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

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65

Itā€™s a good question! Your money is guaranteed by the govt up to Ā£85,000. After that itā€™s your risk!
If you are over Ā£85k, then move the cash elsewhereā€¦ (others are available to invest with)

I hope that helps

66

Does anyone know if the FSCS will 100% guarantee up to Ā£85,000 in compensation in the unlikely event that Freetrade goes bust? If the below statement said will instead of can, it would be much more reassuring:

ā€˜The FSCS can award up to Ā£85,000 in compensation to any one investor where they decide that an investment business is in default and is unable to satisfy any claims against it.ā€™

My initial focus at the moment is to get up to the Ā£85,000 mark with Freetrade and then open an account elsewhere and get that up to Ā£85,000, and so on. I currently have Ā£25,000 with freetrade which is a significant sum for me. I do not know if I should already be spreading that across investment platforms if the FSCS can award up to Ā£85,000, rather than will.

Small details but does anyone know if itā€™s a 100% guarantee? If so, can you provide a source for the information. Thanks :slight_smile:

67

Its can, not will.

FSCS will almost certainly compensate anyone who is eligible for compensation in the event of a failure of a broker, they have little reason not to.

This is bad thinking in general.

There is no reason not to have more than 85k at any one broker unless you donā€™t trust the broker. the protection also isnā€™t there primarily to safeguard your assets. the FSCS have used it to cover mainly a couple of things in the past. one is fees. In the event of a failure of Freetrade you are on the hook for administration fees, and any fees relating to getting your assets into a new broker. FSCS has covered fee related costs from failed brokers in the past. the other use case is potentially lost assets, the only real scenario that im aware of where this could happen would be if the broker was conducting fraud or were utterly incompetent and went properly buying the right securities. in which case FSCS might compensate for the gap in your assets.

im not sure a scenario exists where your assets just donā€™t exist, which is what your plan is trying to cover. its just not reality.

Also consider how time consuming that would be. If you opened a new broker every 85k (it would have to be less to account for admin costs) you could end up with dozens of brokers. what do you do if your pension reaches Ā£1m? your going to open 12 different SIPPs?

The main protection for your assets is the ring fencing done by brokers. your assets should be held in a trusted nominee account, this separates them from being used to pay any debts of the broker keeping them safe. if your broker doesnā€™t do this, or has you opt out of this requirements then you might want to look elsewhere. If you donā€™t want to put more than 85k in a broker, this is more an indication that you donā€™t trust the broker to keep your assets properly segregated and accounted for. in which case, you should probably look for a broker you can trust.

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68

I wish :rofl:

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69

It doesnā€™t really matter is itā€™s 1 or 2 or 200 brokers the underlying issue doesnā€™t actually change no matter how much your asserts are valued at.

You donā€™t see people normally doing this because thatā€™s not how you weā€™re supposed to see FCSC protection as being.

If that was really the case youā€™d see brokers advertising a service to put your assets into separate nominees every time you hit a limit. Or your see ETFs and find managers offering dozens of the same identical funds under different management so they all had separate FSCS cover.

It doesnā€™t happen because theyā€™re already protected via the existing structure

The FSCS cover is important but for stocks itā€™s more important to cover the expenses occurred in an administration.

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70

Thank you @Eden for your very good explanation. Youā€™ve answered my question and also provided further details to save a hassle down the line. Iā€™ll stick with FreeTrade past Ā£85,000 (one day). Thanks :smiley:

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71

Iā€™m not so concerned with the Ā£85k FSCS cover - I have different brokers so that in the event of oneā€™s website/app being down for whatever reason, I have the option to use another.

Probably more critical when Iā€™m reliant upon and living off my investment income - I wouldnā€™t want to risk just having one broker in that scenario.