Safety of 100k ETF in online broker (Trade Republic)
- Thread starter MelF
- Start date
Are you referring to cash in a current account with them? Their FAQ says protection is up to €100k and covered by guarantees from partner banks. If you're referring to while it's invested in stocks, ETFs or crypto, then nothing is guaranteed, which is a universal risk.
What's the risk you're seeking protection against?
A bank deposit is a debt due to you from the bank. If your bank fails, your claim against the bank for the return of your deposit is worthless. Deposit guarantee schemes mean that the state steps in and pays the bank's debt to you. (The state doesn't do that primarily for your benefit, incidentally, but to maintain confidence in the banking system, because if there's a crisis of confidence in the banking system the state suffers.)
Investments bought through a broker are different. If your broker fails the stocks, bonds, etc that you bought through that broker still exist, and are still worth whatever those particular stocks and bonds are worth. There may be a bit of an adminsitrative hassle in getting them into your hands from the now-insolvent broker, but you shouldn't have lost them.
Where you do have a risk of total loss is where your broker's business has been conducted fraudulently or dishonestly, and the stocks and bonds you bought have been stolen (or, they were never bought in the first place, and the money you paid to buy them was stolen). This does happen, but very rarely. SFAIK there's no state-backed guarantee scheme that will cover you against losses of this kind. There's fairly robust regulation in place to try to ensure that this won't happen, but in the end of the day the state can't guarantee that people won't break the law. So if your stocks and bonds are stolen and the regulation failed to prevent this, you won't get compensation from the state any more than you would if your wallet was stolen and the laws against theft failed to prevent this.
A bank deposit is a debt due to you from the bank. If your bank fails, your claim against the bank for the return of your deposit is worthless. Deposit guarantee schemes mean that the state steps in and pays the bank's debt to you. (The state doesn't do that primarily for your benefit, incidentally, but to maintain confidence in the banking system, because if there's a crisis of confidence in the banking system the state suffers.)
Investments bought through a broker are different. If your broker fails the stocks, bonds, etc that you bought through that broker still exist, and are still worth whatever those particular stocks and bonds are worth. There may be a bit of an adminsitrative hassle in getting them into your hands from the now-insolvent broker, but you shouldn't have lost them.
Where you do have a risk of total loss is where your broker's business has been conducted fraudulently or dishonestly, and the stocks and bonds you bought have been stolen (or, they were never bought in the first place, and the money you paid to buy them was stolen). This does happen, but very rarely. SFAIK there's no state-backed guarantee scheme that will cover you against losses of this kind. There's fairly robust regulation in place to try to ensure that this won't happen, but in the end of the day the state can't guarantee that people won't break the law. So if your stocks and bonds are stolen and the regulation failed to prevent this, you won't get compensation from the state any more than you would if your wallet was stolen and the laws against theft failed to prevent this.
Yowsers. Is this the same for pension funds PRSAs bought via Irish Life or Zurich etc? How does anyone who electronically invests hundreds of thousands in ETFs or pension funds sleep at night then?
All equity investments can go up as well as down. In theory to zero.
I do it by taking a long term view with my diversified pension and non-pension equity based investments and the likelihood (born out so far) that over the long term stock markets generate better returns than most alternative investment options.
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This may be of some interest - perhaps.
www.centralbank.ie
Explainer - What compensation schemes protect consumers of authorised firms?
A central part of the Central Bank of Ireland’s mandate is to protect consumers. One of the ways we do this is by overseeing a number of important compensation schemes which protect consumers of authorised financial firm. Read our full explainer here.
The safety of my holding with a broker (as opposed to value ups and downs) seeing as it’s basically only bits & bytes!! 20k compensation limit is… not encouraging. I’d spread it out between a few different providers but that basically banjaxes the compounding doesn’t it.
If Irish LIfe or Zurich steals your money, or the assets bought with your money, there's no state guarantee that will make good your losses. This is true whether you have invested in a pension product or a non-pension product. You do, of course, have a claim against Irish Life/Zurich, so you only face the prospect of total loss if Irish Life/Zurich (a) steals your assets/money, and (b) then becomes bankrupt. And this is vanishingly rare.
If you buy shares in (say) Diageo, through a broker, you face the risk of total loss if either:
- Diageo is bankrupted; or
- the broker steals your shares, and is then bankrupted.
The first risk is far, far bigger; listed companies lose their value far more often than brokers steal client assets and then go to the wall. So if you're willing to run the first risk by investing at all, it's not really rational to be deterred by the second, much smaller, risk.