Is it a good idea to spread investments over multiple stockbrokers?

Question

In the UK, I believe stock brokers are required to use nominee accounts to hold shares on behalf of individual investors, so that if the stock broker were to collapse the investments themselves are safe.

But in cases of fraudulent accounting or recklessness (i.e. Pritchard Stockbrokers), it is still possible to lose money when a stockbroker fails.

Do investors with large portfolios (6 or 7 figures or more) spread investments over multiple stockbrokers to mitigate this risk?

What about the actual funds? Is it a bad idea to invest large amounts in funds provided by a single company, e.g. Vanguard? Could you lose you money if a fund management company like this goes bankrupt?

Answer 1

It is possible to lose money if a UK stockbroker fails although there is some protection against this via the FSCS. It used to be £50,000 but changed in April 2019 to £85,000 per person per firm. Not much use if you happen to have 7 digits worth of assets.

Fraud at the brokerage could mean your money never reaches the safety of the custodian. Fraud at the custodian could also mean funds go missing.

These are both supposed to be unlikely events and there are regulators to minimise that risk. But it still exists.

For this reason, I personally hold my assets via two different brokers. However, I have no idea what others do. And of course, using two brokers only reduces the risk, it doesn't eliminate it. Plus it increases costs.

The same surely applies for funds. Put all your eggs in one basket and you are at risk (albeit a tiny one) of losing them all.