@stephen I posted this over on the Monzo forum in reply to a comment about giving an example of ring fenced client money being put at risk owing to an FCA imposed winding up. There are some links in there with some background and analysis if that’s helpful.
Ring-fencing of clients assets doesn’t protect fully against fraud at a company. That’s why there is the FSCS (financial services compensation scheme). Unfortunately, for customers with large portfolios the FSCS protection has a limit and amounts over the limit that are not insured and could result in a complete loss. It’s the same story for banks that go bust due to fraud.
While I agree the top-end cost estimate made by PwC to wind up the company is excessive (and I would say seized on by journalists wanting to shout a big number), blaming PwC is missing the point.
Yes, same story as bank accounts. Any amounts over the FSCS limit would be at risk in an adverse scenario. Extremely low chance based on historical precedence, but possible you could lose everything that’s not insured.
If you’re worried about it, diversification is a smart strategy in my opinion.
Interesting concept although I think it will be impossible or expensive for insurers to do. You could buy a put option and that’ll do the job (experienced traders only!). I’m not sure whether FT will offer options in the future?
Paper certificates (UK shares only) stored a safety deposit box? I am wincing at the thought of the associated admin and dealing costs!
I think the point you and @Adam make is really important, and always worth keeping in mind when choosing a company to manage your money or act as administrator to your investments. It’s so easy to get swept up in the hyperbole surrounding particular trends or businesses, and let our optimism bias take over.
It would be awesome if Freetrade produced a handy primer to explain how assets are held, managed and ‘protected’, and how Freetrade mitigate loses (with usual caveats) in the event of winding up, should holdings exceed the guarantee offered by the FSCS. I think it would help with the whole ‘demystification’ of investing, enhance trust and grow confidence.
FWIW, I think the biggest risk to wealth erosion for most private investors will be from market turmoil and the Next Big One, rather than say Freetrade running a bucket shop. [edit to add: Freetrade is NOT a bucket shop outfit]
@adam or @Viktor do/will Freetrade provide a paper certificate service? I don’t mean trade in paper but allow a holding to be put into paper certificate so I can stuff it under my bed/safety deposit box etc.
@stephen I fear the cost and simplicity advantage proposed by Freetrade will evaporate if they go down the paper certs route. Add to that you’d be restricted to a fairly narrow set of assets if you wanted to only hold them in certificate form.