In the UK we have a Financial Services Compensation Scheme (FSCS) that covers investors for up to £85,000 if their broker goes bankrupt.

We also have a law stating that brokers must ring fence their clients funds so they are kept separate and cannot be spent on day to day expenses or their own investments.

The only way I can see this compensation coming in to action is if fraud is committed or my funds are lost track of due to an administration error and there are costs to find them (Having 85, 170 or 255K worth of protection likely doesn't matter here as I can't see the cost being that great).

Are big Stockbrokers audited to check client funds are ring-fenced or is it feasible Vanguard, Interactive Investor or Degiro could illegally spend my funds then go bankrupt? Given this is there any point in splitting up my portfolio across multiple brokers when I can pay less fees sticking with one broker?

  • @AakashM you're right. I missed the country code, thinking he was asking for the US counterpart.
    – RonJohn
    Jul 17, 2019 at 12:14

2 Answers 2


Generally you are correct. Stocks bought via a broker are supposed to be ring fenced assets and as such the FSCS only helps you in one of the following situations:

  • You happen to have a major amount of money in your current account, while your broker goes bust.
  • Your broker somehow manages to lose your stock, which is not totally unheard of (especially while buying, selling or transferring to a different broker) and refuses to compensate you.
  • The broker commits fraud and basically steals your ring fenced assets (as they are legally your property).

Ring fencing is also not limited to your broker, as most funds offered for sale in the UK are UCITS funds. The UCITS standard guarantees ring fencing of all assets inside the fund and also supervision of the ring fencing by an independent custodian. [1]

Overall stock brokers and fund providers depend on the trust, the general public has in them. They can't afford to loose that trust, so they have a great incentive to be transparent about their asset management practices and often offer extensive documentation. [2]

So will the FSCS save your butt if John Bogle turns all evil?

The problem with that, is that Vanguard has $5.2 trillion in assets under management, as of January 2019 [3], while the proposed budget in 2019/20 for the FSCS is £79.6 million.[4]

More seriously put: If really bad stuff happens to the economy at large, you can't take for granted that the FSCS will refund that £85,000 to you.

Does it make sense to split your portfolio across multiple brokers?

There is no easy answer to this question, as it is a personal decision, but I would say most people opt to keep their stocks with a single broker (and often also with a single ETF provider) and trust in proper ring fencing being carried out.

For other deposit-like assets in their portfolio (like CDs) more people opt to use multiple banks and only invest funds limited to the £85,000 (or €100,000 in the €-room states), as far as my personal experience goes.

[1] http://europa.eu/rapid/press-release_MEMO-12-515_en.htm

[2] https://global.vanguard.com/portal/site/portal/ucits-documentation

[3] https://about.vanguard.com/who-we-are/fast-facts/

[4] https://www.fca.org.uk/publications/consultation-papers/cp19-9-fscs-management-expenses-levy-limit-2019-2020


You should pay more attention to dishonest broker tactics rather than how secure is the fund with the brokers. After various global financial crisis and Baring banks incident, many countries have regulated and banned many speculative leveraging activities. Thus there are little chances that Stockbrokers are able to take the money and run away.

Passive funds like Vanguard still making money and pay the staff from the extremely low management fees that range from 0.01% to 0.1% upon the investor asset values (Net asset value). Because passive fund keeps the trading activities to the minimum, the operating cost (staff cost, auditing cost) is kept to minimal.

On the other hand, "active funds" making even more money themselves by charging much higher management fees (from 0.5% to 3%) and transaction fees(0.5% to 1%). Actually, active funds always make money regardless of investor asset conditions. In addition, active funds manager may resort to another way of making more money themselves, i.e. by getting commissions kickback from rapid trading, by using day trading as a cover-up.

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