Does this ISA strategy make sense?

[bibledave]

Let's pretend that over the next several years I'm able to max out my ISA contributions.

Given that the FSCS currently protects upto £85k, does the following strategy make sense? Or is it over engineered?

Year 1: Max ISA contribution to Provider 1 E.g. Vanguard

Year 2: Max ISA contribution to Provider 1 E.g. Vanguard

Year 3: Max ISA contribution to Provider 1 E.g. Vanguard

Year 4: Max ISA contribution to Provider 1 E.g. Vanguard

Year 5: Max ISA contribution to Provider 1 E.g. Vanguard

Year 6: Max ISA contribution to Provider 2 E.g. Fidelity

Year 7: Max ISA contribution to Provider 2 E.g. Fidelity

Year 8: Max ISA contribution to Provider 2 E.g. Fidelity

Year 9: Max ISA contribution to Provider 2 E.g. Fidelity

Year 10: Max ISA contribution to Provider 2 E.g. Fidelity

Year 11: Max ISA contribution to Provider 3 E.g. Hargreaves Lansdown

... etc.

So that, by year 12 (for example) I have three different ISAs with three different Providers.

Good strat?

 

[ryanjameskirby]

@bibledave The protection value is irrelevant if the money is invested.

 

[bibledave]

@ryanjameskirby Why?

 

[justin017878]

@bibledave In simplified terms if you save cash the banks will take your money and lend it to others for mortgages etc, if those people don’t repay and then you want to withdraw your money the bank doesn’t have it to give and so the government will step in and pay it to you which is what the FSCS is there to do. Obviously I mean this at the macro level where millions of people don’t repay their loans and the bank goes bust and not just one person who was loaned “your money”.

If you instead buy shares the bank will hold your shares in a special separate account and leave them there. If the bank goes bust those shares in your name can just be transferred to a different bank to hold for you and nothing is lost.

 

[ryanjameskirby]

@bibledave Because the money is invested in a fund or other assets. Unless the S&S ISA provider itself has been misappropriating client funds - if they themselves go bankrupt, the assets still exist in the investment and will be transferred to a new provider which you can then access.

The 85k is only really relevant for cash.

 

[jb21]

@bibledave Because FSCS covers cash in a bank, and malfeasance by financial firms. It doesn't cover investment losses.

Any major fund platform or stockbroker has multiple layers of customer protection and asset ring fencing.

If you're investing in Vanguard funds via Fidelity the FSCS would never come into play.

Once you have one million in your SIPP what would you do ? Spread it across a dozen different pension providers !? It's just not practicable.

 

[metsfan5976]

@jb21

“If the administrator can’t recover fees from company assets, it’s legally allowed to do so from client assets instead.” In theory, the administrators can use client assets to pay their fees. Administration is a costly process with each stage of the process needing to be approved by the courts. Previous broker administrations have seen bills run into tens of millions, which can come out of investors' pension pots.

https://www.investorschronicle.co.u.../11/07/what-to-do-when-your-broker-goes-bust/

But yea, Someone else was asking about this a couple of days ago, Some seem to think that the FSCS will cover their investment choices, this is why brokers make you fill out the questions to see if you understand the product.

 

[resjudicata]

@bibledave If Vanguard were to go bust, very unlikely, you would still own the underlying shares, it is not like there is cash money in a current account that would evaporate, all the wealth is in property.

It is more akin to if your estate agent went bust, you would still own your house.