When a broker goes bust

Cris Sholto Heaton looks at what can happen when your broker goes under, dragging your money down with it.

Two weeks ago, we wrote about the rules intended to protect your account if a broker goes bust. Account safety is rightly a big concern with investors, so we weren't surprised to receive more questions about the worst-case scenario when a broker fails and clients' assets are not segregated from the firm's own (as they are supposed to be). While it's difficult to generalise, two protracted cases give an idea of what can happen.

When Pritchards, a UK-regulated stockbroker, collapsed in February 2012, it turned out that the firm had been using clients' money to pay its own expenses. Around £400m in securities were intact (barring some record-keeping issues) and were transferred to a new broker, but there was a cash shortfall of £3.1m. Clients could get up to £50,000 from the Financial Services Compensation Scheme (FSCS) to cover losses; this, together with the cash remaining at Pritchards, means that the vast majority of clients should be made whole (the FSCS has already paid out £8.9m).

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Cris Sholto Heaton

Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.