Multiple HYP Portfolos

[Itsallaguess]

...so splitting at £ 85,000 is pointless.

That depends how we want to consider the word 'pointless'....

Ignoring, for now, the FSCS protection limit, I still think I prefer to have my invested capital spread across more than a single broker purely from a no-access risk-mitigation point of view.

I'll gladly trade away a little admin-time (although it's almost zero once new accounts are set up...) to know that if access is unavailable, for whatever reason, to one of my on-line brokers, then it's highly likely that I've got access to the other one at the time the first one might be having some sort of technical (or worse!) difficulty.

I experience no hardship through having multiple broker accounts, as all my real portfolio work is done outside of those accounts on my investment spreadsheet, which treats everything as a single portfolio, so if it's giving me no hardship, but delivering benefits such as the above no-access risk-mitigation, then it's not pointless to consider doing so, in my opinion.

Cheers,

Itsallaguess

[kiloran]

No. What you are saying is that providing you are holding shares, the risk that you will need to be compensated at all is negligible. If that risk does nevertheless materialise, the FSCS compensation limit applies - and it is in fact well below £85,000.

Gengulphus

I don't see how that applies to a self-select ISA in a nominee account. Ir says:

For an investment claim to be eligible for compensation, it must meet all of the following criteria:

The firm (or its principals) no longer has sufficient funds to meet the compensation claim itself.
The advice you received to buy the investment must have been given on or after 28 August 1988.
The firm that advised you must have been authorised by the appropriate regulator to do so at that time.
You must have lost money as a result of the advice you were given.

For a normal self-select, no advice is involved

--kiloran

[Alaric]

Ignoring, for now, the FSCS protection limit, I still think I prefer to have my invested capital spread across more than a single broker purely from a no-access risk-mitigation point of view.

That view makes sense, but where would you set the limits as to the maximum with a single Broker and the maximum number of accounts you were prepared to manage?

[Alaric]

For a normal self-select, no advice is involved

As far as I am aware, it's likely to work as follows. A Broker goes down and an administrator takes over. The assets are secure with the custodian and cannot be directly touched by the administrator. What might be found is that there was a shortfall in the assets at the custodian as against the records held by the Broker or their clients. I think the FSCS would make up the shortfall up to the limit per account. The recent Beaufort case indicated that the same would apply if the administrator tried to reclaim fees against the asset of the custodian.

If a deposit taker goes down, the account holders have to take their place in the queue of creditors and might be so far down the list as to see little or nothing. That's where FSCS limits are relevant and the need to check whether marketing groups have separate or combined banking licences.

[Gengulphus]

Certainly I don't agree with that - it's quite obvious that there is such a risk.

Are you claiming that the system of having assets in the name of a custodian can break so totally that there's a risk of forfeiting the entire value?

Yes. Any system designed and run by humans can break in the wrong circumstances, and the wrong circumstances cannot be made impossible, merely very, very unlikely. It's up to each individual to make up their own mind whether they've been made so unlikely as to make the risk negligible for them, not up to me (or anyone else) to decide the answer for others.

Gengulphus

[Gengulphus]

With the quotes corrected to what I think kiloran intended, and to clarify an attribution (hope I've got these right!):

No. What you are saying is that providing you are holding shares, the risk that you will need to be compensated at all is negligible. If that risk does nevertheless materialise, the FSCS compensation limit applies - and it is in fact well below £85,000.

I don't see how that applies to a self-select ISA in a nominee account. [The link] says:

For an investment claim to be eligible for compensation, it must meet all of the following criteria:

The firm (or its principals) no longer has sufficient funds to meet the compensation claim itself.
The advice you received to buy the investment must have been given on or after 28 August 1988.
The firm that advised you must have been authorised by the appropriate regulator to do so at that time.
You must have lost money as a result of the advice you were given.

For a normal self-select, no advice is involved

I think the link is somewhat misleading, because if one goes up to its 'parent' page, that says:

Investments (this includes bad advice, poor investment management or misrepresentation and negligence claims relating to mis-selling of pensions)

So there are at least three reasons why a claim can be made in this category, and the "poor investment management" reason doesn't seem to me to involve any advice, so I think all but the first of those criteria has probably been over-simplified, at least by leaving out "If advice is relevant to the reason for the claim," and probably also by failing to mention equivalent criteria for the "poor investment management" reason. And I would take managing to lose a customer's shares, either directly or by entrusting them to a custodian who loses them, as a case of poor investment management!

I will admit though to not being entirely certain about that argument. If it were to happen, I would certainly make the claim and be reasonably confident I would get the compensation - but not 100% certain! But looking at the bigger picture, I'm really much happier with the knowledge that if severe problems developed with one of my providers, at least around 70% of my HYP would be safe against those problems. (That doesn't make it absolutely impossible that sufficient problems would affect all four of my providers, so that I would lose the lot, but it does make it even more unlikely - and I don't know of anything much that would save me from that without major admin drawbacks, especially as I suspect four major financial providers all failing very badly at about the same time would probably result in the FSCS failing shortly afterwards! I.e. that's basically a risk I have to find acceptably small if I'm to invest in shares...)

Gengulphus

[pendas]

A consideration not raised so far is the continuation of the full income stream on the death of one partner in a relationship.

With accounts held in ISAs the delay could be considerable and the cost of living for one is greater than half the cost of two even if the accounts are equally split.

We initially started with a joint account as ISAs held no tax advantage for us at the time and had the advantage of the continuous income stream. Tax changes have meant the opening of ISAs and a further account in my wife's name to take advantage of her unused personal allowance so we now have the portfolio split over four accounts.


Fragmented dividend payments make reinvestment from accumulated dividends lengthier and the available money is not necessarily in the account holding the share to be topped up. Some shares as a consequence are held in more than one account. Corporate actions can also be problematic if the share is in a ISA that is fully subscribed and invested.

[Gengulphus]

Ignoring, for now, the FSCS protection limit, I still think I prefer to have my invested capital spread across more than a single broker purely from a no-access risk-mitigation point of view.

That view makes sense, but where would you set the limits as to the maximum with a single Broker and the maximum number of accounts you were prepared to manage?

For any risk (and in particular either total-loss risk or no-access risk), I wouldn't think of it quite that way. I would instead set a percentage of my whole portfolio that I was prepared to lose to the risk in the hopefully very unlikely event that it materialised, and look at the consequences. E.g. if I decided on 30% as that maximum percentage (and assuming that I'm not significantly worried about it materialising before the FSCS limit goes up in April), then I'd apply the following limits for a portfolio evenly split across N independent providers:

* For total-loss risk, I might lose 1/Nth of my portfolio, but get back £85k in compensation. So for a portfolio value of P, I might lose P/N - £85k, and I want that to be at most 0.3P. Solving that, it works out that I need P <= £85k/(1/N - 0.3) provided 1/N - 0.3 is positive (if it's negative, that means that P/N is always less than the maximum loss I'm prepared to take, i.e. that N providers will do regardless of the portfolio size). That means that a single provider will do me fine up to a portfolio value of £85k/0.7 = £121k, two providers will do me fine up to a portfolio value of £85k/0.2 = £425k, three providers will do me fine up to a portfolio value of £85k/0.03 = £2.833m; and four providers will do me fine for any portfolio value at all.

* For no-access risk, I might lose access to 1/Nth of my portfolio - and while I might well get access to £85k of the loss back from FSCS compensation eventually, I wouldn't count on it being quick enough to avoid the no-access issue! (Yes, I know it's supposed to be quite quick - but reality doesn't always match theory on such things, especially if a provider collapsing put the FSCS under real strain...). So that says that P/N ought to be at most 0.3P regardless of the portfolio value, and thus that I want four accounts regardless - or to be more accurate, depending only on whether I regard a loss of access to the portfolio as an issue that needs to be solved quickly. That probably only happens once I'm relying on the portfolio's income (which might or might not happen at all, since it is possible that a HYPer is only using their HYP for 'icing on the cake' income and so never be relying on it at all). So it's probably not going to matter to me until the portfolio is quite large.

In practice, of course, the portfolio is highly likely not to be split entirely evenly across different providers (except if N=1, when it's automatic), which means that somewhat lower limits are probably appropriate. But it is possible to manage that split by choosing where to put new investment before one starts drawing income from the HYP, and indeed afterwards by choosing which accounts to draw income from provided one doesn't draw all the income from it, but instead retains some of it as 'safety margin' within the HYP.

I should emphasise that I'm not saying HYPers should regard a 30% loss to these very unlikely risks as acceptable - about all I feel I can say about that is the obvious point that they should regard it as considerably more acceptable / less unacceptable than a 100% loss, and anything beyond that is basically up to the individual HYPer. My point is just to illustrate how I would go about answering your second question once I'd decided about that, and why I don't really regard your first question as having an answer: in the total-loss risk calculation I've done above, I want to move up from one provider to two at £121k, from two to three at £425k/2 = £213k per account, from three to four at £2.833m/3 = £943k per account, and never from four to five...

Gengulphus