How safe is safe (ISA & SIPP)

solidpro

Ok. Another naive query coming y'alls way.

I saw some news about Yotta "bank" (not a bank), which (in layman's summary) is/was a fintech 'go between' offering depositors a sweepstake. They would 'guarantee' depositors money was FDIC insured by 3 times the usual amount by supposedly putting client's money with 3 different actual banks. See this video about it here. The problem is, they didn't keep records of where everyone's money is, so when things went wrong, some people got all their money back and others got virtually nothing.

Anyway, this post is not about Yotta. It's about data integrity & trust. I am often told that my money invested in funds like VLS100 above £85k in the UK is safe with places like iWeb, HL, T212 & Vanguard because even if the company went under, I would still fundamentally own the shares/bonds/cash/real estate/whatever within the fund, and after some careful administration would get everything back.

However this all assumes that A) the company actually did put my money directly into those funds and in turn whatever those funds contain, isn't robbing peter to pay paul and simply showing me on a portal what could be happening if my money was invested the way I am told, and is maintaining a very good log of where everyone's money is, which could be used by administrators to get me my money out after they've gone under.

So. Is it foolish to think that anything over £85k, in a fund with iWeb, Vangaurd, HL or T212 is actually safe?

tacpot12

No, it's not foolish. There are regulatory rules and oversight from the FCA on how the platforms account for client moneycoming in and out of them. Their record keeping and IT processes around backups and disaster recovery are all reviewed, tested and rehearsed in case they need to recover from incidents such as cyber attacks, loss of a datacentre, etc.  

Your ownership of the funds in not only recorded by platform provider, but also by the share nominees/funds themselves.

Linton

solidpro said:

Ok. Another naive query coming y'alls way.

I saw some news about Yotta "bank" (not a bank), which (in layman's summary) is/was a fintech 'go between' offering depositors a sweepstake. They would 'guarantee' depositors money was FDIC insured by 3 times the usual amount by supposedly putting client's money with 3 different actual banks. See this video about it here. The problem is, they didn't keep records of where everyone's money is, so when things went wrong, some people got all their money back and others got virtually nothing.

Anyway, this post is not about Yotta. It's about data integrity & trust. I am often told that my money invested in funds like VLS100 above £85k in the UK is safe with places like iWeb, HL, T212 & Vanguard because even if the company went under, I would still fundamentally own the shares/bonds/cash/real estate/whatever within the fund, and after some careful administration would get everything back.

However this all assumes that A) the company actually did put my money directly into those funds and in turn whatever those funds contain, isn't robbing peter to pay paul and simply showing me on a portal what could be happening if my money was invested the way I am told, and is maintaining a very good log of where everyone's money is, which could be used by administrators to get me my money out after they've gone under.

So. Is it foolish to think that anything over £85k, in a fund with iWeb, Vangaurd, HL or T212 is actually safe?

In my view believing that there is a serious risk that HL, HSBC etc were really criminal fronts is paranoia. Good as a movie plot but very little link to reality.

1) Mainstream banks, platforms and funds allowed to trade in the UK are highly regulated.
2) A significant number of their employees would know what was happening.
3) Being able to keep up the front without anyone noticing would be very difficult eg transfers out, paying the right dividends on time, large purchases and sales of shares being known by the markets, dealings with HMRC.  Much easier to make the profits from the real world.

 The chances of someone who you want to invest with really being a front for the mafia are in my view about as likely as The Matrix being a documentary.

masonic

This is why it pays to be a little discerning in your choice of platform and fund. Obscure providers and those of low reputation are going to be of greater risk.

We have seen this play out in a few non-mainstream providers that have gone bust, where people have come close to needing more FSCS compensation than was available. Is is far easier to "lose" a significant proportion of an asset if you are small and/or hardly any of your customers hold it.

It is also far more likely that disposal of an asset will realise a loss if it is obscure and/or illiquid (and this would not be covered by compensation).

Albermarle

As above, seems unbelievable that HL, Aviva etc would be involved in anything like this. Some poor admin procedures, IT issues are always a possibility but as far as I am aware things like that always get corrected.

If it was a small start up, I suppose it could be a possibility that something goes wrong, and that is where the £85 K would kick in.

dunstonh

However this all assumes that A) the company actually did put my money directly into those funds and in turn whatever those funds contain, isn't robbing peter to pay paul and simply showing me on a portal what could be happening if my money was invested the way I am told, and  is maintaining a very good log of where everyone's money is, which could be used by administrators to get me my money out after they've gone under.

Correct.  Fraud is the main area of concern with investing.   This is why you consider the financial strength and standing of your platform.    

So. Is it foolish to think that anything over £85k, in a fund with iWeb, Vangaurd, HL or T212 is actually safe?

None of those would meet my criteria but for differing reasons.     However, in terms of financial strength and stability, two of them would (one would be eliminated for being restricted and the other for being too expensive).

I have to be more careful than you though.

poseidon1

tacpot12 said:

No, it's not foolish. There are regulatory rules and oversight from the FCA on how the platforms account for client moneycoming in and out of them. Their record keeping and IT processes around backups and disaster recovery are all reviewed, tested and rehearsed in case they need to recover from incidents such as cyber attacks, loss of a datacentre, etc.  

Your ownership of the funds in not only recorded by platform provider, but also by the share nominees/funds themselves.

I am fairly comfortable with the checks and balances operated between the platforms and the third party custodians to safeguard our funds.

As for the FCA applying rigour in monitoring and ruthlessly identifying failings perpetrated by those they regulate, not so much. 

The case outcome of the supposedly FCA regulated LCF ( see below ) suggests the FCA were asleep at the wheel for awhile.

https://www.cityam.com/london-capital-finance-was-a-ponzi-scheme-rules-judge/

Supposedly 'tighter regulation' has emerged from this fiasco, however one would have assumed the regs should have been sufficiently robust from the outset.

eskbanker

solidpro said:

I am often told that my money invested in funds like VLS100 above £85k in the UK is safe with places like iWeb, HL, T212 & Vanguard because even if the company went under, I would still fundamentally own the shares/bonds/cash/real estate/whatever within the fund, and after some careful administration would get everything back.

However this all assumes that A) the company actually did put my money directly into those funds and in turn whatever those funds contain, isn't robbing peter to pay paul and simply showing me on a portal what could be happening if my money was invested the way I am told, and is maintaining a very good log of where everyone's money is, which could be used by administrators to get me my money out after they've gone under.

So. Is it foolish to think that anything over £85k, in a fund with iWeb, Vangaurd, HL or T212 is actually safe?

You're often told that it's safe, but you want to be told even more often?

jimjames

poseidon1 said:

tacpot12 said:

No, it's not foolish. There are regulatory rules and oversight from the FCA on how the platforms account for client moneycoming in and out of them. Their record keeping and IT processes around backups and disaster recovery are all reviewed, tested and rehearsed in case they need to recover from incidents such as cyber attacks, loss of a datacentre, etc.  

Your ownership of the funds in not only recorded by platform provider, but also by the share nominees/funds themselves.

The case outcome of the supposedly FCA regulated LCF ( see below ) suggests the FCA were asleep at the wheel for awhile.

https://www.cityam.com/london-capital-finance-was-a-ponzi-scheme-rules-judge/

The problem wasn't so much that LCF was technically FCA regulated but that the FCA viewed it as outside their regulation because none of it's business was regulated. Many MSE posters reported it and were told that FCA weren't interested. Customers wouldn't see that distinction and to my mind any investment offered in the UK to consumers should be regulated or at least monitored by the FCA to avoid harm to investors.

solidpro

eskbanker said:

You're often told that it's safe, but you want to be told even more often?

As in the OP, I've heard the assurances before that your money is safe above £85k for reasons given, but I've never heard anyone say except when regulations fail, the data is lost or poorly kept, or the company you've put it with isn't strong enough to be given a pass....

Alexland

Personally I treat investments above £85k with platforms or fund managers as potentially not safe despite the rules about segregating client assets into nominee accounts etc as even low probability events sometimes happen.

Although I don't go to the extreme in limiting myself to £85k per platform or fund manager as that would be impractical I do try and spread my investments around a bit such as having multiple pensions, ISAs and a LISA all with different platforms invested with different fund mangers so as to reduce my exposure (but sadly increasing the probability) of if something were to happen - basically to flatten the impact however unlikely. And of course to stick to big high quality providers for anything that exceeds the FSCS protection. While at the same time as trying to keep my costs ultra low particularly on the larger accounts.

I guess this is some kind of hobby for me so it's nice to have access to experience various platforms.