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

Help 👋
25

They do not. Here you can see what Freetrade does to protect its clients’ money in case of a liquidation. Technically, you’d either get your entire portfolio transferred to other brokers (this is what happened to Lehman’s customers, most of whom went to Barclays in 2008, circa $250bn AUM) or there could be a forced sale with all proceeds going to your bank account. In either case, if Freetrade goes bust, they should not use your cash and shares to cover their liabilities.

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26

How would the they distributed just out of curiosity?

/ What possible ways are there?

27

Reregistration its called. Most stock brokers and platforms offer this as a service for moving assets from one to another. The custodian is changed in the background, you do not come out of the market so don’t miss out on growth and still take losses. It can take months though.

Also to address a point above, if you sell an asset and buy it back on the same or different platform within 30 days. It does not trigger CGT. It’s called bed and breakfasting. It’s designed to avoid people selling on last day of tax year and buying back on the first day of the next tax year but it also works for moving assets manually.

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28

What happens if my broker fails (new financial times article).

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29
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30

First time looking at this thread,

My thinking would be to open a vanguard account after April and use that platform for investing into the Indexes,

And keep my Freetrade account for my individual stocks and spec plays.

I’d imagine that’s a sensible strategy going forward?

31

As someone said earlier, you’re covered up to £85,000 by the FSCS compensation scheme if Freetrade went under;
https://www.fscs.org.uk/what-we-cover/investments/

32

Think that’s only for the cash portion though.

The share value is unlimited afaik.

33

You’re right. Your stocks are held as separate equity and are never touched when the broker goes into administration.

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34

Yeah, doing a bit more digging on nominee accounts, which I think shares under Freetrade are held under, can’t be claimed by creditors in the event Freetrade ceases to exist.

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35

I would always go with the term ‘shouldn’t’ rather then ‘can’t’.

:laughing:

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36

Can’t is correct in this case though.

37

That’s alright for those that have less than that invested. What happens to those that have over £85k invested?

38

Did you read the rest of the thread?

39

In short, subject to fraud on a broker’s part, your investments will be safe even if over £85k. There is nothing to be concerned about as long as you trust your broker to be compliant (and I trust FreeTrade). This is something that people get unnecessarily concerned about.

The position is different for cash savings.

40

It’s called a custodian.

People unfamiliar with the investment management industry may wish to read this blog post of FreeTrade from 2018:

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41

I don’t see Freetrade going bust so we shouldn’t really worry about something that won’t happen (touch wood)

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42

If you had cash at the broker and they FAIL to do a client money calculation and DON’T hold it in a segregated account, then the amount covered is £85k of the shortfall via fscs.

We can discuss “shortfalls” separately if needed.

Let’s take an example: if you had £100k in cash, and for whatever reason, a shortfall came about and that £40k is allocated to you when the broker goes down, what should happen in theory is

Insolvency practitioner sends you ÂŁ60k (as that was what was available to pay you from the pooled client money). Then you have to apply to fscs to get the additional ÂŁ40k, which is well within the ÂŁ85k protection.

Things get tricky when there is a shortfall due to a secondary pooling event (the bank goes down where the broker holds client money) AND primary pooling event (when the broker goes down). If you had an account at that bank already - you may only get £85k back of your cash which is held there (even if you only had 60k in an direct account, and 40k shortfall from broker), thus potential loss of £15k. Hopefully the broker should have more than 1 bank for segregated client money to minimise “eggs in one basket” issues

Extra complications come from margined transactions, contractual/actual settlement, etc
 Each insolvency has its own challenges and unique scenarios

43

It’s be a nice position to be in to hold £85k in cash with FreeTrade. :grin:

/problemsoftherich

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44

:ballot_box_with_check: Confirmed Warren Buffet won’t be using :freetrade:

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