FSCS: Keeping your investments safe

“Never ask a question to which you don’t know the answer,” is supposedly a standard rule among successful trial lawyers (though I confess I first heard it from Rumpole of the Bailey, who, as well as having a less-than-glamorous legal career – other than the unfulfilled early promise of the Penge Bungalow Murders – was a fictional character and may have been making it up entirely). It’s not very sound advice for either journalists or investors, but it came to mind when we decided to survey our readers last month.

After all, we figure that we’re writing for a pretty sensible yet moderately adventurous crowd. So it would have been awkward to discover that your collective retirement plans were based around investing 90% of your pension into Bolivian teak plantations and sticking the balance on the 3:30 at Doncaster. Fortunately, that didn’t happen. The results suggest that you are indeed a shrewd bunch who are fond of Isas, avoid excessive trading and champion the merits of investment trusts. No major surprises there (we’ve dotted many of these findings throughout the supplement in case you want to know more about your fellow readers’ investing habits).

However, one answer came as a bit of a surprise. We asked about the Financial Services Compensation Scheme (FSCS) and the amount of compensation it would pay if a stockbroker or fund platform went bust and your investments or cash were missing (this shouldn’t happen – your assets are supposed to be ring-fenced from the firm’s assets – but sometimes things go awry). The answer is £50,000 – about 15% of you said this. The largest individual group said £75,000 – not right, but understandable since this is the level that applies to deposits at a bank if your bank goes bust (and it’s good to see that most people are aware this has been cut from £85,000 earlier this year). But around half of all results were something entirely different, ranging from “I’ve never heard of the FSCS” to “Unlimited”.

So if you don’t already know about how the FSCS applies to brokerage accounts, what it covers and what it doesn’t, we’d recommend that you check the details at FSCS.org.uk. The FSCS is unusually comprehensive by international standards and it means that British investors shouldn’t feel compelled to stick with well-known names when picking an Isa – it offers you a bit of reassurance if you want to shop around for better rates or a more specialist service. Given that our survey shows that safety issues such as account security and financial stability of your broker are rightly among the top considerations when choosing an Isa, understanding what protects your account if the worst happens makes a lot of sense.