Is anyone concerned an ISA provider would ever go bust?
Discussion
This blog post goes quite In depth into this issue
https://www.finumus.com/blog/what-if-my-broker-goe...
https://www.finumus.com/blog/what-if-my-broker-goe...
It seems to me you’re not “invested” in your ISA, SIPP or GIA platform. Your “investments” are in the underlying stocks/funds. Even cash is likely to be at a bank which should mean £85k protection (across all your accounts with that banking group).
If you own £85k of, say, Tesco shares then AFAIK you have no protection from anyone over how Tesco may or may not perform. Makes no difference how you hold those shares.
If you had £100k invested in “the xyz Tesco fund” and fund manager xyz is running a portfolio of Tesco stocks and bonds it’s my understanding you have £85k protection against default by xyz in running the fund. But you still have no protection against the performance of Tesco itself.
However, if xyz go bust that doesn’t mean you only get £85k back and lose £15k. All of the underlying investments in Tesco stocks and bonds should still be safely in the hands of a custodian and their value should eventually make its way back to you.
AFAIK the Woodford collapse was due to bad investment performance and there’s no protection against that. The fuss around HL is about whether HL themselves broke any rules by “recommending” Woodford (which they deny having recommended) and should be liable for any resultant loss.
I don’t claim to fully understand this stuff but that’s my best take on it. Personally I don’t perceive any significant “platform” risk if you’re with one of the major providers. For my own part I’m cautious of the smaller ones.
If you own £85k of, say, Tesco shares then AFAIK you have no protection from anyone over how Tesco may or may not perform. Makes no difference how you hold those shares.
If you had £100k invested in “the xyz Tesco fund” and fund manager xyz is running a portfolio of Tesco stocks and bonds it’s my understanding you have £85k protection against default by xyz in running the fund. But you still have no protection against the performance of Tesco itself.
However, if xyz go bust that doesn’t mean you only get £85k back and lose £15k. All of the underlying investments in Tesco stocks and bonds should still be safely in the hands of a custodian and their value should eventually make its way back to you.
AFAIK the Woodford collapse was due to bad investment performance and there’s no protection against that. The fuss around HL is about whether HL themselves broke any rules by “recommending” Woodford (which they deny having recommended) and should be liable for any resultant loss.
I don’t claim to fully understand this stuff but that’s my best take on it. Personally I don’t perceive any significant “platform” risk if you’re with one of the major providers. For my own part I’m cautious of the smaller ones.
S93 said:
btdk5 said:
The £85k rule is absolute nonsense if you're with one of the big 4 banks anyway.
Care to expand?They hold capital through subsidiaries for not just everyday people but the most powerful business and individuals around the planet.
In the event of the absolute armageddon event that would cause the collapse of one of them I’d be more worried about some rampant hoard bashing by head in for the tins of beans (or toilet paper) in my cupboard than what my current balance was.
Having needed to make a claim on the £85k bank compensation scheme I don't take it lightly.
The vast majority of depositors (those with less then £85k) would get FULLY paid out either by the bank or by the government guarantee. Then the "over £85k" depositors are left to share what's left, IF ANYTHING. And the bigger the bank the more customers it has.
Even if you are fully protected by the government guarantee (at, say, £50k) you will only get your £50k back, not any interest you had hoped to receive. And it may take a long time before you get any access to your money.
I agree there's something to be said for sticking with the big banks and other larger players in the world of financial services. But it's best to be a bit cautious as well, especially if you can get double protection (by simply opening another account with another bank) at zero cost.
The vast majority of depositors (those with less then £85k) would get FULLY paid out either by the bank or by the government guarantee. Then the "over £85k" depositors are left to share what's left, IF ANYTHING. And the bigger the bank the more customers it has.
Even if you are fully protected by the government guarantee (at, say, £50k) you will only get your £50k back, not any interest you had hoped to receive. And it may take a long time before you get any access to your money.
I agree there's something to be said for sticking with the big banks and other larger players in the world of financial services. But it's best to be a bit cautious as well, especially if you can get double protection (by simply opening another account with another bank) at zero cost.
rockin said:
Having needed to make a claim on the £85k bank compensation scheme I don't take it lightly.
The vast majority of depositors (those with less then £85k) would get FULLY paid out either by the bank or by the government guarantee. Then the "over £85k" depositors are left to share what's left, IF ANYTHING. And the bigger the bank the more customers it has.
Even if you are fully protected by the government guarantee (at, say, £50k) you will only get your £50k back, not any interest you had hoped to receive. And it may take a long time before you get any access to your money.
I agree there's something to be said for sticking with the big banks and other larger players in the world of financial services. But it's best to be a bit cautious as well, especially if you can get double protection (by simply opening another account with another bank) at zero cost.
People should absolutely take caution when dealing with some tinpot building society that is currently offering say a 3% return on cash. To pay that rate they must be so desperate for capital that you should be wary. The vast majority of depositors (those with less then £85k) would get FULLY paid out either by the bank or by the government guarantee. Then the "over £85k" depositors are left to share what's left, IF ANYTHING. And the bigger the bank the more customers it has.
Even if you are fully protected by the government guarantee (at, say, £50k) you will only get your £50k back, not any interest you had hoped to receive. And it may take a long time before you get any access to your money.
I agree there's something to be said for sticking with the big banks and other larger players in the world of financial services. But it's best to be a bit cautious as well, especially if you can get double protection (by simply opening another account with another bank) at zero cost.
But for the big 4 not so much. They also all have private banking subsidiaries with clients holding multiple millions which wouldn’t be feasible without the level of security they offer.
btdk5 said:
The too big to fail moniker given to these institutions exist for a reason, especially in a country where we have a sovereign currency and can therefore theoretically bail them out at any sum.
They hold capital through subsidiaries for not just everyday people but the most powerful business and individuals around the planet.
In the event of the absolute armageddon event that would cause the collapse of one of them I’d be more worried about some rampant hoard bashing by head in for the tins of beans (or toilet paper) in my cupboard than what my current balance was.
Of course this is true, but the knock-on liquidity stress is important here. When a large number of retail depositors start demanding their cash, wholesale depositors start withdrawing funds, and margin requirements from external creditors kick in then they are forced to liquidate capital reserves/contingent funding. Things can turn sour pretty quickly after this, and not to mention the knock-on effects this has on other market participants, which in turn can lead to a domino effect.They hold capital through subsidiaries for not just everyday people but the most powerful business and individuals around the planet.
In the event of the absolute armageddon event that would cause the collapse of one of them I’d be more worried about some rampant hoard bashing by head in for the tins of beans (or toilet paper) in my cupboard than what my current balance was.
Yes of course the government could step in and bail them out, but who wants to stick around for days/weeks/months for this to be arranged in order to re-gain access to their own funds?
bmwmike said:
Same question with SIPP which (afaik) are only protected to £85k.
One of the reasons I use Transact as provider for my ISA and SIPP. Listed company so financial disclosure is very good, been in business and profitable for 20 years, has £100mil of cash on its balance sheet and has zero debt. They also automatically split your cash balance across 4 major banks so any cash you have with them is has less risk to the £85k limit. btdk5 said:
S93 said:
btdk5 said:
The £85k rule is absolute nonsense if you're with one of the big 4 banks anyway.
Care to expand?They hold capital through subsidiaries for not just everyday people but the most powerful business and individuals around the planet.
In the event of the absolute armageddon event that would cause the collapse of one of them I’d be more worried about some rampant hoard bashing by head in for the tins of beans (or toilet paper) in my cupboard than what my current balance was.
And also share holders, so FSCS protection of the stocks of said bank would be useless.
Thus, having uninsured money in banks after the changes post financial crisis, or shares in banks post bail in regs, is a bad move if you expect there to be any kind of failures.
Bail-in first, bail-out second.
Bail-in guarantees share holders and excess depositors pay first!
Edited by Mr Whippy on Monday 17th May 15:42
i was an investor with ratesetter and recently they advised they had stopped investing and i had to remove the money from my account which i did asap and had no problems so good for ratesetter but can imagine less respectable ISA providers nit being so diligent with other peoples money!
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