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

#1

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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#2

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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(Alex Sherwood) #3

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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(Giridhar Tammana) #4

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.

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(Giridhar Tammana) #5

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

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(HP) #6

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.

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(Vladislav Kozub) #7

FSCS protection is £85,000 as of 01.04.2019

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(HP) #8

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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#9

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

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(Vladislav Kozub) #10

Up to that amount per claimant per firm

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(HP) #11

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

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#12

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!

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(Ben) #13

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.

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(Emma (#20 😎)) #14

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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