Should I invest with a global business with a brand name or am I offered the same protections with a smaller, personal firm like Magus Wealth?

Financial planners have the expertise to advise on how best to achieve your goals,  manage your investments on your behalf, and make key decisions on where to invest your money.

You might:

• Be planning for retirement;
• Be investing sale proceeds from your business;
• Wanting to leave a legacy to your family; or
• Turning your assets into a source of income

Whatever you are investing for, we understand you place a lot of trust in us.

A short overview of the investment landscape

Financial investments carry a degree of risk. A Financial Planner needs to find a comfortable balance of risk and reward. The risk isn’t just about a particular investment performing as well as expected. You may have concerns about what happens if a business you are dealing with goes bust and there are also risks around fraud, negligence, and bad advice.

A brief look at how the investment industry works

In the UK, all operators in the sector should be governed by the rules set out and monitored by the Financial Conduct Authority (FCA). They are subject to the authority of the Financial Ombudsman Service (FOS) which investigates complaints. And they should be members of the Financial Services Compensation Scheme (FSCS), which protects an investor’s money up to guaranteed limits.

One of the key principles of consumer protection in financial services is that the rules and guarantees are the same for everyone: large institutions, small firms, major investment funds, and small private investors – even the largest global bank doesn’t provide higher FOS or FSCS levels of protection than your local IFA.

If you ask Magus to manage your investments, we won’t handle your money. Investment transfers go to a ‘Wrap platform’ business. The money is then invested in selected retail investment products, such as ISAs, personal portfolios, and pensions, and so on. Uninvested funds are held in client accounts in accordance with FCA and Prudential Regulation Authority rules.

Every touchpoint – the Financial Planner, wrap platform, fund manager, registrar for investment products – is regulated by the same rules of conduct set out and policed by the FCA.

Those rules dictate that investment assets are separate from any business that handles or manages the investment’s own assets. This means if Magus did go into administration, you would appoint a new firm to provide the financial advice you need.

Your assets, including any cash, are completely segregated from the assets of the wrap platform company in accordance with the FCA’s Client Assets rule.  This means that if the wrap platform goes into administration, your assets are ring-fenced and protected from its creditors.  This separation is usually achieved through all client assets being held via a nominee company, separate from the operating platform company, with you recorded as the beneficial owner.

FSCS and insolvency

You may also be concerned that having invested your money, and if things go wrong that all is lost – if a company you have invested in or are handling your investments becomes insolvent, your losses are protected to some degree. Check the FSCS website for specific dates and terms.

• Long-term insurance (life and PHI): 100% with no upper limit.
• Annuity (being drawn): 100% protected.
• A pension only invested in the life office’s own insured funds would have 100% protection. Where external funds are used or where a SIPP invests in a variety of assets, the position will depend on the investments used.
• Cash in bank/building society account: £85,000 per person for each separately authorised bank/building society (some banks share a license meaning only one set of £85,000)
• Investments: £85,000 per person

Investments, including mutual funds, self-invested personal pensions (SIPP), and onshore bonds, all fall within the FSCS remit. In many cases, there are additional protections. Where investments are held in trust, assets are often 100% ring-fenced and protected.

For example, in the case of mutual funds and SIPPs, if the fund manager becomes insolvent, a custodian is appointed whose sole purpose is to protect the investment assets, which lie beyond the reach of creditors.

Fraud and misconduct

You may be concerned you will be mis-sold a product and you will lose the money you invested as a result of misconduct or negligence.

The 2008 global banking crisis involved misconduct at the highest level at some of the world’s biggest investment banks. Regulators improved governance and regulation of the markets to protect investors’ money and rebuild confidence in the system.

The FCA has improved governance and tightened regulation across the industry to make investments safer for investors. Conduct is monitored, and any alleged offences are investigated and punished – anyone found guilty of an offence is liable to have their license revoked.

If service providers face financial difficulties, the rules governing ring-fencing of investment assets ensure most investors can be confident of getting their money back. The FSCS acts as a further guarantee to cover losses.

Whether you appoint Magus or anyone else to look after your money, you should check;

• Employees are signed up to the FCA Code of Conduct, along with similar schemes operated by the Personal Finance Society and the Chartered Institute for Securities and Investment.
• Each year, Financial Planners and Directors are subjected to a credit check to ensure that they are not under financial duress
• Look for a firm that proactively monitors client work and takes all complaints seriously.
• In the event of negligence leading to financial losses for clients, check the firm is covered by Professional Indemnity Insurance and ask for a copy of the current policy schedule.
• Check the Financial Services Register to view the status of your chosen firm and the regulated individuals.

If, after making a formal complaint, you remain dissatisfied with any internal procedures, you can take your concerns to the Financial Ombudsman. The FOS has the power to make an enforceable judgement. This might include paying compensation for proven misconduct. The FCA has increased the FOS award limits to £350,000 for complaints about acts or omissions by firms that take place on or after 1 April 2019, or £160,000 for complaints about acts or omissions by firms that took place before 1 April 2019 and which are referred to the FOS on or after 1 April 2019.

In summary

The decision to invest your money carries an element of calculated risk. The nature of the investment markets means there can’t be any guarantees. However, you should not have to worry about losing your money, either because the business you deal with gets into financial difficulty, because you are mis-sold products, or fall victim to fraud.

Choose a reputable, established financial planning service provider, licensed, and regulated by the FCA.

Please note:

The Financial Conduct Authority does not regulate Trusts.

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

Information contained herein has been obtained from sources believed to be reliable but is not guaranteed. While Magus uses reasonable efforts to ensure that the information contained within articles is current and accurate at the date of publication, no warranties are made, either expressed or implied, as to reliability, accuracy, or completeness of the information. Magus accepts no liability for any loss arising directly or indirectly from the use of or action taken in reliance on such information.