Some investors have asked us for guidance on what happens to their investments if Chelsea, Aegon or product providers collapse. The following is our understanding of the situation, which we hope will be helpful.
The Financial Services Compensation Scheme (FSCS) protects:
Bank deposits : up to £85,000
Investments : up to £85,000
If Chelsea collapses (very unlikely, as Chelsea has no direct exposure to the market) the investor will not suffer, because investments are held with Aegon or product providers, not with Chelsea.
If Aegon collapses the investor is protected up to £85,000 for Cash and £85,000 for investments. However, such a collapse is also very unlikely since Aegon is simply a platform for holding funds and it is the funds themselves (and their underlying shares) that are exposed.
If a product provider or one of its funds collapses, the investor is protected up to £85,000 per product provider, whether held through Aegon or not. Thus, if an investor holds Jupiter and Fidelity (either directly or through Aegon) and they both collapse, he can claim £85,000 in respect of each.
As a point of detail, if Jupiter collapses and an investor has some Jupiter holdings through Aegon and some directly, he can only claim £85,000 for all his Jupiter holdings: he cannot claim £85,000 twice.
The collapse of a major product provider is very unlikely: they are all heavily capitalised so should weather any storm; and also, by definition, funds spread their risks across a number of different shares. Some of those shares in individual companies may become worthless and the whole sector may suffer, but this will most likely lead to a lowering of the fund's unit price, not its complete collapse.
One further point needs to made about any cash you hold in your Aegon account. The FSCS treats this as a deposit with Aegon's bank (Aegon only use banks that have met their strict requirements). Your cash is therefore protected, by the FSCS, up to £85,000. Please note that if either Aegon or one of the banks collapses and there is a claim, the FSCS would take into account any other deposits also held by that investor with these banks.
Finally, it must be emphasised that, despite the traumas of recent years, not a single depositor has in fact lost a penny and it is thought highly unlikely that the Government would allow any depositor to lose money: they will allow shareholders in banks to suffer, but not depositors.
Please do not hesitate to contact us if you require any further information or explanation or visit the Financial Services Compensation Scheme website at www.fscs.org.uk/consumer