What happens if Freetrade goes bust? (which of course won't happen!)

What would happen to my stock portfolio in the unlikely, unthinkable, event that Freetrade goes out of business? (event which of course will never happen)

Let’s assume I have a portfolio held with Freetrade currently worth £90,000, composed of £30k Apple (US stock), £30k Aviva (UK stock) and £30k gold physical ETF.
Freetrade closes operations. What happens?
For the sake of the examples below, let us assume the market price of the 3 securities remains stable.

  1. Do I still maintain ownership of the 3 securities? (i.e. my portfolio is still worth £90k)
  2. if yes, “where” are my securities? How can I trade them? Can I just open an account with another broker and have them transferred there?
  3. if not, am I covered by the FSCS protection scheme?
  4. does the scenario change at all between US and UK stocks?

Don’t mean to be negative or think about the worst! (it feels a bit like talking about life insurance with your partner in your 20s…). But I thought worth asking.
Apologies if the answer is obvious or the question has been asked already and I couldn’t find it.

Many thanks

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I’m not an expert but I think this has been covered a few times on the forum over time.

Essentially I believe as with all UK regulated brokers, user assets are held separately from freetrades assets so in the event freetrade were to go bump, your shares would still be your property and exist away from anything freetrade could do.

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As Wulfy says, your stocks & money are held separately so that they can easily be returned to you -

For each of our deposit banks and custodians we have a legally binding letter acknowledging that your assets do not belong to us, and can’t be used in the event of us entering administration to cover any debts we may have.

We maintain detailed records of who all the cash and stocks we hold belong to, so if something were to go wrong on our end, these can be quickly identified and distributed to you as the owner.

That quote’s from this blog post, which explains the safeguards in more detail -

Your investments are covered by FSCS protection up to a value of £85k too.

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There is a comment on Movenator

Re Freetrade
I followed the story last year about Beaufort Securities being taken into administration story with some interest. If you remember at the time it looked as if some investors would not get all their money back, even although funds were in a ring-fenced client account (see https://www.bbc.co.uk/news/business-43301342).
I hope and trust Freetrade’s business model, charging structure and compliance are sustainable, but to be sure I’d suggest those using this platform keep below the £50K FSCS compensation limit (see https://www.fscs.org.uk/what-we-cover/).

If the ring fencing of client funds is similar, then there could be some hair cut.

for a moment I thought you actually had £90k in your FT account :laughing:

I would not go over £85K in any broker account, unless the broker is very well established. Even then, it is risky as the FSCS only covers up to £85K per broker in cause of fraud. I know securities are segregated, but you can have brokers committing mass fraud and not even buying securities.

FSCS protection is £85,000 as of 01.04.2019

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I must also mention your stocks are only safe if you are holding paper certificates, with Freetrade the stock is not held in your name but held on your behalf. If there was major fraud, you would lose everything above £85K, major fraud being securities not even bought or some other dodgy stuff.

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Vlad is the protection up to £85,000 of any combination of cash and stocks with each provider ?

Up to that amount per claimant per firm

Total amount is £85K including cash, stocks and bonds.

Whilst we can see Freetrade has done everything to answer this question, to me this is their biggest block to new customers

Equities would most likely be transferred to another provider, there would be an interim period where you wouldnt have access to them and a certainly a degree of worry

The likelyhood of administration I would consider fairly high. Its a startup, limited funding which could be switched off or run out at any point, no reserves, a high marketing cost, a non proven profit model

This then means for me only smallish sums to play with, which I feel would only hinder their business model

Maybe they are a European Robinhood

You pay your money and take your chances!

I am sure Freetrade would be delighted for people to move 100Ks worth of stuff across, but most of the customer base here won’t have anywhere near the FSCS limit (check out the votes on crowdfunding pledges as a good guide to start with). I am speculating, but I would bet 7 out of 10 accounts held on here and elsewhere will in total still be under FSCS for a single account.Since people should be sensible anyway (especially with startups) I don’t quite get your point. Unless small sums to you is 85k.

All businesses are start ups in the beginning.

My money and investments are protected, it’s a good product and a good team behind it. I can’t see any risk or need to refer to it as ‘taking a chance’ at all

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I am wondering the same as a long term investor. Freetrade being a startup, and 90% of startups going bust in the first 3 years its probably not the best choice for long term investors at the moment.

Give it another 2-3 years and Freetrade might be more established and worth investing over the next 10-20 years.

I for now maybe have to invest with vanguard directly. I guess it depends how high the costs are with vanguard.

I wonder if you have to pay taxes on your gains when you have to emergency move the shares from Freetrade to another broker.

This would potentially kill a lot of money just by having to pay CGTax way early.

Its definitely things to think about.

Protection is £50,000 for a stocks and shares isa

This is now £85k for stocks and shares.

https://www.fscs.org.uk/what-we-cover/investments/

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You would be liable for CGT at the point of sale if your net gains exceed £12,000.

How exactly is that going to kill money? The only short-term disadvantage you will face is paying the necessary proportion of tax in exchange for a higher basis of your investments’ value (i.e. if you went from £30,000 to £50,000, you’d pay £1,600 in CGT [assuming you are on a higher rate] but then your portfolio’s value [assuming you will reinvest elsewhere] will be £48,400 rather than £30,000 you had before). By not selling you are simply deferring the date when you will pay your tax, you do not lose anything, you will simply pay less next time you sell.

That is all, of course, a hypothetical scenario if, as you suggested, Freetrade when bust and could no longer be your investments’ custodian.

Good news, it is £85,000 as of this April :slight_smile:

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@Vlad Thanks for clarifying Vlad,

as a buy and hold investor I just wanna reduce any trading, movement/costs to a minimum.

EDIT: I guess losing money is only true for investments that you never sell and living off the dividend? What are the potential extra costs of the movement of stocks between brokers in a “goes bust” scenario?

It’s also just inconvenient to move your funds back and forth. Furthermore you sleep better if you know your funds aren’t all invested into a startup broker.

I will use Freetrade for monthly payments but a big lump sum (up to 85k) I feel I would not wanna pay into Freetrade atm. The risk is just higher just based on the fact that it is a start up - a great startup - nevertheless still a startup in a high competitive market (Robinhood, Revolut).

I wonder if this is a self fulfilling prophecy. People say 90% of start ups go bust so don’t use them. As a result of this 90% of start ups go bust

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