Vanguard investments - £85k compensation limit

[zico]

Vanguard investments seem to be highly regarded on this site, but I was just wondering if there was a £85k compensation limit (similar to banks) in the unlikely event of Vanguard going bust.
Even if compensation schemes don't apply, should I invest in other companies than Vanguard to avoid having all my eggs in one basket?

[mc2fool]

Vanguard investments seem to be highly regarded on this site, but I was just wondering if there was a £85k compensation limit (similar to banks) in the unlikely event of Vanguard going bust.
Even if compensation schemes don't apply, should I invest in other companies than Vanguard to avoid having all my eggs in one basket?

Yes and yes.

[Alaric]

in the unlikely event of Vanguard going bust.

Vanguard as with any fund manager or Broker could go bust, however the assets in the funds are ring fenced from being seized by a liquidator. Your risk is that you lose access to the funds on a temporary basis.

That's different from putting money into a bank or similar where the ownership of assets becomes theirs and depositors are one of a long line of creditors. That's when the compensation schemes can kick in.

[mc2fool]

Vanguard as with any fund manager or Broker could go bust, however the assets in the funds are ring fenced from being seized by a liquidator.

a) Assets in the funds are supposed to be ring fenced. They may not be, due to fraud and/or a variety of incompetence/cockup reasons; there have been some examples of that in recent years (e.g. Pacific Continental Securities).

b) As seen in the recent Beaufort Securities case, an administrator/liquidator can take their costs & fees out of client assets, even if they are properly ring-fenced.

Having said that, I most definitely wouldn't class Vanguard as being in the same league as PCS or Beaufort, and do have over £85K in their funds ...

[hiriskpaul]

If your money is in OEICs you have FSCS protection up to £50k per provider in the event of a loss caused by fund manager negligence or fraud. There is no similar protection in the case of ETFs or ITs. In fact you probably have greater protection in the case of OEICs as these are essentially retail financial products and the FCA have powers to order the fund manager to compensate retail holders if say a fund manager went rogue. I received quite generous compensation into a pension plan I had that held a fund run by this guy:

https://www.theguardian.com/uk/2000/dec ... illtreanor

Morgan Grenfell was the fund manager at the time, but they were taken over by Deutsche Bank who became responsible for compensation.

I would not want to overstate the likelihood of something like this happening with a passive ETF or fund though. Such funds are just too transparent and any marked deviation from the index should become apparent very quickly.

[mc2fool]

If your money is in OEICs you have FSCS protection up to £50k per provider...

It went up to £85K last April. https://www.fscs.org.uk/what-we-cover/investments/

[hiriskpaul]

If your money is in OEICs you have FSCS protection up to £50k per provider...

It went up to £85K last April. https://www.fscs.org.uk/what-we-cover/investments/

That's good news. I never really understood why the FSCS limit was lower for investment firms.

Probably worth pointing out that FSCS protection is the last resort. You cannot get an FSCS payout unless the investment firm actually defaults and goes out of business. Liquidators will pick over the bones of an investment firm and pay off creditors first. Only after that process has completed will the FSCS step in to cover any shortfall. So the whole process might take months to years before investors are compensated up to FSCS limits.

[Lootman]

I most definitely wouldn't class Vanguard as being in the same league as PCS or Beaufort, and do have over £85K in their funds ...

Indeed. Vanguard is the second largest asset manager in the world, with over $5 trillion dollars in assets under management. Their investor base is loyal. And Vanguard avoids the risky parts of the markets, having a very conservative approach to new funds, avoiding fads and fashions. You won't find a cannabis fund, a bitcoin fund or a leveraged hedge fund there.

If Vanguard were to fail then you'd have to assume that there is a financial crisis of such severity that you will have a lot of other things to worry about. I have a fair amount with Vanguard, well over £85K, and I never worry about it.

[mc2fool]

That's good news. I never really understood why the FSCS limit was lower for investment firms.

That's only since the global financial crisis. Before that it was the other way round, with £31,700 for deposits and £48,000 for investments. https://web.archive.org/web/20070218223 ... on_Limits/

Deposits were upped to £50K from Oct 2008, and then the EU mandated Euro 100K or nearest-round-number equivalent in other currencies from 2011, but investments were left behind until this year.

[AlanS103]

I am retired, aged 74, and have savings in cash, ftse 100 shares, and ETFs. Shares and ETFs are held in ISAs. The ETFs are all in Vanguard and have a value above 85k. Should I reduce the Vanguard ETFs holdings to 85k and put the remainder in another provider such as BlackRock. Is it worth taking the hit of the trading and spread costs to achieve the greater safety? I would have to sell ETFs worth about 70k.

Thanks Alan

[scrumpyjack]

gave up worrying about the 85k limit ages ago. It is impractical to split your holdings over many brokers and you just end up with far more admin and fees.

Just ensure your broker or ETF manager has top notch reputation, is huge and appears financially robust.

I can't understand why anyone would use small dodgy outfits like Beaufort!

[monabri]

Remember, the FSCS covers for LOSSES to the value of assets ( shares and cash combined) to the value of £85k.

In the case of Beaufort, retail investors (ie Joe public) only took a haircut if they held more than £1.6m...and that was when the FSCS was 50k. Their loss was £20k in total from £1.6m.

It's a similar story for SVS.

The biggest problem about having ones eggs in only a single basket is that the account is frozen for many months ( 6 at least). Shares cannot be sold nor can dividends that are accruing be accessed.

[hiriskpaul]

I am retired, aged 74, and have savings in cash, ftse 100 shares, and ETFs. Shares and ETFs are held in ISAs. The ETFs are all in Vanguard and have a value above 85k. Should I reduce the Vanguard ETFs holdings to 85k and put the remainder in another provider such as BlackRock. Is it worth taking the hit of the trading and spread costs to achieve the greater safety? I would have to sell ETFs worth about 70k.

Thanks Alan

ETFs are not regulated retail products and as such provide no FSCS protection at all. Nor do shares, bonds or ITs. Only funds (OEICs/UTs) provide FSCS protection.

Personally I am not the slightest bit concerned about holding Vanguard ETFs from a fraud, etc. point of view. For safety you might want to spread across more than 1 broker in case, as monabri has indicated, something happens to your broker and you are unable to access your investments for a while.

[Aminatidi]

Is the £85K limit per fund or per platform?

i.e. if I had £85K in LifeStrategy 60 with HL and £85K with Vanguard directly what am I actually covered for please?

[JohnB]

Your coverage depends on the failure. If its Vanguard's fault, then £85k across all their funds, if HLs fault, then £85k across things with them. If cash with HL that in turn is spread across 5 (or is it 10) banks, then £85k per bank. And it all tracks back to the parent organisation, so iWeb and Halifax Share Dealing are counted as the same entity.

[Cookie]

So should an ETF fail or experience fraud there is no FSCS for that?

So if there is an equal cost fund and ETF, it might be better to use the fund?

I see new companies like Lxyor reducing prices ETFs to compete, maybe these should be avoided?

[mc2fool]

I see new companies like Lxyor reducing prices ETFs to compete, maybe these should be avoided?

New? Depends on your definition I guess. They've been around for a couple of decades. L100, their FTSE 100 ETF, was launched in 2007. Everyone's been cutting costs since RDR and Vanguard launching in the UK.