Financial strength stockbroker

We use cookies to improve site performance and enhance your user experience. If you'd like to disable cookies on this device, please see our cookie management page. If you close this message or continue to use this site, you consent to our use of cookies on this devise in accordance with our cookie policy , unless you disable them. As if it's not enough to be worried about the state of your portfolio, the economic crisis is making investors worried about what happens if a stockbroker goes bust.

In particular, customers of stockbrokers place great trust in the broker when depositing their cash or their portfolio in one of the broker's accounts.

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But there is also the question of what happens to your investments in nominee accounts if the broker goes bust. Investors' Chronicle readers, particularly those who have sold shares and retreated to cash, are becoming increasingly worried that their trading accounts are safe. One IC reader writes: In view of the current banking situation, where do I stand if any of these nominee accounts' trustees fail?

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Are the underlying shares element still mine and what about any cash in the account? I understand share values fluctuate and we could lose money but I do not expect to lose if the nominee fails? This is because assets held by a nominee account are legally separate from those of the trading company which administers the nominee account, and as such cannot be taken into account as an asset of the company if it goes bust or into administration.

In the event of the failure of the management company, the nominee company would be transferred to the control of another administrator and your assets would remain in place. There are also very strict controls and procedures which nominee accounts must operate within.

This doesn't, however, mean retrieving your assets would be a smooth process if your stockbroker went bust. The UK Shareholders' Association has often raised the dangers of holding shares in nominee accounts as opposed to having the shares registered in your own name.

When Pacific Continental Securities PCS , a firm which specialised in promoting smaller companies, went into administration in June , customers with shares in the nominee account found themselves at the mercy of the administrators' bureaucratic process. The administrator had to establish that they were the rightful owners of the assets and reconcile the total claims of all the former PCS clients to the holdings on the share registers of the companies in which PCS has invested on their behalf.

In effect, shareholders could not obtain full title to the shares or sell them for several months. But it is often difficult to find a broker who allows direct registration, and if you are investing in tax wrapper such as an Isa or self-invested personal pension Sipp , then the nominee account is your only option.

Faced with this economic crisis, it makes sense to double check your broker is authorised by the Financial Services Authority FSA and also to check where your broker holds cash on your behalf.

Here is what the Financial Services Compensation Scheme FSCS has to say about investments held by nominee companies:. If not, we will pay compensation only if the nominee firm is authorised by the Financial Services Authority. You can check this be using the FSA's Firm Check service at www.

The investment compensation is mainly intended to pay out if consumers suffer detriment as a result of bad financial advice. However, if an authorised firm is declared in default and you lose money as a result, this could be a useful safeguard. For investors who hold cash in their shares Isa, the FSCS says that cash will be treated as if it were held in a deposit account, and that the wrapper is not important. Francesca Pattison of the FSCS says: Stockbrokers are lining up to reassure their customers that their money is safe.

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TD Waterhouse chief executive officer Angus Rigby says: We are backed by the financial strength of the TD Bank Financial Group TDBFG , one of the largest financial institutions in North America with an employee base of 74, in offices around the world. Crucially, it is one of the only banks in the world to avoid write-downs due to the US sub-prime mortgage market and has an AAA rating from Moody's, the highest rating available. Although the impact of developments in the US are being felt to some extent all over the world, the Canadian financial services sector, and TDBFG in particular, remains well positioned.

Our current policy confines us to the five main British clearing banks because we believe that it is highly unlikely that the British government will allow any of the key clearing banks to fail and default on depositors.

We currently hold no cash with foreign banks or their British subsidiaries.

Hargreaves Lansdown says its policy of spreading cash between five institutions means clients can receive up to five times the normal level of protection.

Got a question about investment security? Use the Your Opinion form to send it to us Read more reader questions - and our answers - on the Your Opinion page.

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The answer is no, as the situation regarding investment clubs is different to that facing individuals. This payout is per organisation, not per member.

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