A frequent question I get all the time is around the protected status of investments held on platforms. I decided to address it here in a blog post, so hopefully it will reassure you.
You can see where the confusion lies – if I hold assets (the smallest unit) like shares and bonds inside a fund which is then held on a platform, where the hell is my money?! What happens if some level of that pyramid goes under? How much protection do you have?
The UK has a scheme called the Financial Service Compensation Scheme which is government-backed and designed to make sure that investors are protected against a company not being able to honour its liabilities to you.
The headline figure you need to know is £85,000. You are protected for up to £85,000 per person, per provider if an investment company goes bust with your money. It used to be £85,000 for savings and £50,000 for investments, now it’s £85k across the board if the investment company went under AFTER April 2019.
Let’s look at this from the top-down, starting with the platform. Let’s say you invest with Hargreaves Lansdown and hold funds with Invesco, Fidelity and Vanguard.
Hargreaves Lansdown is deemed to be a provider for compensation scheme purposes, so if you hold more than £85,000 there, you might think that you could be vulnerable. But you’re not, because your platform doesn’t have access to the money held with the three fund providers.
They’re essentially organising the admin of your money to the fund providers and charging you for it, but your money is not held with them. Any cash that is not yet invested in funds is held with them, but is ring-fenced so they can’t access it. This is thanks to the FCA’s Client Money rules.
I’m not remotely worried about a provider going under. There was a potential challenge for investors on a particular platform where they tried to get investors’ money to pay back the creditors of the platform, but I don’t think that was successful.
Turning now to the funds themselves, the Client Money rules apply to them too. As funds hold underlying stocks, it’s important you know who actually owns them. All OEICs and Unit Trusts use a depositary or trustee who holds the title to the underlying stocks in trust for you.
That means if the fund manager goes bust, they’re not holding the assets. That’s a legal position, and the funds are simply held in a trust to make the admin easier.
Finally, none of this rules out fraud. While reputable firms abide by the Client Money rules and do their best to mitigate risk, but there will always be people looking to rip others off by illegal means. I do not lose a moment’s sleep about the security of my clients’ assets on platforms. Stick with the well-established, reputable firms and you won’t go far wrong.