Can’t even blame a spellchecker for that!

[Thanks Phil — I’ve amended the original comment to reflect this]

Back in the 90s our firm was taken over by another, and as a result of failing to properly manage the merger process lost control of the nominee assets. It took a long time, and an awful lot of money, to sort out the mess. Fortunately the company did not fail, and so far as I know no client lost any money.

More recently some EIS assets I had bought were held in a nominee, chosen by the EIS advisor, not me. The firm behind the nominee failed, and the nominee was involved in the liquidation process. Fortunately my assets were adequately protected, have (eventually) been moved to another nominee, and no FSCS guarantee needed to be called upon.

In both cases there were clear indications that all was not well with the administration activities at either firm. In the former clients were receiving dividends late, and in the latter the purchase contracts were riddled with silly errors. This to me is a key indicator. If the admin starts going wrong (not just a single mistake – none of us are immune from that) it’s time to say goodbye. Indeed, in a well run firm I cannot imagine how the nominee could fail.

The FSCS will protect assets up to it’s current limit, but sorting out the failure of a nominee takes time, and while it’s happening you are locked in.

The only sensible alternative is a personal CREST account (don’t even think about certificates!) but there is a cost involved which is quite high for a modest personal investor, and I don’t think many broking firms or platforms offer it. You cannot have a personal CREST account without a broker “sponsoring” it.

I am perfectly content for my stockmarket investments to continue to be held in my broker’s nominee.

Hi Roy,

Yes and no. I’m certainly not an expert this in this area but, assuming you hold via a nominee account (rather than through physical share certificates or the electronic equivalent known as CREST) then you are the beneficial owner but not the legal owner.

In practice, your investments and those of all the other customers of a platform are mushed together and are held through an organisation named something like Hargreaves Lansdown Nominees Ltd or Halifax Share Dealing Nominees Ltd.

Should your broker have financial trouble then, in theory, these assets should be ring-fenced from its day-to-day operations. In most cases, they could be a delay in getting access to your money while everything gets sorted out. But, usually only very rarely and so far only with smaller brokers, things get a bit messy and not everyone may get all their money back.

FSCS should protect you fully up £50,000 in these circumstances.

I think the last time it happened was in 2018 with a company called Beaufort Securities. I’m not sure if this particular situation is still ongoing or has been resolved.
https://monevator.com/even-brokers-can-fail-you/

Everyone seems to have a different take on this. There are some that insist on certificates or CREST, though that usually means more cost. There are others than pay it no attention.

I’m in the middle, acknowledging that it may happen so taking some small steps to mitigate it. I’m happy having more than £50k with a single provider but I have my investments spread over three of them.

Hope that’s helpful (and not too concerning!)

You say about spreading the risk for security reasons, as the FSCS only covers investments up to the value of £50,000 per provider.

If you invest in a Investment trust and the platform you use goes bust surely you still own the Investment Trust ?

CHeers

Roy