How does the £85k protection limit work?
02 August 2021
Question by George
I am retired and have been investing with Nutmeg for a number of years and currently have 3 portfolios (of different risk levels) which amount to an approximate total of £180k. I will shortly have another £70k to invest and I am wondering if I should invest this with another Robo company to spread the risk should Nutmeg fail.
In fact should I already be thinking of moving some of the existing Nutmeg funds elsewhere for this reason? i.e. I should not exceed the £85k protection limit with each Robo company.
Answered by Boring Money
George, this is a great question and is something I’m asked all the time by my clients. The first thing to understand is that if Nutmeg fails, your money is ring-fenced from theirs. Nutmeg never physically handles your money or your investments, instead it is held by a “custodian bank”. Nutmeg’s custodian is StateStreet Corporation who have £28 trillion in assets under custody. It is StateStreet that holds all your investments in a segregated account. For added security they don’t lend out your money or mix it with StateStreet's or Nutmeg's own assets. Any uninvested cash is kept with Barclays Bank and similarly it is segregated from Barclays' and Nutmeg's own funds. Your investments and any uninvested cash are therefore protected should either Nutmeg, State Street or Barclays be declared insolvent. If this were to happen, your segregated account would be re-assigned to another financial institution.
Furthermore, a similar level of security occurs at the individual fund level, whereby the managers of the funds you are invested in don’t physically handle your money, it is also held by a custodian. The protection doesn’t apply to poor performing investments, so there would need to be a catastrophic failure across multiple institutions for you to lose your money. In my firm we do ‘due diligence’ on the financial strength of the platforms we recommend and so feel confident that there are some clients with several millions invested on a single platform. If you were concerned about the financial strength of Nutmeg, and their ability to administer your investments, then you might consider moving your portfolio altogether.