Many investment products sold in the UK are covered by the Financial Services Compensation Scheme (FSCS). This acts as a safety net to compensate consumers in the event of an “authorised company” being unable to pay claims against it. The amount of compensation you can claim depends on the type of investment and how you bought it.
This covers you in the event of an investment company going out of business and being unable to return your investment, and also provides compensation for loss arising from bad advice by a financial adviser who has gone out of business. Compensation for either type of loss is capped at a maximum £50,000.
The first kind of loss covers products such as unit trusts, OEICs, and other packaged investment products run by fund managers and other investment firms. It does not cover you in the event of an investment trust going into liquidation as an investment trust is a share listed on the stock exchange. In the same way you would not qualify for FSCS compensation if a company you held shares or bonds in went bust.
However if your shares, investment trusts or bonds are held by a nominee company, and are therefore not in your name, they can be at risk if the nominee company goes bankrupt. In this event the FSCS would cover you as long as the nominee company is authorised, or the stockbroker running it accepts responsibility. For directly held securities you should not lose out if your stockbroker goes out of business, as the shares or bonds will be held in your name.
The second kind of loss, arising from bad investment advice, is covered by the FSCS if the adviser has gone out of business, and as long as the advice took place on or after 29 April 1988 and after the adviser became authorised to give investment advice. This protection covers bad advice on numerous products, including unit trusts, OEICs, investment trusts and other shares, bonds, gilts, pensions, endowments, investment bonds and so on.
Finally, Cofunds has a good overview of the measures it takes to help protect its clients' assets here.
This covers bank and building society products, such as savings accounts, Cash ISAs, current accounts, and guaranteed equity bonds. Maximum compensation is the sterling equivalent of €100,000, currently set at £85,000. Because of this, you might decide to spread your deposits around different banks and building societies.
If a life insurer goes bankrupt, its customers will be covered by the FSCS’s insurance protection, which will pay 90% of the value of a policy in liquidation with no upper limit. The FSCS will try to arrange a substitute policy at 90% of the value. This protection covers pensions, endowments, with-profits bonds, unit linked bonds, guaranteed income bonds, high- income bonds, and annuities.
Complaints about bad advice from a firm which is still trading should be taken up directly with the company in question. If you are not satisfied with its response you can pursue your claim with the Financial Ombudsman Service. If the firm in question is not authorised, or the product is not regulated, you may not have recourse to the ombudsman.