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Fear of stockbroker going bust

Aug 20 2014 16:39

A Fin24 user wants to know about the impact on him should the small stockbrokering firm he is using go insolvent. He writes:  

I have a share portfolio at a relatively small stockbrokering firm which is a memeber of the JSE.
My portfolio was well managed, but the portfolio manager left due to financial difficulties the company is experiencing. Since he left, my portfolio has not been managed at all.
I would like to leave my investment alone and let it grow on its own.
My question is, how safe is my investemnt should the company go insolvent?

My investment consists of both shares and cash in the money market. Does the company have insurance for such events? Does the JSE regularly monitor their members for capital adequacy?
Should I just transfer my whole investment to a larger stockbrokering firm and pay the tranfer costs.
Your help would be much appreciated.

Gustav Potgieter, a Certified Financial Planner® at Aurum Trust, responds:

Good news: If the shares are held in your name and not that of the stock brokerage, you cannot “lose” your shares. If the shares are not held in your name the JSE have rules and regulations that would apply.

The JSE have the following protection rules and regulations in place:

- Strict membership requirements in terms of legislation and the JSE rules;

- Strict rules and procedures on the administration of discretionary accounts like yours;

- Capital adequacy of its members is monitored and ensured;

- The JSE also has a guarantee fund, which serves to meet qualifying claims by investors in the event of default by a stock broking firm;

- The stockbroking companies also need fidelity insurance to cover themselves against qualifying losses.

I would suggest that you either transfer your shares to a larger stock brokerage or get an active manager to manage your portfolio.

You should compare the cost of an active managed portfolio to the more passive type of investment in a unit trust of your choice.

- Fin24

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investments  |  money  |  money clinic


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