What would happen if H&L went into administration today?
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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?
That the FSCS protection is no more than £50k, beyond this it appears ring fencing of funds has no real consequence, the administrator can legally dip into these to pay their costs0 -
stphnstevey wrote: »That the FSCS protection is no more than £50k, beyond this it appears ring fencing of funds has no real consequence, the administrator can legally dip into these to pay their costs
Yes. If something goes wrong with your investment due to the failure of a regulated firm, the FSCS is only going to make you whole for the first £50k of losses that you suffered as a result .
The situation being described is that the broker/platform went under and had to spend a lot of money on administrators/consultants to come in and identify and safeguard the assets they were holding and transfer them to the customers or some successor after a massive reconcilation job.
Now the firm to whom you'd entrusted your assets is dead, you want to get your hands on the assets, and your choice is basically to not have your assets at all, or have the administrators sort through the rubble so that the good assets are in a position to be transferred out to the customers or some other intermediary. No other intermediary is going to have the ability or appetite to swoop in and take over your assets without that job being performed. There is no practical option of you going in and sorting through the rubble yourself, so you have to take the cost on the chin, or not be able to extricate your assets from the situation in which those assets find themselves.
Fortunately, the FSCS makes good the first £50k of losses that resulted from the regulated intermediary /platform /broker firm going under. If your share is of the costs of fixing the problem and getting back your assets is more than £50k, you'll have some unrecovered losses.
There are grumblings that the administrators/liquidators are allowed to touch the client assets. But the firm you contracted with that should pay them, went under, and they are not going to take on the work if they can't put themselves ahead of other creditors in the pecking order and use whatever assets they find to finance their cleanup operation. To decide you don't want them to come in at all, and just have thousands of customers turn up at the doorstep to look through the rubble themselves, is not workable. So, collectively customers have to accept it and take the cost and then chase FSCS to make them whole.
As we know: there are risks to investing...
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I think the core of the matter is the credibility of the FCA's client asset ring-fencing.
The fact that the FSCS might cover any losses (up to £50k, and assuming you are eligible), while offering at least some comfort, isn't really the point.
As our assets are not as "ring-fenced" as we might have believed, and as there is no way to estimate the level of any potential future loss, where does that leave us now?
I suppose the only way round this would be to limit your assets in any one company, to £50k, and rely on the FSCS to cover you in the case of total loss. I suppose it's similar to what people do with bank deposits .....hardly comforting though!
I wonder what would have happened if those same clients had owned the same assets, but with just 20% of the money in them, so the portfolio would only have been valued at £100M (rather than £500M). Given that it's the same number of clients and assets, and therefore the same amount of work to re-unite those assets with those clients, would they have been looking at total loss? (save for the potential £50k FSCS lifeline).
Food for thought?0 -
BTW....
From https://www.fca.org.uk/consumers/claim-compensation-firm-failsCompensation is only paid to cover financial loss, so for investment claims the compensation paid will try to return you to the financial position you would have been if you did not invest.
So you may not, in fact, even have your "losses" covered.....as well as differing interpretations the phrase "ring-fenced", it would seem that there are also different interpretations of what "losses" actually means......:)0 -
When you say 10 platforms does that mean like Aviva, Standard Life, Royal London etc or if you have £500k in Standard Life and split it into different funds like Old Mutual, Baillie Gifford etc would you be covered for £50k for each fund?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 -
I think the core of the matter is the credibility of the FCA's client asset ring-fencing.
The fact that the FSCS might cover any losses (up to £50k, and assuming you are eligible), while offering at least some comfort, isn't really the point.
As our assets are not as "ring-fenced" as we might have believed, and as there is no way to estimate the level of any potential future loss, where does that leave us now?
I suppose the only way round this would be to limit your assets in any one company, to £50k, and rely on the FSCS to cover you in the case of total loss. I suppose it's similar to what people do with bank deposits .....hardly comforting though!
I wonder what would have happened if those same clients had owned the same assets, but with just 20% of the money in them, so the portfolio would only have been valued at £100M (rather than £500M). Given that it's the same number of clients and assets, and therefore the same amount of work to re-unite those assets with those clients, would they have been looking at total loss? (save for the potential £50k FSCS lifeline).
Food for thought?
i think you're looking at it the wrong way.
let's suppose there could be a fixed cost of £100m to distribute the assets from any failed platform.
in which case, how about only using platforms that hold at lot more assets than beaufort - say, at least £10bn.
then the costs of distributing assets would be no more than 1% of the value of the assets.
so if you have no more than £5m on the platform, your share of the costs would be no more than £50k, which you could claim back from the FSCS.
and even without FSCS, a 1% loss is not that big a deal, in the context of investing in volatile things like equities.
as i said earlier in the thread, i think there's a case for sticking to bigger platforms for safety. splitting your investments across (e.g.) 10 platforms could be less safe, if you had to include some small operators because you couldn't find 10 big ones (that fitted your other criteria for a platform that meets your needs).0 -
BTW....
From https://www.fca.org.uk/consumers/claim-compensation-firm-failsCompensation is only paid to cover financial loss, so for investment claims the compensation paid will try to return you to the financial position you would have been if you did not invest.
So you may not, in fact, even have your "losses" covered.....as well as differing interpretations the phrase "ring-fenced", it would seem that there are also different interpretations of what "losses" actually means......:)
i'm not sure what the quoted sentence means. yes, on one reading, it could be a bit worrying. but it may be a bit over-simplified for this document. i think we'd need to see a fuller explanation of what compensation is supposed to cover to clarify this. rather than trying to interpret this single sentence.0 -
When you say 10 platforms does that mean like Aviva, Standard Life, Royal London etc or if you have £500k in Standard Life and split it into different funds like Old Mutual, Baillie Gifford etc would you be covered for £50k for each fund?
Sorry I meant different stockbrokers such as HL, iWeb, II, AJ Bell etc as opposed to the underlying platform they use. If you buy say 10 different funds like an Old Mutual Fund, a BG fund etc with one broker like HL then the £50k compensation scheme does not cover you for each one if HL went into administration as it is HL who hold the units in their nominee company hence if you held £50k in each of 10 such funds you essentially have £500k exposure to HL of which a loss up to £50k would be covered. (Although as alluded to in the posts above it is not entirely clear how such a loss might be calculated under the scheme.)0 -
grey_gym_sock wrote: »
as i said earlier in the thread, i think there's a case for sticking to bigger platforms for safety. splitting your investments across (e.g.) 10 platforms could be less safe, if you had to include some small operators because you couldn't find 10 big ones (that fitted your other criteria for a platform that meets your needs).
Yes there is logic in that. Say you find 10 credible platforms for your million quid, but you believe some statistic that says one of those ten despite their high calibre will die in the next decade or so. You can just put your million with one of them and hope you don't suffer a greater than 5% loss from platform failure - pretty unlikely and it's most likely that there won't be any loss at all, it'll be one of the other nine that goes down. Alternatively you put your money across all of them, guaranteeing you will get a loss and a big hassle from the administration and extrication process - and cross your fingers it's not a 50% loss which exceeds fscs compensation.
Personally I don't want to dilute service quality and convenience with the kicker that I'll now definitely suffer a platform collapse. So I stick with one or two. But, I'm a gambler by nature.0 -
grey_gym_sock wrote: »i think you're looking at it the wrong way.
let's suppose there could be a fixed cost of £100m to distribute the assets from any failed platform.
But there isn't any fixed cost....which is the point!
The way things actually are is that the administrator will quote a figure to re-register the assets with alternative brokers, and that amount will be deducted from the supposedly ring-fenced client assets.
From where we are now, we have no idea if that figure will amount to 1% or 50% or whatever %.
The FSCS might protect you up to £50k, but over that, it would appear it's just tough!!!grey_gym_sock wrote: »in which case, how about only using platforms that hold at lot more assets than beaufort - say, at least £10bn.
then the costs of distributing assets would be no more than 1% of the value of the assets.
so if you have no more than £5m on the platform, your share of the costs would be no more than £50k, which you could claim back from the FSCS.
and even without FSCS, a 1% loss is not that big a deal, in the context of investing in volatile things like equities.
I suppose most of us could probably accept 1%....but it's a fictitious figure as currently there is no fixed limit.
As the administrator is only supposed to be able to charge fees for the amount of work which is necessary, then it's not unreasonable to assume that a firm with 10x the assets under management would require 10x the work to "sort out" those assets in the event of insolvency.grey_gym_sock wrote: »as i said earlier in the thread, i think there's a case for sticking to bigger platforms for safety. splitting your investments across (e.g.) 10 platforms could be less safe, if you had to include some small operators because you couldn't find 10 big ones (that fitted your other criteria for a platform that meets your needs).
I disagree. In terms of financial safety, if you applied the same logic to bank deposits you'd simply select one of the bigger banks and stick your whole £500k (example) in there.
Some might do that, but most will limit their exposure in each bank (or group of banks) to £85000, the limit of the FSCS protection.
(That does raise the question though, that if a bank did fail, would the administrator be allowed to dip into the ring-fenced deposits for the fees involved in reuniting those deposits with the owners?:shocked:....but that's another debate...:) )
Fair enough, investments often require more work from the investor than deposits need from the depositor, so the thought of using say 10 platforms or more is not very appealing to say the least, and that's notwithstanding the level of fees it could involve.....
At the end of the day though, it's about balancing the risk. There doesn't seem to be a whole load of regulated investment firms going bump (due, partly at least I suspect, to the FCA rules governing such firms).
Hopefully, for most of us, this will be a moot point in the end, as we will not experience such a failure - it's just that it leaves that nagging doubt of what if??....0
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