard ETFs, or using Investment Trusts. The risk is not something that would tend to sway people away from holding exchange traded funds of this type in favour of open ended funds that do have protection. Against the investment risk of the underlying holdings, the added risk is minor. But as you say you are covered if something should happen to AJ Bell. So you have understood correctly.

[Deleted User] said:

Funds generally do not have their capital value protected by the FSCS, but ones based in the UK (Vanguard Lifestrategy for instance) do advertise FSCS protection on the investment (not the cash!) which I think based on my reading applies to things like: fraud (they never put your money into the assets advertised), maladministration (creditors have had to dip into clients assets to repay costs). So in the vanishingly unlikely event this happened to Vanguard or AJ Bell you would be covered.

I think Triodos will follow similar rules for segregation (it’s stated on the PRIIPS that the fund is UCITS compliant and also that by law all the assets are held with a depository separate to their own assets) the logic being a wind down of the fund would result in a pay out with no value of guarantee. *BUT THE KEY CAVEAT* is as these are not *UK* rules the UK scheme wouldn't kick in to cover you if malpractice did happen.

That said Triodos have 5.7 billion EUR under management so there would have to be a lot of assets missing and high costs for this to be an issue - but if it did impact assets/holdings EU citizens would be protected but UK ones wouldn’t. I think I have it right?

I'm not so sure you are correct that you wouldn't have any protection under the Luxembourg protection scheme (CSSF), although the limit is at the minimum level set by the EU of EUR 20,000. I tend to regard non-UK compensation schemes as not to be relied upon, as when it comes to the crunch governments are accountable to their citizens and there's history of a country (Iceland) reneging on its obligations to foreigners in the past when paying out under its scheme meant financial suffering for the country.

When straying from the protections of the FSCS and its own limits (many have investments valued at high multiples of the £85k limit), there is safety in numbers and assets under management, as it would be exceedingly difficult for someone to make off with billions from a large well governed provider.

[Deleted User]

masonic said:

[Deleted User] said:

masonic said:

For a fund to have FSCS protection (should the fund house go into administration), the fund in question must be UK domiciled. The Tridos funds are offshore funds domiciled in Luxembourg, which is why FSCS protection would not apply to them. To be clear, the funds can invest anywhere in the world, but they must be managed in the UK.

There may still be FSCS protection if your SIPP provider goes into administration, providing that the provider is authorised in the UK. You'd also have FOS / Pension Ombudsman protection for relevant complaints against the SIPP provider.

The situation for cash is that it would be covered in the same way if the SIPP provider goes bust, and additionally, you'd have cover if the bank providing the client money account went bust.

The best way to think about this is that protection under the FSCS is created when a UK authorised firm carries out a relevant regulated service which creates an obligation to you that they are unable to meet (such as the return, sale or transfer of your assets at their current market value).

Thank you. Yes the SIPP provider is AJ Bell but as I hold Triodos funds I assume I am still open to the risk on their side? But I would be covered for cash and assets if something happened to AJ Bell which had nothing to do with Triodos.

I know with my Triodos GIA the cash is fine as it’s Triodos UK Ltd banking deposit but the investment as you say is not UK domiciled (and it wouldn’t matter that it has UK Bonds in it etc as you say) it is just distributed by Triodos UK

I think broadly my logic is going hand in hand with yours, would you be able to just ratify this statement?

You are in a similar situation to someone holding Vanguard ETFs, or using Investment Trusts. The risk is not something that would tend to sway people away from holding exchange traded funds of this type in favour of open ended funds that do have protection. Against the investment risk of the underlying holdings, the added risk is minor. But as you say you are covered if something should happen to AJ Bell. So you have understood correctly.

[Deleted User] said:

Funds generally do not have their capital value protected by the FSCS, but ones based in the UK (Vanguard Lifestrategy for instance) do advertise FSCS protection on the investment (not the cash!) which I think based on my reading applies to things like: fraud (they never put your money into the assets advertised), maladministration (creditors have had to dip into clients assets to repay costs). So in the vanishingly unlikely event this happened to Vanguard or AJ Bell you would be covered.

I think Triodos will follow similar rules for segregation (it’s stated on the PRIIPS that the fund is UCITS compliant and also that by law all the assets are held with a depository separate to their own assets) the logic being a wind down of the fund would result in a pay out with no value of guarantee. *BUT THE KEY CAVEAT* is as these are not *UK* rules the UK scheme wouldn't kick in to cover you if malpractice did happen.

That said Triodos have 5.7 billion EUR under management so there would have to be a lot of assets missing and high costs for this to be an issue - but if it did impact assets/holdings EU citizens would be protected but UK ones wouldn’t. I think I have it right?

I'm not so sure you are correct that you wouldn't have any protection under the Luxembourg protection scheme (CSSF), although the limit is at the minimum level set by the EU of EUR 20,000. I tend to regard non-UK compensation schemes as not to be relied upon, as when it comes to the crunch governments are accountable to their citizens and there's history of a country (Iceland) reneging on its obligations to foreigners in the past when paying out under its scheme meant financial suffering for the country.

When straying from the protections of the FSCS and its own limits (many have investments valued at high multiples of the £85k limit), there is safety in numbers and assets under management, as it would be exceedingly difficult for someone to make off with billions from a large well governed provider.

Thank you, your point about Investment Trusts & ETF’s has definitely elucidated things for me and lead me to other posts which have done so as well.

In terms of the Luxembourg protection, the documentation is worded to clearly state there is no UK or Dutch protection, I find it odd they wouldn’t reference that of Luxembourg if it was the case?

Nonetheless, I think the size and history of the funds makes the fact that I am not protected from fraud etc fairly negligible. As with Investment Trusts/ETF’s, it is the underlying investments that take are the priority!

[Deleted User]

masonic said:

[Deleted User] said:

masonic said:

For a fund to have FSCS protection (should the fund house go into administration), the fund in question must be UK domiciled. The Tridos funds are offshore funds domiciled in Luxembourg, which is why FSCS protection would not apply to them. To be clear, the funds can invest anywhere in the world, but they must be managed in the UK.

There may still be FSCS protection if your SIPP provider goes into administration, providing that the provider is authorised in the UK. You'd also have FOS / Pension Ombudsman protection for relevant complaints against the SIPP provider.

The situation for cash is that it would be covered in the same way if the SIPP provider goes bust, and additionally, you'd have cover if the bank providing the client money account went bust.

The best way to think about this is that protection under the FSCS is created when a UK authorised firm carries out a relevant regulated service which creates an obligation to you that they are unable to meet (such as the return, sale or transfer of your assets at their current market value).

Thank you. Yes the SIPP provider is AJ Bell but as I hold Triodos funds I assume I am still open to the risk on their side? But I would be covered for cash and assets if something happened to AJ Bell which had nothing to do with Triodos.

I know with my Triodos GIA the cash is fine as it’s Triodos UK Ltd banking deposit but the investment as you say is not UK domiciled (and it wouldn’t matter that it has UK Bonds in it etc as you say) it is just distributed by Triodos UK

I think broadly my logic is going hand in hand with yours, would you be able to just ratify this statement?

You are in a similar situation to someone holding Vanguard ETFs, or using Investment Trusts. The risk is not something that would tend to sway people away from holding exchange traded funds of this type in favour of open ended funds that do have protection. Against the investment risk of the underlying holdings, the added risk is minor. But as you say you are covered if something should happen to AJ Bell. So you have understood correctly.

[Deleted User] said:

Funds generally do not have their capital value protected by the FSCS, but ones based in the UK (Vanguard Lifestrategy for instance) do advertise FSCS protection on the investment (not the cash!) which I think based on my reading applies to things like: fraud (they never put your money into the assets advertised), maladministration (creditors have had to dip into clients assets to repay costs). So in the vanishingly unlikely event this happened to Vanguard or AJ Bell you would be covered.

I think Triodos will follow similar rules for segregation (it’s stated on the PRIIPS that the fund is UCITS compliant and also that by law all the assets are held with a depository separate to their own assets) the logic being a wind down of the fund would result in a pay out with no value of guarantee. *BUT THE KEY CAVEAT* is as these are not *UK* rules the UK scheme wouldn't kick in to cover you if malpractice did happen.

That said Triodos have 5.7 billion EUR under management so there would have to be a lot of assets missing and high costs for this to be an issue - but if it did impact assets/holdings EU citizens would be protected but UK ones wouldn’t. I think I have it right?

I'm not so sure you are correct that you wouldn't have any protection under the Luxembourg protection scheme (CSSF), although the limit is at the minimum level set by the EU of EUR 20,000. I tend to regard non-UK compensation schemes as not to be relied upon, as when it comes to the crunch governments are accountable to their citizens and there's history of a country (Iceland) reneging on its obligations to foreigners in the past when paying out under its scheme meant financial suffering for the country.

When straying from the protections of the FSCS and its own limits (many have investments valued at high multiples of the £85k limit), there is safety in numbers and assets under management, as it would be exceedingly difficult for someone to make off with billions from a large well governed provider.

I did also find this, not sure it confirms protection under the Luxumbourg “SIIL” scheme or not!

https://edesk.apps.cssf.lu/search-entities/entite/details/6940618?lng=en&q=&st=advanced&entNames=Triodos

Albermarle

Nonetheless, I think the size and history of the funds makes the fact that I am not protected from fraud etc fairly negligible. As with Investment Trusts/ETF’s, it is the underlying investments that take are the priority!

I think this is the key point, and the fact that Triodos are a reputable company, means there are probably a lot more things to worry about than this.

[Deleted User]

Albermarle said:

Nonetheless, I think the size and history of the funds makes the fact that I am not protected from fraud etc fairly negligible. As with Investment Trusts/ETF’s, it is the underlying investments that take are the priority!

I think this is the key point, and the fact that Triodos are a reputable company, means there are probably a lot more things to worry about than this.

Thank you. I suppose having read a few posts quoting the lack of FSCS protection as a reason to sell down, it prompted me to investigate. I think there is a lot of misunderstanding in this area of personal finances. 

Alas, it is good to understand the risks you are taking, even if they are small or pitched against larger ones. 

Thanks again both.

Albermarle

[Deleted User] said:

Albermarle said:

Nonetheless, I think the size and history of the funds makes the fact that I am not protected from fraud etc fairly negligible. As with Investment Trusts/ETF’s, it is the underlying investments that take are the priority!

I think this is the key point, and the fact that Triodos are a reputable company, means there are probably a lot more things to worry about than this.

Thank you. I suppose having read a few posts quoting the lack of FSCS protection as a reason to sell down, it prompted me to investigate. I think there is a lot of misunderstanding in this   all  areas of personal finances. 

Alas, it is good to understand the risks you are taking, even if they are small or pitched against larger ones. 

Thanks again both.

Small correction above.