How is my money protected?
As your Independent Financial Adviser, we ensure you understand that the value of investments can fall as well as rise. You may also be concerned about how safe it is to hold your investments with one Platform or Fund Manager.
Are Platforms and Fund Providers regulated?
As Independent Advisers we use different companies to provide and distribute investments to our clients. The companies selected are authorised and regulated by the Financial Conduct Authority, which requires them to have appropriate systems and controls for managing their business, with strict rules about the way they hold client money and assets.
To check the registration for any regulated company, you can visit the Financial Conduct Authority website at http://www.fca.org.uk or telephone the FCA Consumer Help Line on 0800 111 6768.
How financially stable are Platforms and Fund Managers?
Financial Conduct Authority rules, mean that Platforms (Distributor’s) and Fund Managers (Providers) always hold a significant amount of liquid (easily accessible) capital. In the unlikely event this capital is required, it will help with the winding down of the business and make it easier to return your money and assets in an orderly way.
What is the difference between a fund provider and distributor?
| Provider A provider is a company that creates and manages its own investments. Also known as a ‘fund manager’. You can usually buy investments direct from these fund managers | Distributor A distributor is a company that sells investments from a range of providers. Also known as an ‘investment platform’ You can usually use a distributor to buy investments from a wide range of providers. |
The money you invest is protected by strict regulatory requirements, known as client money and asset rules. These rules apply no matter how much you invest, they also apply whether you hold all your investments with a single distributor, such as an Investment Platform, or you hold your investments through multiple distributors.
What protection do I have under the client money and asset rules?
Investment firms, providers and distributors, are very different from banks because they are required to separate client money and assets from their own resources. They are not permitted to use client money and assets for their own business activities, and your money would be ring-fenced in the unlikely event that they became insolvent. In the case of a default, the Administrator appointed is entitled to claim their costs for distributing client money and assets from the client money pool. Any shortfall in client money and assets will be covered by the FSCS up to a limit of £85,000 per client.
What happens if a distributor becomes insolvent?
When you invest through a distributor, e.g. a Platform any cash held on your behalf is placed with a range of different banks in designated client bank accounts. As the cash is kept completely separate from the distributor’s own money, if they became insolvent it would be returned to you in an orderly manner.
When you invest in funds, they are held by a Provider using a nominee structure. This allows them to administer your investments efficiently, while ensuring that you are clearly identified as their owner. This means that in the unlikely event of a Provider becoming insolvent, any money they owe will not be paid out with your funds. In fact, your money cannot be accessed by any creditors.
What happens if a provider becomes insolvent?
For mutual funds such as OEICS or Unit Trusts, a trustee or depositary holds the legal title to the underlying stocks in the fund (i.e. they are not owned by the provider). This means that if a provider, gets into financial difficulty, your investments would be protected from its creditors according to existing rules and regulatory limits.
What is the Financial Services Compensation Scheme?
The Financial Services Compensation Scheme (‘FSCS’) is an independent body set up by the Government under the Financial Services and Markets Act 2000 and funded by the financial services industry. It can pay you compensation if a firm is in default and cannot meet any valid claims against it.
In what circumstances might the FSCS apply to my investments?
The FSCS would only apply to your investments if the protection measures that distributors and providers have in place (as described above) were to fail.
The FSCS might apply if you lose money because your investments have not been administered correctly, or as a result of misrepresentation or fraud, and the authorised firm concerned has gone out of business and cannot pay compensation or return your investments or any cash held on your behalf.
The FSCS will not pay compensation if your investment performs poorly as a result of market conditions.
Are there limits to the amount of FSCS compensation?
Yes. The maximum amount of compensation payable to an individual under the FSCS will depend on the type of financial product that you hold and who the claim is against.
- If a provider is in default, the limit is £85,000 per provider for UK domiciled mutual funds (OEICS and Unit Trusts).
- If a distributor is in default, there is a limit of £85,000.
- If one of the banks used to hold client money is in default then the limit is £85,000.
If you would like to know more, please visit the FSCS website or call the FSCS on 0800 678 1100.
If you invest through a Platform and hold UK domiciled mutual funds from both that Platform and other providers, does the limit per provider still apply?
Yes. The limit is still £85,000 per investment provider regardless of whether you hold your investments with one distributor or whether you hold them across multiple distributors.