Last week we invited our clients to put their questions to a panel of our experts. A number of clients asked about the security of their investments, so here we discuss some of the key safeguards available to clients of Hargreaves Lansdown.
Hargreaves Lansdown is a FTSE 250 company which looks after £11.1 billion for our clients. The business is managed conservatively, we do not act as a bank, we have no debts and we have no exposure to sub-prime assets. We also hold considerably more cash than the Financial Services Authority (FSA) requires.
Most of the assets of the directors and senior managers is tied up in the business. Directors and staff own well over 70% of the equity and this means that they have a very significant interest in protecting the company.
Except where clients have chosen specific fixed rate deals client money within the Vantage Service is currently held across the five major clearing banks - Barclays, HBOS, HSBC, Lloyds & RBS. Our current policy confines us to the five main British clearing banks because we believe that it is highly unlikely that the British Government to allow any of the key clearing banks to fail and default on depositors. We currently hold no cash with foreign banks or their British subsidiaries.
This view is supported by Alistair Darling's announcement on 8 October. The British government is injecting up to £50 billion directly into banks and building societies designed to shore up confidence in the UK banking system. At least another £200 billion is also being made available to fund short term lending and enable the UK financial system to start functioning normally again.
Our policy is continually reviewed, the primary consideration is always security and we will change the policy whenever we believe it becomes necessary - but we currently aim to hold approximately 20% of our clients' money with each of these five institutions.
Under the Financial Services Compensation Scheme (FSCS), in the unlikely event that any of the banks which we use is declared in default, each individual is entitled to up to £50,000 (raised from £35,000 on 7 October) in total in compensation for losses across all their deposits with that institution. Our current policy, therefore, which spreads cash between five institutions means our clients can receive up to five times the normal level of protection, depending on the amount we hold with each bank at any one point in time and how much you hold with each institution elsewhere.
In addition, all client money is ring-fenced from our own and held on deposit in Trust accounts. This means that we have no legal right to client money, nor would any of our creditors, and we cannot use any of this money to cover the company's obligations. Furthermore, it is subject to controls and procedures over and above those required by the FSA.
Stock you hold with us is held by Hargreaves Lansdown Nominees Limited, a non-trading company which is a member of the Hargreaves Lansdown Group of Companies. As a non-trading company it cannot run up liabilities of its own and Hargreaves Lansdown accepts full liability for any default by our nominee company. All your assets are held in an account designated with your name and, as with client money, are subject to controls and procedures over and above those required by the FSA.
There are more details about the security of your investments here and over the next few days we shall be publishing the answers to a number of other questions our clients put to our experts. If you have any queries in the meantime please do not hesitate to contact us by email or by calling our helpdesks on 0117 900 9000 (lines are open from Mon - Fri 8:30am - 6pm).
