Ask Money: how safe are my investments?
Moira O’Neill at interactive investor helps a reader with a question about his investments.
6th May 2020 17:03
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Moira O’Neill at interactive investor helps a reader with a question about his investments.
The Financial Services Compensation Scheme (FSCS) applies to banks, brokers and fund managers. I use an online investment broker. My account contains cash and investments in trading, Isa and self-invested personal pension (Sipp) accounts, and comprise funds, trusts and ETFs. The FSCS has confirmed to me that my broker is covered by the scheme and my investments are protected to £85,000 if the broker defaults. I understand “investments” covers stocks and shares, unit trusts, futures and options, and “other” long-term investments. But I’ve read in an online article that investment trusts and exchange traded funds (ETFs) are not covered by the FSCS. Who holds my cash and investments?
·Is the cash in my accounts held by the broker or is the cash held in custodian bank accounts?
·Are my fund holdings held by the broker, the fund manager or the fund custodian?
·Does the broker, manager or custodian hold my trust and ETF shares?
I’ve tried to get clear answers to my questions from the broker and the FSCS but without success. I would be very grateful if you could clarify who holds my cash and assets for the purposes of the scheme.Tony Taylor, Formby
Moira O’Neill, head of personal finance at interactive investor, replies: Investment platforms do not mix their clients’ assets or cash with their own. Although all client cash is ultimately deposited into banks, the cash your investment platform holds for you is designated as client money, separated from the firm’s own resources, and deposited into different banks to avoid concentration risk.
In the event that the investment platform defaulted, the client money could not be used to pay the firm’s debts, and would be returned to you, the beneficial client.
With respect to your investments, these too will be segregated from your investment platform’s own assets. For UK assets, the platform will generally effect appropriate registration of legal title in the name of a nominee company which is controlled by the platform. These assets are protected from the firm’s creditors, and will be returned to the underlying clients in the event of the firm’s failure. This applies whether you hold direct shares, funds, investment trusts or ETFs.
Differing legal regimes exist overseas, which means non-UK assets may not be registered in the name of the platform’s nominee company and may therefore be subject to different treatment in the event of the platform’s failure.
If you need help with a tax, pension or financial planning problem, please email: moneyobserver.ed@moneyobserver.com
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This article was originally published in our sister magazine Money Observer, which ceased publication in August 2020.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
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