What Happens If My Investment Platform Goes Bust?
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- Опубліковано 9 лют 2024
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A question I'm asked all the time is "What happens to my money if my broker/investment platform goes bust?" So in this video, we look at how to gauge the risk of loss and compare it with other risks, but also how regulators reduce this risk and how compensation schemes could help further. And we look at what nominee accounts are and how they work. Finally, we give one example where a fairly large UK broker did fail and the consequences of that failure.
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Thanks
@pensioncraft Would you have a referral code for InvestEngine by any chance?
Hi Ramin, great video as always. Personal experience with the platform you mentioned going bust. I had well over the FSCS compensation limit invested with the company at the time. My funds were eventually returned minus a haircut (I think it was 10%) to cover the liquidation fees. That 10% was reimbursed by the FSCS compensation scheme, therefore I was made good on the full amount held with the firm. I thought you may be interested to hear of a real world experience. The protection system works!
Which company?
Good to know thanks
Is the guidance therefore to not have more than £850,000 on a single platform so your 10% is covered by the £85,000 protection?
An average of 0.20% total fees seems impossible to me, even using Vanguard.
Have you tired the passive accumulation funds ?
@@TO-st4jn That's just one element: there's plaform charges, advice charges.... I'm currently untangling a 2.4% fee structure....
Super video thanks. Could you do another one on what would happen if an ETF provider went bust?
Yes, I’m interested in that too!
Political Risk eg Pension Lifetime Allowance being relaxed by one politician and subsequently restricted once again by another politician or the impact of Brexit on the economy/financial services etc
Let’s be frank. The future is murky. We could all be living in some dystopian vegan 🥑 dictatorship by the time we retire. Let’s be optimistic nonetheless.
FTX ... enough said about unregulated platforms
Invest engine charge zero platform fees..I moved over from Fidelity and have been very happy do far
Another great video. Fee risk isn’t something I really considered before. Most of my pensions are 1% annual fee. I saw a Global equity pension option recently for 0.4% so am probably going to switch to that.
Could you a review about eToro as an investment platform ?
Thanks for making this video, I’m often stressing about platform risk so will use more than one and stick with the larger ones 🙏
Everyone should have a percentage of physical Gold in their possession for insurance..
@@oneeleven9832
Buffett disagrees.
Somewhat comforting
Would you spread your assets across more than one platform to mitigate platform risk? I was going to consolidate on a single platform but I got cold feet.
Thankyou.
You're welcome @rajshu6408
I accept your point about fee risk but as you enter retirement an easy to use platform moves up the things to consider. This always seems to be more expensive ☹️
Consider Trading 212, and Invest Engine.
I don't know. I have three platforms (considering consolidating). Ii is cheap and works well enough for me, fidelity does look nicer but I don't think it really does more. May be wrong though!
I believe the investment platform is just the access to the investments, so it should not hold anything other than your cash.
When you use, or invest through, the platform , eg Interactive investor, your mony is used to buy a fund, ETF, Investment trust, and its them that have your money, so even if the platform went bust, your investment is still secure with who ever you invested with.
I believe this is how it was explained to me many years ago.
Yes, but all Interactive Investor's clients who hold that fund are all mixed up together in that ONE nominee account for that particular fund. That's the (minor) problem. Assuming the nominee account doesn't get raided, the potential problem is then doling out units to every customer who has a small part of that pie, and even if the record-keeping is OK and the task very simple, any of the Big Four auditors is going to charge eye-wateringly immense sums to do that sorting out.
That's very similar to how it was explained to me years ago. "You own the underlying asset" was my main takeaway. Hope we are both right 🙂
Sorry if im sounding stupid, but if i bought 10 shares of Fundsmith, Apple , Lindsel Train etc, through a platform Like Hargreaves lansdsown or Interactive, surely i must own all the 10 shares in each of the investments.
If the platform were to close, or collapse, then i should still own all the shares.
So where is the platform risk, and why does the platform have or use a nominee account, other than holding cash, or for a temporary transit account, for a purchase or sell, when shares are bought and sold.
Or am i reading this wrong, in that the platform only credits you the shares, and they keep all the "nominee account" cash with themselves. @@mikerodent3164
What if investment (etf, index fund etc.) itself goes bust? - whatever that could actually mean.
@@pistopit7142 Some index funds consist of thousands of companies. What are the chances of all of those companies going bust at the same time? Almost nil. The worst that could happen IMHO is their value drops significantly in a crash. (Which is why you hear the phrase 'You might get back less than you put in' all the time.) Even then, it likely wouldn't go to zero IMHO. The situation with ETFs is similar.
A master class in clear communication.
Clearly not, doesn’t take a 15 minute video to explain something that takes less than a minute
@@jimbojimbo6873 He's talking about the clarity, not the brevity... You should try using some punctuation. It's very handy stuff. You can even separate sentences using full stops.
Thank you for this video. So is my money only protected up to £85k per platform?
How about crowdfunding platforms
And what about the receipts of every transaction that are sent to my personal email by my platform? Are they of any help to identify what was supposed to be held on my account?
Hi Ramin, I am currently using DODL which charges in total 0.29% which is broken down into = annual charges - 0.12%, transaction cost - 0.02%, DODL charge - 0.15%. Is this considered too high in your opinion? as I was informed they were one of the cheapest options to go with.
I wonder if Raman meant to not pay more than 0.2% for an actual fund/per fund, because Fidelity uk charges 0.3% just for the platform fee and ive seen many worse than this.
I get the feeling he meant 2% as he mentioned Advice in his list. Most passive funds are c. 0.2% before platform and advice fees are added.
Fidelity fees go down to 0.2 if you have 250K .
@@lawrencer8673 I wish lol.
2% is way too high. I pay about 0.3% on Vanguard total for the platform and the funds.
@@nickmichie7480 I agree that 2% would be ridiculously high. I pay 0.35% on Fidelity UK...though that's just for the platform fee. I pay 0.06% for my USA 500 fund and my most expensive is Global Technology, which is 0.30%
My god isn’t there enough to worry about regarding the economy etc, without the thought that your platform may go bust and we get a bad compensation package! People often go on about platform fees but if they are a bigger more established platform they may cost more but are surely more reliable, just a thought. I would rather pay a bit more and be dancing with the right partner!
Would you consider interactive investor, ii, to be a reputable platform?
Only when they sponsor a video. 😂
Noticed that Interactive Investor was not on the list of brokers. Is there any particular reason other than they do charge a flat fees so one migth consider size of the pension pot.
I noticed this too. Almost certainly because ii are the best value UK platform and therefore the main rival to the channel's platform partner.
Ramin talks about ii elsewhere which is one reason I use them!
All the securities traded on the clients' account on these trading platforms or brokers are held by a custodian which is a separate entity to the broker firm. Therefore, these securities are not part of the broker's assets. Even if the broker goes bust, these securities can not be claimed by the creditors. So, the risk to the account clients is zero.
Yes true buuut.....they may make a charge to cover liquidation etc and hit clients with that. Hopefully (probably) the FSCS covers most/all of that.
That assumes the platform actually bought the all securities they were supposed to buy. This should be checked by auditing, but given the disgraceful lack of due diligence by even well known (and expensive) auditors in recent years, I don't have such a warm feeling. Do the auditors actually add up all the shares held by all customers (inc. fractional shares) of each product and then check these are 100% held in a nominee account, or do they just believe the platforms computer generated accounts, tick a box and collect their fee?
can you move across part of a shares isa to another provider? does it have to be cash or can you transfer shares too?
It wouldn't make sense for them to able to force you to stay with them.
Yes, this is a routine thing, and I've done it in the past. It can be quite fiddly and take a fairly long time: the new platform may not be able to hold all the funds/shares which you currently have in your portfolio, in which case the typical thing is that you get a call saying "are you OK for us to sell fund X?" from your existing platform. But in the case of an ISA, crucially, that cash will then appear in the new account as "ISA-protected money", ready to be invested, so you don't lose any of the tax shelter. Contact the new platform you want to transfer to and they'll tell you what to do.
@@mikerodent3164 thanks very much for your reply 🙂
Pretty sure from April we are allowed more than one stocks and shares isa. The 20k tax free limit remains just means you can spread the 20k tax free allowance across different isas.
There is an example of this exact thing happening here in the UK in the FT today and it seems to have taken a long time to resolve and in the meantime the investor/pensioner has no access to their money for a long period of time. The lesson from that is clearly have more than one platform or pay a higher fee for a well known platform brand that is too big to fail.
This is one aspect to it, yes, while it may resolve in the end you could be deprived of your money for a significantly long amount of time. Which may in effect be the same as losing your money altogether IF you need it badly and quickly.
"Too big to fail".
Famous last words.
Even if 100% protected was the case, there's still reason to utilise different providers. For example, IT issues leading to a period of time without access to funds. Another example is to utilise the small pots rule with pensions.
@@timg1246”The Protected Class”, read David Webb’s book, “The Great Taking”….
@@adrianl5899what do you mean by small pot rules?
Segregation via custody accounts (inc in ETFs) for securities, government guaranteed cash to a limit
worry about the UK government more than these platforms.
Foolish American presidents are the biggest threat to my global portfolio.
Great detail as usual. I would say that behavior is the biggest risk. If a bank run happens in the UK, I can see everyone pulling out cash, which is the worst thing to do. My bighest concern with splitting allocations across different platforms is how this would effect compounding..so all of my money in one platform would compound bigger and better than all my money invested over 4 platforms? There's a great you tube video on how charlie munger suggests that once you reach 100k in a fund then you can take the foot off the gas a little?
It males little difference to compounding, but fees are greater the more platforms you have especially when you die.
What were the learnings from what happened to Alpari?
I'm more concerned with login problems. What if I lose email account, phone number or 2FA app will fail for some reason? I don't want to argue with some Indian support. Been there, done that. One time, I lost my phone number and wasn't able to login to my crypto account. I'm using local brokers, but still want IBKR account, but I'm hesitant just for this potential problem.
are you complaining that they just won't let anyone who phones them up into your account?
@@edc1569 No, it's just the hassle of dealing with distance support. That's why I'm using local broker with office I can visit.
If this video is correct, on the question of legal ownership of investments, then there is something fundamentally wrong.
Can you imagine purchasing something expensive, like property or a car, and to be told that the place or person you paid, went bankrupt, and you might not legally own the item, due to their sloppy accounting.
I still find this hard to believe this, of an industry, that after 2009, was supposed to better regulated, could operate like this, for any reason, no matter what way the accounts are maintained.
Barclays ISA/SIPP have just reduced their platform fees by a lot, is it now competitive with traditional brokers?
Seems to be 0.25% which pretty competitive for a large bank at least (not sure what it would have been before). Makes me wonder sometimes why their marketing keeps relatively quiet, unless they dont wanna start some price war with other banks.
@@Kaizen917 Have you used their platform? Reports and transactions, etc. are painful to use. It's awful. Also their customer service is bad, incorrect answers, mistakes, take ages to action anything, etc. I left years ago (after they changed the web site and app, ignored all user feedback and made it worse!). I know several people who stuck with them and still complain about them regularly! Also, I think you still need a Barclays current account to pay in using the app. Not all funds are available to buy.
What about fund risk (as opposed to market risk). Say I have 200k in an ETF or tracker fund, and it turns out something dodgy has been going on and the fund manager has lost a load of money - maybe their tracking algorithm went into meltdown, or there was some insider fraud etc. What protection is there for investors in this scenario? Is the 85k FCSC limit only for cash?
ETFs, Investment Trusts and non-UK-domiciled funds are not covered by the FSCS.
I invest mostly in UK domiciled OEICs and Unit Trusts. These are covered by FSCS protection, to £85k per person, per investment firm.
@@adrianl5899 I seem to recall Ramin saying he puts almost all his money in a single fund. That seems risky if only 85k is covered.
@@RossHetherington24 A lot of people will, for example, have all their cash (far beyond £85k) with the same bank. As long as that person is happy and comfortable to do it, it's their choice.
A lot would be comfortable having everything in a single HSBC tracker, Vanguard tracker etc. but not in a 'new kid off the block' tracker. Personally, I just go off what's FSCS protected, so I split into different global trackers and use different platforms too. Many would say this is OTT (and that's fine!) but my only goal of investing is to reach specific goals at the least risk possible. And that helps achieve it.
“UK Regulator” and “credibility”
You don’t often hear those words spoken in the same sentence 😂
Great video Ramin, thank you.
I’m not sure I would lump in the likes of IE and Freetrade with behemoths like Vanguard or Halifax/iWeb.
IE and Freetrade are relatively small, have yet to turn a profit and continue to depend on investors funding their operations in the near/medium term in a funding environment that is very different from the ZIRP years that they were set up in.
Given the above, I wouldn’t consider the probability of IE/Freetrade going into administration to be comparable to that of Vanguard or Halifax.
I don’t fully understand how FSCS protection works when it comes to S&S ISAs, but assuming it effectively covers investments of up to 85k, 70-75k is probably as high as I’d go with on one of the smaller firms like IE or Freetrade.
Halifax is a bank; we saw how prudent banks are in 2008.
3:46 I am not worried about the probability of fraud at Vanguard, I am worried about the probability of loss of control.
Look at some of the crap subcontracting developers have been permitted to put into production over the last five years.
It required incompetence both at the Vanguard administration side and the developer side.
When you have $8 trillion AUM, there is a lot of opportunity for error with big consequences.
I would like to say that the FCA limit should be increased. It was last increased in 2019. It should be inflation linked.
Talking of platform risk. I believe there is some risk with uninvested cash held within trading 212, as the money is held within a QMMF. Does anyone know how risky these are as I’m reluctant to put too much cash in there even tho the interest rate at 5% paid daily, is not bad?
The £85000 FSCS cover is per institution, but that means the holding institution. So for example if AJ Bell and Trading 212 both holds your funds in the same parent holding bank/institution, you are only covered up to £85000 in that parent institution. Not £85000 cover in AJ Bell and a separate £85000 cover in Trading 212 in this hyperthetical example. Trying to find out which banks/institutions these brokers hold their funds with is difficult to say the least. Most brokers will state they use different holding banks so they can't tell you.
So never hold over £85,000 in cash in total across your platforms and banks.
So alot of vanguard funds are 0.23% and the platform charge is 0.15% so 0.38% combined... that makes them expensive to use? Ive seen many videos where people say they are one of the cheapest available and worth using especially taken into account the liquidity and safety of using a well established platform.
* a lot
I agree, 0.5 total or less is what I limit myself to.
Lots of funds pay dividends that more than cover any platform and management fees, just saying…. Add that to the growth you are getting and it’s not a bad gig really. Depending on your fund ofcourse!
So you can only have a maximum of £85k in a global index fund in Vanguard? To be covered by the FSCS in the UK?
You can invest as much as you want but in a bad scenario only the first £85k is insured by FSCS.
Its cash whats protected upto 85k. The investments would besafe no matter how much you have invested
You own the underlying asset if it's a global index fund, so you should get all of it back if Vanguard do their paperwork properly, which they do. The £85k would apply if you had cash, and I believe Vanguard's cash is held with HSBC. I doubt that many people hold much cash with Vanguard like that for very long. I think anyone who sold index funds waiting for a market crash will have put their cash into money market funds.
@@yiguanas812 correct
So just to be clear. If you have under £85k in cash sitting in a platform ready to be invested then it’s covered by the FSCS. Any money invested in stocks like a global index fund is a completely different as it’s already invested so to speak.
Is the platform risk the cash and investments in that platform (i.e. Vanguard funds and Cash holding). When you hold funds i.e. IShares on say Fidelity, the risk is against the fund? Also as a lot of funds are registered in Ireland, which I believe are not covered by the FSCS compensation scheme. Are you talking solely about the Platform in this video and there are other issues with the Investments made. Vanguard is a bit unique using it own funds.
Thanks for a great an informative video. Only thing I would take issue with is the risk of only holding a few different shares. As Warren Buffett has said diversification is useful for those who don’t know what they are doing. If you are skilled investor you can significantly outperform with a more concentrated portfolio and one can keep better tabs on a smaller number of companies. This strategy comes with higher volatility but provided you can stomach that in the long run this isn’t a problem. Risk for me is permanently losing capital and I see volatility as a friend helping provide good buying opportunities when Mr Market is overly pessimistic. I am not talking about only holding shares in only two companies in the same industry like some retail investors do, but rather a portfolio with say 8-20 shares spread across different industries. Anything more runs the risk of Diworsification.
For me a big risk is under or average performance because over time thanks to the wonder of compounding Outperformance can translate into very much more provided this is done safely and not risking losses trying to shoot the lights out. Best to stay in the game and keep compounding.
One risk not named in this video - and many others - is what if the market crashes and doesn't recover - either at all, or for a very long time. I will not tire of reminding people about the Japanese asset bubble - look at the Nikkei index. 30 years of NO gains, not accounting for dividends. Are you, your strategy and ultimately portoflio ready for this?
Er what...? 8,076 at 2009-02-06, 36,897 latest. Plus the small matter of dividends. There has only ever been one L-shaped crash, the Russian stock market in 1917. All the others have been V-shaped. Except not in your parallel universe, obvs.
In early 90’s it was 26000 and took nearly 30 years to reach that level again. So errr what 😂
@@Desmond.TuTu. Not really Desmond. 1989 to 2012 was the period of Japanese stagnation. And I'm not clear what the dividend situation was over that period: let's assume it was 0: no dividends at all. The spectacular 1989 "correction" followed a well-documented bubble. No-one can predict the future, but people like MagicNash are essentially grinding their teeth because they're bitter that they have lost out. People like him believe that a wee bank book paying (currently) 3% will see him win out in the end. This not only seems but is statistically very unlikely. There is a much greater risk in swearing by your trusty wee bank book.
@@Desmond.TuTu. Not really Desmond. 1989 to 2012 was the period of Japanese stagnation. And I'm not clear what the dividend situation was over that period: let's assume it was 0: no dividends at all. The spectacular 1989 "correction" followed a well-documented bubble. No-one can predict the future, but people like this poster are essentially grinding their teeth because they're bitter that they have lost out. People like him believe that a wee bank book paying (currently) 3% will see him win out in the end. This not only seems but is statistically very unlikely. There is a much greater risk in swearing by your trusty wee bank book.
Its why they say you should be well diversified... a market could crash and not recover for many years but for that to happen to all markets would take something catastrophic on a global scale
What's the best way to invest, when you have no money?
0.2% total investment fees sounds great but rules out a lot of Vanguard funds.
Yep, that stood out for me too. How are we supposed to pay less than that in the UK while investing in a global ETF?
I have VWCE at 0.22% so not so far away.
I think you could replicate some of the more expensive Vanguard funds manually by investing in their cheaper options. Like the LifeStrategies, for instance. More work (annually or so) and possibly some tax implications, granted.
@@ba8898 There's multiple ETFs under that, FWRG charges 0.15% for example. Check JustETF.
0.2 % maximum in total fees rules out buying any Vanguard fund on the Vanguard platform.
@@iainshirlaw The problem is that he said that the 0.2% maximum aspiration includes platform fees. Vanguard have a platform fee of 0.15% so the approximate total cost if you only hold the VWCE is 0.37%, which is perfectly reasonable for a total ongoing cost. I think his assertion is questionable, or he mis-spoke. VG and some other platforms have a capped annual platform fee, which is another consideration though - so if you had a large portfolio, the platform fee may be approximately zero.
The regulator will be very careful… like they were when they ok’d fractional shares in ISA offered by the likes of trading 212 and the HMRC says that’s not permitted in a ISA. So who was asleep at the regulator?
No one is too big to fail. It’s how they fail that is the issue.
Indeed - and if the derivatives bubble collapses, everyone gets rinsed.
I find it a bit odd when it comes to how FSCS applies to, say, InvestEngine when they trade only in ETFs that are supposedly not protected.
I think it's only overseas ETFs that are not protected. Also check out Mr Monevator FSCS Investment Protection: this suggests that it may be quite difficult to work out which activities a given investment platform is authorised for, and also notes the trap of "multiple brands, one company" (with only one £85k protection per company!).
Real estate investors losing money is music to my ears. They are a major reason why the real estate market is the way that it is now.
The best course of action if you lack market knowledge is to ask a consultant or investing coach for guidance or assistance. Speaking with a consultant helped me stay afloat in the market and grow my portfolio to about 65% since January, even though I know it sounds obvious or generic. I believe that is the most effective way to enter the business at the moment.
So I am my own worst enemy 😀.
Yup. If you know yourself well (many of us think that but in reality...) and adjust your portfolio accordingly then you are destined for success.
The bigger threat to your finances is the woman in your life.
can just spread across money across different platforms as your backed by £75k per platform, from what I recall.
Did you even watch the video?
@@yesno9834 no
Couldnt unhear in-cockney
Gold bugs 🐛 are rubbing their hands with glee at this 😊😅😅😂😂😂😂
If the dirt really hit the fan and we've apparently been on the brink before, and enough platforms failed I would forget about 85000 anything.
I think your information is incorrect. The UK £85000 protection allowance only applies to cash not stocks.
After watching the first half of this video it really felt that it was made only to shoehorn in the paid-for ad segment. What % of viewers just stopped watching at that point? One of the lower quality PensionCraft videos.
I've always thought that the stocks and shares ISA millionaires must've taken a risk with their investments, as you're only covered up to 85k compensation for each provider you have an account with.
Maybe unless they are careful to open an ISA with a new provider each year, depending on how close their previous ones are to the 85k mark.
Fundamentally disagree with your very naive view of fees.
@Huxley350 You may disagree, but you can’t call it naive. Plenty of research documents the inverse correlation between fees and performance.