News/Events

Investor Protection [9th October 08]

With the current turbulent financial markets, investors are becoming increasingly concerned about their Investments and Investor Protection with many being unsure about what is covered and by whom.

Well firstly, the core protection when a Financial Services firm is unable to meet claims against it is provided by the Financial Services Compensation Scheme (FSCS). The FSCS covers business conducted by firms authorised by the Financial Services Authority (FSA) and is funded by levies from these firms. 

Deposit Accounts - savings protection has been increased by £15,000, from 7^th October 2008 so individuals are now covered up to £50,000 (100% of the 1st £50,000 of each depositors claim). Joint holdings will have double the cover e.g. £100,000.

Investment business - protection is provided up to a maximum of £48,000 (100% of the 1^st 30,000 and 90% of the next £20,000).

Life Insurance – contracts covering long-term policies such as pensions, annuities and investment bonds that may incorporate an element of life assurance, protection is provided where liabilities cannot be transferred to another insurer, 100% of the 1^st £2000 followed by 90% of balance (without limit) is covered.

It is vital to remember the above cover is provided according to a financial institutions compensation licence with many multiple providers being connected and classed as one provider. So, you may only be covered once up to the compensation limits despite having accounts with different Providers.

There are exceptions as Tesco and NatWest are working with Royal Bank of Scotland but they are classed as separate entities holding their own compensation licences and thus covered separately by the FSCS. 

Careful planning of your Investments can make sure you gain maximum FSCS protection. Confused? Ask for our leaflet “Who’s Who”

As I write this article Gordon Brown continues to be put under pressure to raise the limit to a blanket 100% guarantee but will become a reality? One could say the Government will step in to secure a crippled Institution with more tax payers’ money to maintain a stable banking system which they have done already with Northern Rock and Bradford and Bingley.

Many Companies are responding by providing Investor Protection to attract new monies with a flood of products coming onto the market offering some form of capital guarantee for lump sum investment and ISA accounts. They are not like the Precipice Bonds of old where you were exposed to the chance of not getting back the original amount invested as most now offer 100% capital guarantee albeit with a minimum investment period. They make sure you do not suffer a loss if markets decline, but, benefit if markets rise.   Returns may be geared e.g. not equal to the exact growth in the market as this allows the company to offer the guarantee and opportunity for growth.

Products with some form of Investor Protection are now also available for Pension products in order to secure capital values upon nearing retirement or guaranteeing a certain level of retirement income.

Due to the variety products and more importantly the variance of terms, charges and exit penalties it is vital Independent Financial Advice is sought to make sure the most appropriate product to suit your needs and attitude to risk is identified. So contact your IFA for a consultation.

This article was written by Langtons - Published in the Western Morning News, Money, 9th October 2008