Should I hold my ISA and my SIPP on the same platform?

13th Mar '19 by Jonathan777

19 comments 3011 reads

Do people have any views please on whether it's prudent to hold one's ISA and SIPP on the same platform? Or should one spread the risk of something going wrong with any given platform by holding ISAs and SIPPs in separate places?

The context for my question is that, while the majority of my shares are denominated in sterling, because of the lower FX costs for dealing in dollar-denominated US shares (I hold four in total, but I’d like to add another), I currently have my ISA with IG. I've just read, however, that if I hold dividend-bearing US shares in an ISA, I'm paying 15% US withholding tax, whereas in a SIPP, no US withholding tax is payable. (Only one of my four US shares pays a dividend, but the new one I’d like to buy is also a dividend payer.) So I'm thinking of moving my SIPP from Alliance Trust Savings to IG and using it as a new wrapper within which to hold dividend-bearing US shares. Meanwhile, I can continue to hold non-dividend-paying US shares in my ISA. If it wasn’t for this issue, then I’d be happy to keep my SIPP with Alliance instead of moving it to IG where my ISA is also held.

Thank you very much for reading this.

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jonesj

14th Mar '19

Due to a distrust of the nominee system, I have my ISA and SIPP with different providers.
Furthermore, once my original ISA reached a certain size, I stopped further contributions and started with a new provider the following tax year.

I know brokers are supposed to ring fence the money and I am sure they will do just up until the point where the broker is about to fail and the directors want to pay themselves first.
One day this country might get around to replacing the nominee system with direct holdings, like Singapore does.

gus 1065

Hi Jonathan.

For historic reasons, I hold my SIPP and ISA (and other) investment accounts with different counterparties. The SIPP is with Fidelity, the ISA with Charles Stanley. It’s not the most cost efficient arrangement as the expenses would be lower from having a single provider due to the way the fees are calculated on the investment balance and get marginally lower for higher amounts. As Fidelity have recently introduced a share dealing that seems to be reasonably good from use so far (until recently they only did funds) I’m considering consolidating the two into a single account but for reasons such as those posted by jonesj I’m slightly wary of sticking all the eggs in one basket (although loss of either egg would be a major issue). You’ve probably already done a fair bit of research, but you may find the attached piece from Fidelity on customer funds security a reasonable (albeit partial) overview of the situation.

https://www.fidelity.co.uk/how-is-my-money-protected/#170214

Gus.

Jonathan777

Many thanks jonesj and Gus for your thoughts. I hear you on the dangers of putting all one's eggs in one basket, so I won't go down the route of moving my SIPP to IG and holding it there along with my ISA. And at some point in the future, I may even consider splitting my ISA and SIPP across different providers.

Given that my current SIPP provider, Alliance Trust Savings, doesn't have a facility for holding US shares, I'd be grateful for any input regarding a SIPP platform apart from IG that has low FX charges for US shares. (As mentioned above, I'm talking in particular about holding dividend paying US stocks in my SIPP, because I understand it that no US witholding tax is payable on dividends in a SIPP, whereas in an ISA this tax is payable at 15%.)

doug2500

I also distrust the nominee system enough to spread my accounts around. I accept it's a small risk but the potential disruption if not financial loss means I'm happy to accept small costs to diversify my accounts.

I'd be interested in any feedback on IG for an ISA though? As a shareholder I was considering them if I want to open a new ISA.

Hi Doug, IG work well for me as an ISA platform, though I wish now that I'd used it for my SIPP, because of the advantage as I understand it re US withholding tax in holding US shares in a SIPP as opposed to an ISA. Jonathan

Velo

15th Mar '19

There is a very pertinent question in there along with the USA tax-free question and just crying out for a switched-on professional journo to knock off a piece on the latest safety/security or otherwise of nominee accounts and what protection from stockbrokers, do investors have, should such stockbrokers become insolvent.

The facts as I understand them do not make for edifying reading. I have my SIPP with HL and I've come to appreciate that their platform is a market leader IMO. Quality of service (phone) is excellent too. But my SIPP is held in a nominee account with them (come back to that in a minute).

I contacted them some years back in the day, enquiring about the safety of opening an ISA with them, alongside my existing SIPP. I was informed that I would be covered by the current guidelines; which means a maximum of £85k is compensatable. I have a six figure sum with HL so that wasn't much comfort to me. I was told they use two banks, but the operative didn't divulge the names of the two banks, and I didn't request it.

So I opened a new ISA with AJBell. I asked the same question there, and was met with the same response that compensation was set by the govt at a maximum of £85k - per bank! Again the operative couldn't confirm what bank they used but admitted it could easily be the same as one of the two banks HL use so I wouldn't be covered for £85k for both stocker brokers in that case - only £85k for the whole lot, PER BANK
- if both stockbrokers use the same bank!

Since then I've opened further ISA's with iWebb, IG (and before that Selftrade but now closed).

Remember it's per bank account, not per stockbroker account, so if you have multiple stockbroker accounts that all use the same bank, you don't get protection of £85k per account- but £85k max for any/all of the accounts should all the stockbrokers use the same bank. One million pounds dispersed over 10 different banks would offer £850k protection but one million pounds dispersed over 10 different stockbrokers who all per chance used the same specialist bank would mean only £85k of that £1m would be protected.

Now nominee accounts:
How safe are they? Potentially - not very - should you get a stockbroker with management similar to Patisserie (CAKE) who cooked the books recently and have been arrested by fraud police. Nominee accounts (all of mine are those) means they're not legally your shares but instead the broker's name is on the share registers - not yours. The company you have shares in, has no record, nor knowledge of your exsistence at all. They're all in the name of the broker and he legally owns your shares. There's supposed to be a 'segregation' system in operation but it effectively works on "honour" only, that's supposed to prevent foul play, but when push comes to shove and a stockbroker hits the rails all manner of games could be done with your shares - sold without your knowledge even.

Here's a quote on nominee accounts: (Just Google "How safe are nominee accounts?" or some such)

---------
"Segregation is effectively an honour system, where the broker is expected to do the right thing and keep client and firm assets separate. In some cases, regulators and exchanges will be checking up on their holdings regularly, but obviously they can’t keep an eye on what’s in which account all the time.

So the system is open to fraud and abuse. If your stock broker decides to sell or move shares from nominee accounts, they will be able to do so.

And of course, fraud like this is most likely to happen when the firm is on the edge of collapse, needs cash or assets to meet its own liabilities and the temptation to ‘borrow’ client assets for a while to tide them over becomes too great – or simply when the management decides it’s time to loot client assets and retire somewhere with no extradition treaty.

So the point at which segregation is likely to offer no protection is just when you need it most.
It’s also worth being aware that even if there hasn’t been deliberate fraud, when a stock broker collapses its records often turn out to be shaky. So establishing which clients own what in the nominee account may take a lot of work and assets may sometimes turn out to have been misplaced in the turmoil."
-----------

On that last note of "shaky records". I print off each month all my holdings (out of fear) so that should the internet go down or cyberspace virus attacks there's no scratching of heads to recall my holdings They're printed monthly and have been for donkey's years. Ostensibly it's for my own review but the real reason is in case of foul play and Sir Tim Berners-Lee internet becomes toast due to say the work of cyber-terrorists (ie., National Health software in hospitals the other year, anyone? Who says this could never happen in the investment world software/ cloud?

Banks these days, regularily go down with accounts frozen - google your bank - you'll be surprised - they all go down now and then recently - Loydds, Halifax, RBS just recently this year already - and TSB last year).

GrahamF

Velo - Need to be careful to distinguish between a cash ISA £85k of protection and a stocks and shares ISA £50k of protection.

Thanks Graham. Didn't know that or if I once did, I've since forgotten.

timarr

17th Mar '19

Just a note to point out that you can transfer part of a share ISA as opposed to the whole thing, if you're looking at spreading the risk across multiple providers. You can't transfer funds committed in the current tax year, but otherwise there's no legal restriction. Whether ISA providers are set up to manage this is another matter, of course.

Note also that cash held in a share ISA should come under the separate £85,000 limit for investor funds. Well managed ISAs should spread this risk around - see ii's policy here:

https://www.ii.co.uk/about-ii/...

Broadly I reckon there's safety in numbers, I wouldn't want to hold ISA or SIPP funds outside of the biggest providers, regardless of charges. "Too big to fail" isn't much of a risk mitigation strategy, but if AJ Bell or Hargreaves Lansdown failed I think you'd see a fairly significant political response. And large companies are less likely to be able to hide dubious practices, simply because more people would have to be in the know.

Following on from Timarr's comments do people think there's any merit in using publicly listed brokers so you can have a peek at their balance sheet a couple of times a year?

Obviously this wouldn't help in an out and out fraud like Patisserie Holdings (LON:CAKE) but brokers like Hargreaves Lansdown (LON:HL.) IG Group (LON:IGG) and Jarvis Securities (LON:JIM) have published accounts which would be well scrutinised, especially the bigger FTSE350 companies.

cig

Direct shareholdings still require an intermediary between the punter and the registrar, let’s call it a broker, who can still fraudulently sell shares with low chances of detection. Also if you’re paranoid you should also worry about rogue registrars...

In practice broker fraud cases seem to involve client cash rather than client holdings as this is the lower hanging fruit. This is easily avoided by keeping cash under the insured limit (using gilt or the like if a large cash-like exposure is required).

No, the balance sheet is always tiny relative to AUM and hardly relevant to cases involving fraudulent handling of client funds. In non fraudulent cases, the punter is protected well enough.

At the edge quoted brokers are probably safer. As events at Beaufort Securities showed, if the holding company goes bust then account holders can find themselves locked out of their accounts for long periods. The possibility of the administrators trying to use client funds to pay their fees hasn't gone away either, even though that proposal was eventually defeated in the Beaufort case.

So anything that helps shed light on the stability of the broker is, at the margins, better. Fraud is another matter, but as I stated earlier, the larger the company the harder it would be to keep a full blown conspiracy secret. I would never put funds in any smaller provider, regardless of fees or projected returns.

timarr

Sound advice, which I will follow. Thank you.

Thanks, cig. That's reassuring to know that broker fraud cases seem to involve client cash rather than client holdings. This makes the current protected amount of £85K feel much more relevant.

And cig... just wondering please if this also applies to insolvency as well as fraud? Are the risks here primarily against cash rather than holdings? Or in the case of insolvency are holdings equally in the firing line?

Hi timarr. Thank you for all your thoughts.

The "safety-in-numbers" approach makes total sense. And I can see how visibility regarding the stability of the broker could also prove be an advantage...

On this note, can anyone please point me to a list of the biggest ISA/SIPP providers? And can anyone also please tell me where IG (my current ISA platform) come in this list? (Lots online re the 'best' or 'cheapest', but can't immediately see anything re the 'biggest'.)

And is my understanding that I should try to hold dividend paying US stocks in my SIPP rather than my ISA correct – because in my ISA I'm paying 15% US withholding tax, whereas in a SIPP, no US withholding tax on dividends is payable...? In which case, can someone also please share any thoughts about SIPP providers that have low FX charges?

Thank you!

xcity

Spreading your assets between providers is one route to mitigating risk. But, if we assume that there is a (hard to calculate) risk hierarchy going from low to high, spreading your risks by shifting assets away from the lowest risk provider may not actually reduce total risk.

Beaufort was another illustration of problems arising from from a back office that doesn't hold accurate figures. I automatically close accounts with providers that show evidence of back office incompetence.

JohnEustace

18th Mar '19

The more accounts you have the greater the likelihood of one of them having problems, but the lower the risk of a complete wipe out or having all your money inaccessible for a period of time.

Politically it's probably best to ask who the MP's and senior civil servants have their accounts with.

Should I hold my ISA and my SIPP on the same platform?

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Jonathan777

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