What would happen if H&L went into administration today?
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cashbackproblems wrote: »you own units in the underlying fund
Unless, due to poor administrative processes (or outright fraud), it turned out you didn't actually own units in the underlying fund - or didn't own the number of units you though you did and your statements said you did.
There are all sorts of scenarios where you could in theory and practice be left severely out of pocket if you were unlucky enough to be on the receiving end of massive incompetence or fraud.
We use reputable firms and take other sensible steps such as splitting large portfolios across multiple brokers, but ultimately we're relying on hoping we don't end up being unlucky.
There are no guarantees.0 -
cashbackproblems wrote: »you own units in the underlying fund so if HL went bust it wouldnt impact your holdings just the admin around it (obviously if you held cash it would be different and subject to the client money rules).
Not necessarily given the administrator can seemingly use nominee account client funds for their administration fee. Article in FT a couple of days ago saying that for Beaufort Securities they have c29.5k customers with the intention that those with up to £50k will be covered by the compensation scheme but that the c700 customers with amounts in excess of this will be subject to a haircut in that PWC will use these ‘segregated’ assets to fund their fees. A question has this been put down in the House of Lords querying what legal basis there is for administrators to dip into what are supposed to be segregated assets. Will be interesting to see the outcome as it certainly does now make me less confident that I wouldn’t lose anything - even if my assets were segregated (i.e. as opposed to fraud where units were never purchased in the first place) - if one of the brokers where I have in excess of £50k went into administration.0 -
HL is a profitable business model so if for some unexpected reason it failed then several of it's competitors would bid against each other to buy the customer base from the administrators and transfer the assets onto their platform.
As HL is stock market listed then it would have other options to raise capital in advance of going into administration.
Administrators costs might however be deducted from client assets before being transferred to the bidding competitor.0 -
Further to my post above, the question put down in the House if Lords has now been answered:
Q Asked by Lord Lee of TraffordAsked on: 24 April 2018
TreasuryFinancial Services: InsolvencyHL7245
To ask Her Majesty's Government what is the legal basis that allows administrators of failed stockbroking firms to levy charges on clients' assets held by those firms.
A Answered by: Lord Bates Answered on: 08 May 2018
The legal basis for the payment of administrators!!!8217; expenses from client assets is contained within rule 135 of the Investment Bank Special Administration Rules (England and Wales) 2011 (Statutory Instrument 2011/1301).
The Investment Bank Special Administration Rules apply to a broad range of businesses which hold client assets and are authorised to carry on a regulated activity which relates to the dealing, safeguarding or administration of investments as agent or principal, including stockbrokers.
Rule 135 sets out that client assets may be used only to pay the expenses which administrators have properly incurred as a result of the work undertaken to ensure that client assets are returned as quickly as possible. The rule also sets out the order of priority for payment of those expenses.0 -
Further to my post above, the question put down in the House if Lords has now been answered:
Q Asked by Lord Lee of TraffordAsked on: 24 April 2018
TreasuryFinancial Services: InsolvencyHL7245
To ask Her Majesty's Government what is the legal basis that allows administrators of failed stockbroking firms to levy charges on clients' assets held by those firms.
A Answered by: Lord Bates Answered on: 08 May 2018
The legal basis for the payment of administrators!!!8217; expenses from client assets is contained within rule 135 of the Investment Bank Special Administration Rules (England and Wales) 2011 (Statutory Instrument 2011/1301).
The Investment Bank Special Administration Rules apply to a broad range of businesses which hold client assets and are authorised to carry on a regulated activity which relates to the dealing, safeguarding or administration of investments as agent or principal, including stockbrokers.
Rule 135 sets out that client assets may be used only to pay the expenses which administrators have properly incurred as a result of the work undertaken to ensure that client assets are returned as quickly as possible. The rule also sets out the order of priority for payment of those expenses.
So basically they can and they will!
Puts the FCA protection in perspective0 -
stphnstevey wrote: »So basically they can and they will!
Puts the FCA protection in perspective
Yep. For those with large portfolios I guess it’s a question of determining how much in additional fees (and time) you are prepared to pay to negate this risk, e,g. £500k portfolio split across 10 platforms would still be overkill for me personally but everyone has their own level of comfort and risk tolerance.0 -
As already pointed out further back in the thread, it's FSCS that provides financial protection (in the form of guarantees) rather than FCA, but note that it's been confirmed that FSCS will make up the shortfall (capped at £50K) of investors who'd be affected by the fees applied when administering Beaufort, so there's no reason to suspect that it would be any different for other firms (even the fictional H&L!), see https://www.pwc.co.uk/services/business-recovery/administrations/beaufort/beaufort-faqs.html:stphnstevey wrote: »So basically they can and they will!
Puts the FCA protection in perspectiveThe administrators have worked closely with the Financial Services Compensation Scheme (FSCS) and have confirmed that, where eligible clients have client money and assets held with Beaufort Asset Clearing Services Limited (BACSL) with a shortfall of up to a value of £50,000, such clients will have their shortfalls made good by the FSCS.0 -
As already pointed out further back in the thread, it's FSCS that provides financial protection (in the form of guarantees) rather than FCA, but note that it's been confirmed that FSCS will make up the shortfall (capped at £50K) of investors who'd be affected by the fees applied when administering Beaufort, so there's no reason to suspect that it would be any different for other firms (even the fictional H&L!), see https://www.pwc.co.uk/services/business-recovery/administrations/beaufort/beaufort-faqs.html:
This appears to be no more than the normal 50k FSCS compensation, do you interpret this differently?0 -
this is perhaps an argument for using a platform which holds more assets (if your own assets on a platform will exceed £50k).
the cost to distribute £550m of assets is allegedly up to £100m, which comes to 18% of the assets.
so what might it cost to distribute the £86bn assets held by (fictional platform) H&L? surely less than £15bn (which is 18% of the assets on the platform).
if the distribution costs are a lower percentage of the platform assets (even if they're higher in absolute terms), then the losses for clients (with assets over £50k) will be proportionately lower.
there are other factors that might make a difference. a platform which holds dodgier investments may be more complicated/expensive to wind up. it will definitely help if a platform has proper processes, which aren't dependent on specific individuals.
most of these factors lean in the direction of avoiding smaller, spivvier firms. or at least, not putting more than £50k with any 1 such firm.
i think it would be a mistake to regard the number of different platforms you use (and how far each is over £50k) as the overriding factor in how safe your investments are.0 -
No, that was my point, that the protection scheme is working as intended, in response to your comment that the Lords position on legality of costs "Puts the FCA protection in perspective", what did you actually mean by that?stphnstevey wrote: »This appears to be no more than the normal 50k FSCS compensation, do you interpret this differently?0
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