A Possible Nasty

[John Miles]

What with all this talk about investment platforms I can’t help wondering what happens if the platformn itself goes down the tube.

Do we get compensated?
How much>
Who buy?
How long does it take?
Has it ever happened yet>

[Stephen Bland]

That perhaps is something to ask the individual “platform” John.

You may be thinking of the trend towards brokers’ nominee holdings where investors don’t appear on the share register of the companies held. Where HYPs are held in ISAs, which for tax purposes is in my view advisable for most, there is no option and all holdings will be in nominee form. Where held direct, it is still possible to avoid nominees and hold paper certificates or use CREST, an electronic system which has the best of both worlds, being paperless whilst maintaining the holder’s name on the register. However both of these attract higher transaction and other costs so really only practicable for large non-ISA portfolios.

The advantage of nominee holding, outside an ISA, is the much lower transaction costs offered to investors so this has become very common even for non-ISA shareholdings. It has the further strong advantage of providing very simple online trading, which is not possible with paper though it is with CREST.

But yes, I agree there is a very small additional risk undertaken by using nominee services compared with holding direct, just because the investor is not a registered shareholder. As for compensation in the event of failure, I suggest as mentioned above that you ask your broker what may happen in that event.

[John Miles]

Hi again Stephen, Hi everybody,
Thanks for your helpful advice.

I’m a widower in his nineties, so I’m not personally too bothered about such matters any more.
On the other hand I look after half a dozen ISAs for non-investment-minded family and friends, and it’s only fair they should know what they might be letting themselves in for.

The going rate seems to be 75 grand per ISA, but it goes without saying that 0anyone concerned should do their own research.

[Jeffrey Beranek]

You are probably thinking about the Financial Services Compensation Scheme (FSCS) which covers various financial products if the relevant institution becomes insolvent, e.g. up to £85,000 currently for banks (per person, per bank) or up to £50,000 for claims against investment firms that are in default. But remember, even if you hold shares in nominee form, they should not be held by the investment platform as their assets, but are held on your behalf by a trustee. True, who is trusting the trustee, but in either case you would be concerned more about outright fraud rather than a platform going bust. The only money of yours they might hold will be your trading cash, which will be minimal and should be covered by the FSCS. But the shareholdings are yours. For more information, see the links below or just google FSCS:

https://www.fscs.org.uk/what-we-cover/compensation-limits/
http://monevator.com/investor-compensation-scheme/ (slightly out of date, but most still holds true)

Jeff.

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