A very good article in "This is Money" recently highlighted something we come across at IYE Global a lot. Most investors are aware that if they stay below the Financial Services Compensation Scheme threshold – currently £85,000 per bank – their savings are protected.
But what about other investments, indeed, what about your pension which can be a far greater figure and significantly more important for retirement?
The FSCS limit for investments is £50,000 per firm you invest with. An important note here, this doesn’t cover you if the value of your shares or funds falls, but for such things as bad advice, mis-selling and maladministration.
The Financial Conduct Authority’s recent report into investment platforms revealed that out of their average investable assets of £260,000, the average customer held £91,000 on a platform.
If something goes wrong £41,000 of their money is not protected.
In theory, they should be safe as their money should have been invested into shares, funds and investment trusts assigned to them. The problem is that most assets held via DIY investment platforms are in so-called nominee accounts. This means that rather than holding them directly, the customer has shares or funds assigned to them in a large pooled account.
If it all goes wrong, this is meant to be able to be easily unpicked and it’s clear whose investments are whose. However, we all know that when businesses fold it can be because they haven’t been run properly and also that the authorities sometimes don’t spot this until it is too late.
Recently, we also had the worrying case where administrators tried to claim funds from customers to pay creditors of collapsed stockbroker Beaufort Securities. In May, Price Waterhouse Coopers (PwC) reported it would net in the region of £100 million in fees.
Following a public uproar, PwC halved its Beaufort bill to around £50 million later that month after it fully assessed the situation once the dust had settled on its appointment.
Other than going back to old-fashioned paper certificate ownership, there are two answers to this problem: do some serious due diligence on investment platforms before you use them, or stick below the £50,000 FSCS limit.
The former is very hard for ordinary investors and the latter is problematic. At IYE Extreme care is required to ensure the people and investments you are being offered are genuine. IYE Global offer a due diligence service that not only checks the validity of the investment but accesses intelligence and watch reports on those involved. If you’d like to ensure the investment you’re considering is genuine, please call us on +44 (0)20 8914 7923 or use our contact form on the IYE Global website.