Who Really Holds Your Investments? Understanding the 4 Layers of Protection When Investing Through an Adviser
When you invest through a financial adviser, there are several different parties involved in the management of your investments. Each plays a crucial and unique role in the process, but understanding their interaction, why they're necessary, and what happens if any of these fail, is essential to appreciating how well-protected your investments actually are (TL;DR version: very).
Many investors worry: "What happens to my money if one of these companies fails?" It's a valid concern, and one that UK financial regulations address through robust protection mechanisms.
The Four-Party Investment Structure
Most of our clients will have four distinct parties involved in the management of their investments, each with a specific role in protecting and growing the assets:
1. The Investment Platform: Your Digital Custodian
The investment platform (such as AJ Bell, Fundment, or Transact) serves as the digital foundation of your investment arrangement. Think of it as a secure warehouse where all your investment accounts are stored and managed.
What it does:
Holds your investments on your behalf (i.e. as custodian) under strict regulatory rules
Provides a single interface to view all your accounts in one place (pensions, ISAs, general investments)
Processes transactions and maintains records
Offers real-time performance data and consolidated statements
How your money is protected: This is perhaps the most crucial protection layer. Investment platforms must comply with the Financial Conduct Authority's Client Assets (CASS) rules, which require them to:
Hold your investments in trust, completely separate from their own company assets
Ring-fence your money so it cannot be used for the platform's business operations
Maintain detailed records of exactly which assets belong to which clients
As such, in the event of the platform failing, your investments remain fully protected. They cannot be used to pay the platform's debts and would be transferred to another provider or returned to you directly.
2. The Investment Manager: The Portfolio Strategist
Investment managers (such as Timeline or Dimensional) are the specialists who design and maintain model portfolios or multi-asset funds—pre-built investment strategies that align with different risk levels and objectives.
What it does:
Selects which funds to include in each portfolio
Monitors performance and market conditions
Rebalances portfolios when needed (adjusting the mix of investments to bring them back in line with the target risk profile)
Conducts ongoing research and due diligence
How your money is protected: Investment managers never actually hold your money. They simply provide instructions to the platform about where to invest, often referred to as ‘turnkey’ solutions, as you effectively plug your platform assets into the model portfolio solution. Your assets therefore remain under the platform's custody at all times.
As such, if the investment manager fails, your investments remain safe on the platform. The portfolios would stop being actively managed, but your assets would be unaffected. At that point (or hopefully before), we would look to transition you to a new investment strategy.
3. Your Financial Adviser: The Orchestrator
That’s us!
While investment managers focus on fund selection and platforms handle administration, we are responsible for the decisions that research shows have the greatest impact on your long-term returns: asset allocation (via risk profiling), behavioural coaching, and tax efficiency (aka. asset location). These strategic decisions typically provide far more value than stock picking or market timing ever could.
When it comes to investing, our role covers the following areas:
Selection of appropriate platforms and investment managers
Determining your risk profile and suitable asset allocation
Structuring your investments for maximum tax efficiency
Providing ongoing behavioural coaching and support - ensuring you ‘stay in your seat’ during more volatile markets
Offering guidance on withdrawal strategies when you need to access your money
Monitoring performance and costs across all providers
How your money is protected: Crucially, we don’t hold any of your money. If we were to get run over by the proverbial bus, your investments would remain safe on the platform of choice. You could continue to manage them yourself, transfer to another adviser, or the platform could help facilitate a transfer to a new advisory firm.
4. The Underlying Funds: Where Your Money Actually Invests
These are the actual investment funds (from companies like Vanguard, BlackRock, or HSBC) that hold the stocks, bonds, and other assets that make up your portfolio.
What it does:
Each fund:
Pools money from thousands of investors to buy a diversified range of investments
Provides professional fund management and administration
Handles all the complex trading and settlement processes
Distributes dividends and manages corporate actions
How your money is protected: Fund managers operate under the same CASS rules (or their overseas equivalents) as platforms. Your investments are therefore held in nominee accounts, completely separate from the fund manager's own assets. The fund company cannot use your investments for its business operations.
As such, even if the fund manager were to fail, your investments would be transferred to another fund manager or returned to the platform. The underlying assets (the actual shares and bonds) remain yours throughout this process.
Understanding the £85,000 FSCS Protection
The Financial Services Compensation Scheme (FSCS) provides up to £85,000 protection per institution, but this works differently for investments compared to bank accounts.
For bank accounts, when you deposit money into a bank account, the bank doesn’t simply hold that money in a vault. Instead, it lends those funds out to other customers – for example, as mortgages, personal loans, or business lending. This is part of how banks generate profits - the so-called net interest margin.
However, this model means that only a portion of customer deposits are held in reserve at any given time. If a bank were to fail – for instance, due to insolvency or a financial crisis – it’s possible the bank might not have enough liquid assets to return all depositors' money immediately or in full.
For investments, your money isn't lent out—it's held in trust and remains legally yours. The robust custody rules mean that even if an investment firm fails, your assets should be returned in full. The FSCS protection for investments mainly covers situations involving fraud or negligence, which are extremely rare given the regulatory framework.
Final Thoughts
The UK's investment protection framework is designed to ensure that even if any single organisation in the chain fails, your money remains safe. Understanding this structure shouldn't just provide peace of mind—it should give you confidence that the regulatory system is working to protect your financial future.
The key is working with advisers who understand these protections and regularly review all parties involved in managing your investments. They should be able to explain clearly where your money is, how it's protected, and what would happen in various scenarios.
Remember: the goal isn't just to grow your wealth, but to protect it through every stage of your investment journey.
Please note that when you invest, your capital is at risk. The value of your investment (and any income from it) can go down as well as up, and you might get back less than you invested, especially if you invest for a short period (we typically recommend a minimum horizon of at least 5 years). Neither simulated nor actual past performance is a reliable predictor of future results. Investments should generally be considered over the longer term and in line with your overall attitude to risk and personal financial circumstances.
Kind regards,
George
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Regulatory Information
Blincoe Financial Planning Limited is an appointed representative of Sense Network Ltd, which is authorised and regulated by the Financial Conduct Authority. Registered in England & Wales (No. 14569306). Registered Office: Star Lodge, Montpellier Drive, Cheltenham, GL50 1TY.
Important Disclaimer
This blog is for general information only and is intended for retail clients. It does not constitute financial or tax advice, nor is it an offer to buy or sell any specific investment. Since I don’t know your personal financial situation, you should not rely on this content as tailored advice. While we aim to provide accurate and up-to-date information, we cannot guarantee that all details remain correct over time. We are not responsible for any losses resulting from actions taken based on this blog’s content.
