‘Will I lose all my money?’
This is one of the first questions people have when they’re investing for the first time.
Because it’s easy to think that it’s quite a risky thing to do compared with saving money in a bank account.
But how risky is it?
One thing to know is that you’re protected for up to £85k per financial institution by the FSCS.
Does this mean you should open 10 different investment accounts with 10 different providers for maximum diversification and protection?
Not necessarily!
So how does it actually work?
An important thing to keep in mind here is that investment platforms themselves don’t hold your money, they keep your money with an underlying bank. So you need to know where your money is actually being held to get an accurate picture of your FSCS protections.
In the UK, firms that offer financial services need to be regulated by the Financial Conduct Authority (aka the FCA). You can check the Financial Services Register to see if your firm is authorised and exactly what they’re authorised to do.
Before you invest, it’s important to understand that you wouldn’t be protected simply because your investment doesn’t do well. This is the fun and also the risk of investing – you can’t claim back if you get back less than what you put in. But it’s worth looking into which protections your investment firm has in case your investment provider goes out of business.
But if you’re receiving financial advice about your investments, the investment adviser has to make sure the recommendation they’re making is right for you and your goals. If you feel you’ve been invested in something which isn’t in line with your objectives or your risk appetite then you may be able to complain to that firm and the Financial Ombudsman Service (FOS).
Generally, if you use an FCA-authorised firm you’re likely to be protected by the FSCS and the FOS. If you use a non-regulated firm or a firm based outside of the UK, then you likely won’t benefit from this protection. So do consider all of these things before picking your investment platform provider.
*With investing your capital is at risk. Your investments may go down as well as up, and you may get back less than the amount you invested.
